As the world halts in a collective effort to slow a global pandemic, financial markets are in a volatile state. A bull market boosted investment portfolios for the last decade only to turn to a bear market that dropped stocks to historic lows last week, and has since been an erratic roller coaster.
While the market will recover at some point, couples who had been in the midst of, or were considering, a divorce before the crash have reached out for clarity on how to divide assets that have decreased significantly in value – once daily life resumes.
Here are 4 tips to divide and protect shared assets without having to liquidate them:
Retirement Accounts. If you and your spouse are dividing assets in a retirement account, like a 401(k) or 403(b), generally these are divided with court orders called Qualified Domestic Relations Orders, or QDROs for short.
QDROs can be usually be drafted to take market fluctuations into account. For example a QDRO could provide that an account is to be divided as of a certain date, and that any market fluctuations that take place after that date are simply applied to both parties’ shares of the account. Further, there are no tax implications to the transfer. The plan simply creates a new account for the spouse getting their share of the plan. That spouse can either keep their account with the plan, or transfer their share to a 401(k) or IRA in their name.
Thrift Savings Plans. If you or your spouse are federal government employees looking to divide a Thrift Savings Plan (TSP), that can be done with a Retirement Benefits Court Order (RBCO). The rules for dividing a TSP are similar to the rules for dividing a private sector retirement plan; however, there are a few nuances. For example, the Order can provide that market gains and losses will be applied to the TSP balance, but that those gains and losses will only be calculated based on the TSP funds the individual was invested in on the date used to calculate the other spouse’s entitlement. If the member changed those investments after that date, the calculations of gains and losses would have to be done by hand.
Dividing Brokerage Accounts. Spouses looking to divide non-retirement accounts, like traditional brokerage accounts, should generally divide these accounts by shares to the greatest extent possible. For example, if you have 100 shares of stock in a particular company that are to be divided in half, rather than liquidate that stock you can typically divide so that each spouse gets 50 shares of the stock. In a case where spouses are able to reach an agreement to divide an account by shares, the individual or institution that manages their accounts should should be able to work with them to determine an equitable split.
Loss Carryovers. Experienced family law attorneys are able to recognize and address when loss carryovers are an issue. These sorts of carryovers come in many forms: 1) capital losses; 2) net operating losses; 3) passive activity losses; 4) charitable contributions; and 5) Alternative Minimum Tax credits.A full treatment of these loss carryovers would be too extensive for this post, but suffice it to say that if you have brokerage accounts and you’ve experienced losses, your attorney should be readily equipped with the knowledge and solutions to address these issues with you. A CPA or other financial professional should also be enlisted to help determine your options.
There are many intricacies to consider with investment and other asset division in a divorce. While many divorces are currently on hold as citizens take necessary quarantine and shelter-in-place measures, our attorneys at Curran Moher Weis are available to answer your questions through phone and virtual consultations.