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Deciding custody of the assets: 401(k) and other accounts

Between Labor Day and the December holidays, divorce filings rise. As the possible end of marriage is being considered during this time, asset valuation should be part of this planning because property division is not merely a 50-50 split. Certain assets have different financial consequences not readily apparent from their face value.

Ultimate ownership of the couple's home should be carefully considered. Upkeep costs can be crippling because there will two households living on the same income that one existed on.

It may be unwise to keep the house in exchange for the former spouse keeping equally valued assets such as pensions or saving or brokerage accounts. Those assets could be more valuable than keeping ownership of the house because of the cost of its maintenance and taxes.

Taxes also effect the value of any assets that are divided. For example, receiving a 401(k) in return for surrendering part of a joint checking account has disadvantages because withdrawing cash from the couple's checking account has no tax consequences. However, withdrawals from a traditional 401(k) plan is taxable as regular income.

To access a share of a 401(k) plan, however, a spouse must obtain a court-issued qualified domestic relations order. A QDRO allows withdrawals from a 401(k) without the 10 percent early withdrawal penalty if it is approved by the retirement plan. Any withdrawals are taxable when the funds are not rolled over into an individual retirement account within 60 days. An IRA does not require a QDRO.

Even after marriage, financial reliance on the former spouse may continue because of child support or alimony. Their premature death can also have devastating financial consequences. If the former spouse's support is essential, their ex should consider owning and being named as a beneficiary on a life insurance policy on that person.

A spouse planning for divorce has the option to seek legal advice on their financial options and the impact that property division can have on their finances. An experienced family law attorney can provide advice to a spouse seeking a division of assets that is fair, reasonable and financially sound.

Source: CNBC, "When it comes to divorce, not all assets are equal," Sarah O'Brien, Sept. 21, 2017

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