How Do Investments Get Divided During Divorce?

 Posted on December 14, 2023 in Divorce

When couples divorce, assets acquired together, including property, bank accounts, and investments, must be divided equitably based on marriage circumstances. This asset split introduces financial and legal complexity for those with investment portfolios comprising 401ks, stocks, and mutual funds. Navigating how to untangle years of mixed contributions and market gains to arrive at a fair split requires understanding statutes, demarcating separate versus marital property, and awareness of tax implications that could lessen total value without strategic guidance. A Texas lawyer can help so you can understand the process easier.

Identifying All Investment Assets

The first step in dividing investments in divorce is full financial disclosure by both spouses. This requires documenting all taxable and retirement investment accounts each individual owns. Tracking down statements for 401ks, IRAs, brokerages, mutual funds, and stock options ensures everything gets put on the table before deciding on allocation. Omitting an asset accidentally or intentionally fails to split it.

Understanding Community Property Split

Texas adheres to community property laws for married couples. This generally means marital assets acquired during the marriage get divided 50/50 during divorce. The timeframe is establishing the marital estate until the date of separation. Appreciation or growth of investments also gets split equally regardless of whose name holds the accounts. So if one spouse’s Roth IRA doubled over ten years of marriage, the increased value gets halved.

Considering Separate vs. Mixed Accounts

While Texas starts at 50/50, modifications happen. If one spouse owned an account before marriage or received it as an inheritance, it counts as separate property belonging solely to them. However, if funds are moved between joint and individual accounts, things get complicated. Attorneys must sometimes hire forensic accountants for issues by tracing funds over the years.

Dealing with Tax Consequences

A non-liquid investment portfolio introduces tax implications into division talks. Cashing out retirement accounts early triggers penalties. Selling stocks equals capital gains taxes. It generally works better for the owner to retain such investments whenever possible. The other spouse receives an “equalization payment” of marital assets or cash to balance out values. Timing transfers strategically also minimizes costs.

Revising Based on Lifestyle Impact

There is flexibility in Texas law to divide certain assets unevenly in some cases. If the vast majority of investments belonged to one spouse who primarily handled finances, they might argue for greater awards based on economic impact. The other spouse’s legal team would likely counterclaim their non-financial contributions merit equal investments. Negotiations happen considering lifestyles after the split.

Contact a Frisco, TX Family Law Lawyer

Issues can get legally complicated, but dividing investments equitably saves money in the long run. A North Texas Family Law attorney can help you strategize what may be the best option for dividing your assets. Call Pfister Family Law at 972-954-6455 to see what may work best for you.