By Lee Sherman
Nobody wants to go through a divorce. It’s a gut-wrenching, emotionally draining experience that you’ve sworn you’d do everything in your power to avoid. And yet, here you are, on the other side of a failed marriage, needing to split up the portfolio you’ve built together. Here are some dos and don’ts that can help get you through this trying time.
First, remember that assets acquired prior to the marriage are considered separate and are not subject to division when the marriage ends in divorce. That REM cassette you bought in college? It’s yours forever. But if you’ve been married any length of time, you’ve undoubtedly made many large purchases together and laid a nest egg for retirement.
Take the emotion out of it
Try to avoid any emotional attachment to your things and reduce them to a monetary value. Financial advisors suggest that you start with the largest, most valuable tangible assets, and work backward. For most people that will mean starting with their home. If you’ve already paid off your mortgage and built up equity in your home, you can sell it and divide the proceeds. Simple enough. But what happens if you still have mortgage payments or if one party wants to stay in the home? If that person has the money, they can buy the other person out. To come up with a fair market value for your home, you can look at local listings on a site like Zillow, knowing that that the value has probably changed (most likely increased) since you and your spouse purchased.
If you each own a car, it’s easy. Just keep your own car. But if you’re sharing one, your best option is to sell the car and split the proceeds.
Since you’ll both need furniture, the best approach is to determine the value of each item and divide the items equally. The same approach can work for other household items or consumer electronics.
Bring in an appraiser
One place where your emotion may get the better of you is when it comes to any artwork or collectibles you may have acquired. As with the rest of the items you own, you could consider selling them off but you run the risk of selling at a loss. An appraiser can help you to price each item so you can make the decision on who gets what based on actual market values.
Cracking the Nest Egg
For many, their investments may be worth more than their personal property. The good news is that they are easier to quantify. One of the hardest things to divide is your 401(k). If you want to avoid the taxes and penalties that can come from drawing on your 401(k) before retirement, you should get a Qualified Domestic Relations Order (QDRO), a legal document that recognizes joint marital ownership interests in an employer-sponsored retirement plan and describes exactly how that plan will be split.
Compared to splitting your 401(k), it’s easy to move money out of your IRA into your spouse’s account. But remember to make sure this is done as a transfer not a distribution or you’ll be subject to taxes and other potential penalties.
Understanding different types of assets can help you preserve both your sanity and your shirt when going through a divorce.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.
