Staying on top of financial issues in a divorce

On Behalf of The Law Offices of Ronda A. Middleton |

When people in California get a divorce, there are several financial steps they should take to protect themselves. Spouses who have not been involved in the financial side of the marriage should make sure they are able to gather enough information to understand their finances and what assets are owned.

Dividing property may be complex even if the couple is largely in agreement about how they will do it. This is because there may be taxes or other penalties or paperwork associated with selling or dividing assets. For example, selling annuities could incur capital gains taxes. To divide some types of retirement accounts, the couple will need a document called a qualified domestic relations order that must be approved by the plan’s administrator. A QDRO is not necessary if the account is an IRA, but the distribution must be rolled into a new IRA to avoid taxes and penalties. Investment accounts may have certain rules associated with them. For example, a taxable account may need a letter that asks for the account to be divided into two separate ones. The value of assets should be assessed after accounting for taxes and other expenses.

After the divorce, people should make sure to remove the ex-spouse from any beneficiary designations. This is often overlooked and could lead to an ex-spouse inheriting assets.

Since California is a community property state, joint property is supposed to be divided equally, but people may be able to negotiate an agreement instead of going to a family law court. This can give them more flexibility in deciding how to divide assets. For example, one person may keep an investment account while another keeps the home. Additional complications may arise if one or both individuals own a business or if the couple has valuable collectibles that must be appraised before they can be divided.

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