A divorce exceeds emotional turmoil, it can also leave lasting effects on your financial state. If you're in the process of getting divorced, you'll have to go through the potentially grueling process of splitting up the assets you and your soon-to-be former spouse have acquired. Taxes and your monthly budget are the 2 main finances that will be affected by divorce.
Here are a few of the most common items and how to allocate them between you and your ex:
1. Your Home
If you and your spouse don't have an emotional attachment to your house, then you both can easily agree to sell the property, divide the proceeds, and move on. Unfortunately, in some cases, you might have to sell your home at a loss and determine who will be responsible for paying the remaining mortgage. If you and your spouse wants to keep the house, then whoever wants to keep the house has the option to buy out the other person's half.
2. Your Car
If you and your spouse share a car and own it together, things could become complicated. If neither wants to split with the vehicle, then the best bet is to split the value of the vehicle evenly. Again, there are two ways you and your spouse can go about this: sell the car and divide the proceeds, or have one person keep the car but pay the other spouse's share.
3. Your furniture and household items
When it comes to furniture and household items, this may be tricky to divide between you and your spouse. You've built a life together and that means acquiring and buying household items together. The best way to divide these items fairly is to take inventory, determine the value of each item, and divide it evenly so you both take away an equal share.
4. Your artwork and collectibles
Artwork and collectibles is another difficult item to split up. There is sentimental value that comes with artwork and collectibles, so if you can't agree on how to split it fairly then it's best to sell everything off and split the proceeds.
5. Your 401(k)
The best way to correctly portion out a 401(k) is to get a Qualified Domestic Relations Order (QDRO), which is a legal document that outlines the way an employer-sponsored retirement plan will be split. With a QDRO, you can avoid certain taxes and penalties that previously would have stemmed from taking early distributions from your plan.
6. Your IRA
Contrary to 401(k)s, IRAs do not require a Qualified Domestic Relations Order to allocate account assets. Funds in an IRA are split according to the current divorce agreement.
7. Your Non Qualified brokerage account
Some couples decide to hold a large portion of their investment assets in retirement accounts. However, if you have a traditional brokerage account you'll need to prepare to split that up as well. We recommend making a list of your individual holdings and seeing how much you paid for it. This is beneficial because if you or your spouse decides to sell a given asset, you'll need to account for capital gains, which can hurt your proceeds.
A divorce is never easy, but being aware of how to split the most important assets can help you and your spouse reach a smoother agreement. Make sure you hire the right attorney and contact David Veliz at Veliz Katz Law Firm, so splitting assets is the least of your worries. Read the full article by Maurie Backman on The Motley Fool.