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Divorce: Dividing the Investments & the QDRO
Stocks, Mutual Funds, Pensions and Retirement Accounts can be thought of simply as Property. But instead of being a physical asset like a car, it’s a monetary asset to which it has a specific value assigned.
So, then, just like other Marital Property the court will determine whether these assets are Separate or Marital Property.
Separate property is the property of one spouse obtained prior to the marriage. Marital property is property the parties obtained during the marriage. Sometimes a party can convert separate property to marital property by, for example, titling a house purchased prior to the marriage jointly in the names of both parties. One challenge in dividing property is untangling commingled property.
If the investment was purchased by one spouse prior to the marriage and never converted to joint ownership, the investment can be considered the separate property of the purchasing spouse. However, any contributions made to the investment by the non-purchasing spouse would be considered an asset subject to division.
If the investment was converted to marital property during the marriage or purchased during the marriage, untangling ownership becomes even more difficult as the parties try to justify their individual contributions and quantify them in a dollar amount.
Once the categorization is complete, the court will have to assign specific financial shares in the value of the investment to each party as it attempts to structure an equitable division of the marital property. In making such a decision, the court considers the economic circumstances of each party at the time of dissolution, the contribution of each spouse to the marital home, the value of the separate property of each party, the conduct of the parties during the marriage, and the custodial arrangements for the children.
Pensions, mutual funds and retirement accounts can all be apportioned under the law. So, for example, if a spouse worked for 20 years for a company, including ten while married, and retires, the spouse will have a claim to half of the value of the pension. The time of valuation, the ultimate value of the asset share and the time it may be collected may vary by the pension fund or court order, and is definitely a complex area of the law.
QDRO stands for Qualified Domestic Relations Order, and it is a vital tool in enabling courts to handle the division of pensions, retirement accounts and other similar funds. The objective of a QDRO is to reassign these financial instruments to the spouses individually without penalties or tax consequences, thereby maintaining the value of the asset. Failure to follow these requirements can result in significant reductions in the value of these funds.