When couples decide to get a divorce, one of the common challenges is determining precisely what assets belong to one of both spouses, including investments. Most people know that California is a community property state meaning that any property or assets acquired during the marriage will be divided equally because they belong to both spouses.
But when community and separate property are combined during the marriage, determining how the property should be divided becomes more complex. For instance, it's common for married couples to share joint bank accounts and investment accounts.
Investment accounts can often include money earned before the marriage and acquired during the marriage. Suppose you seek to dissolve your marriage in California and know you will have to divide investment and bank accounts in your divorce settlement. In that case, we can help you keep your share of any community property.
Investment accounts could be under one or both spouses' names, but that is not important in determining whether the account is a community or separate property.
Instead, the money within the account is determined by how and when the spouse acquired the money. Most income earned during the marriage and deposited into an investment account will be considered community property unless stipulated otherwise, such as in a prenuptial agreement.
The division is more complicated if the separate property is commingled with community property. Determining which portion of an investment account belongs to one spouse can quickly become a hotly debated issue in a divorce. Our California family law and divorce lawyers will discuss this topic below.
How Should I Divide My Investment Accounts?
Suppose you are in the fortunate situation of remaining on friendly terms with your spouse during the divorce. In that case, you should attempt to reach a mutual agreement to close any joint investment and divide the assets equally or whatever amounts seem fair.
Accomplishing this mutually agreed upon division of investment accounts before finalizing the divorce can also help other related negotiations and reduce the overall divorce-related stress. However, you need to understand that dividing investment accounts might result in one side receiving less than an equal share of the assets due to tax implications and other issues.
To ensure you receive your fair distribution of an investment account, you should gather documentation of all the money deposited and withdrawn into the account during the marriage. Further, obtaining monthly investment account statements from as far back as possible would be wise.
How Can I Protect My Investment Accounts During Divorce?
Now suppose you are in an unfortunate situation where your California divorce is ugly, and friendship with your soon-to-be ex-spouse is no longer an option, which is far too familiar. In that case, you will have to approach the division of the investment accounts differently.
It will not surprise you that this is especially true where there is a considerable amount of money in several investment accounts. If this accurately describes your current situation, then you should obtain a temporary restraining order (TRO) to prevent your spouse from attempting to divest assets.
A TRO can effectively freeze accounts so that neither spouse can drain or close them. It prevents a bad-intentions spouse from taking sole control of joint investment accounts to prevent their spouse from receiving a fair share of the assets. You could request a TRO when you file your initial divorce petition or before your divorce is finalized.
A California family court judge can sign a TRO without a hearing, which will remain in effect until a hearing can be held to decide whether to grant an injunction that will further restrict either spouse from transferring any assets from an investment account until the divorce is final. Our family law lawyers can advise and represent you during these crucial proceedings.
Tips for Managing Your Investments Through a Divorce
It's not news that financial issues during a marriage are often a primary factor in why couples divorce in California. Usually, one or both spouses will experience an economic disaster once a divorce is finalized because they didn't adequately plan and prepare for the divorce process.
Once you know that a divorce is imminent, you need to prepare financially, especially if you have individual or joint investment accounts. Divorce in older couples is potentially more financially devastating because they are entering or already in retirement. Before we list some tips to help you, here are some questions to consider:
- Do you know about all the financial-related accounts during the marriage?
- Are you aware of the investment accounts and what you are entitled to?
- Are these financial accounts set up jointly or in your spouse's name only?
- Do you have accounts number and online login access information?
- Do you have the authority to place a hold on any withdrawals?
To help you better understand and remain in control of your investment accounts while working through the California divorce process, we are providing some tips below:
- Obtain access to investment account – Often in families, spouses divide responsibilities, and one spouse handles all the financial issues. This means one spouse will not have investment account access. You should take steps to ensure you have access to the account.
- Update beneficiaries – If you don't want your ex-spouse to be listed as the beneficiary on your investment accounts, you should have their name removed to avoid a potentially ugly situation later.
- Divide investment accounts – The equal division of assets in a divorce could go through several steps, depending on the investment account. For joint accounts, you will usually have to request in writing to the financial institution to close them and then open separate accounts. You need to include how the investment assets will be allocated between spouses under a mutual agreement. If a deal with your spouse can't be reached, ask them to freeze the account until they decide how to divide the assets.
- Consider the tax consequences – Before selling your assets, you should consider the tax consequences and other costs. For example, exiting some investment accounts early will result in penalties. You might consider working with a financial planning professional or an accountant to make sure you understand the tax implications.
What About Dividing Retirement Accounts?
Retirement account assets are a form of investment and are generally considered marital property in California, meaning your spouse is legally entitled to a portion of it. In most divorce settlement agreements, spouses will lay out the terms on what will happen with their retirement account, but dividing these assets can become complex with different rules for the different types of accounts.
Thus, how you decide to divide a particular account could trigger taxes and other fees that you don't want to pay at the moment. To split an employer 401(k) plan in California or another type of pension plan, you will usually have to provide a court order called a Qualified Domestic Relations Order (Form FL-460).
This is commonly known as a “QDRO” and a special court order that will divide retirement plan benefits in a divorce. As noted, each retirement plan will generally have its guidelines on how the assets can be divided.
In most 401(k) accounts and pension plan assets, a QDRO will allow the funds in a retirement plan to be separated and withdrawn without a penalty fee. However, individual retirement accounts (IRA) are divided based on the mutually agreed terms of the spouse's divorce decree. These types of agreements have to be submitted to the IRA custodian. It is possible to receive assets from your spouse's retirement plan and cash-out by taking a distribution, but you need to know potential penalties are involved.
Contact the Divorce Professionals at Furman & Zavatsky
Our divorce and family law attorneys have the knowledge and experience to assist you with the proper evaluation and disbursement of your marital assets. Under California law, you are legally entitled to an equal share of community property, including assets in investment accounts. Your best option for dividing these assets in your divorce is to reach a mutual agreement with your spouse, but we understand this option is not always available.
We are located in Los Angeles County and represent people across Sothern California. We offer a free case consultation by calling (818) 528-3471 or filling out our contact form.