×
Would you like to speak to an attorney? Click here.
Menu
Search

Retirement and Investment Accounts in Divorce

HomeFamily LawRetirement and Investment Accounts in Divorce

Dividing Retirement and Investment Accounts in Divorce in Michigan

Divorce is a time of significant transition, and for many couples, the most complex aspect of this change involves their finances. Beyond the family home and bank accounts, retirement funds and investment portfolios often represent the largest portion of a couple’s accumulated wealth. Addressing these assets properly during a divorce can be crucial for retaining your financial independence.

Equitable Distribution of Assets

In Michigan, the courts follow the principle of “equitable distribution” for dividing property in a divorce. This means that marital assets, all property and funds acquired during the marriage, are divided fairly, though not necessarily equal down the middle. Property owned before the marriage and kept apart is separate property not included in the marital estate.

When it comes to retirement and investment accounts, the court often distinguishes between “marital” and “separate” property.

  • Marital Property: Generally includes any contributions made to retirement or investment accounts, as well as the appreciation of those assets, during the time you were married.
  • Separate Property: Typically refers to funds accumulated in these accounts before the marriage or after the date of separation (though the specific cutoff date can vary).

Properly categorizing these assets is the first step in ensuring a fair settlement.

Dividing Retirement Accounts

Retirement accounts are often the centerpiece of long-term financial security. However, dividing them is not as simple as writing a check. The method depends on the type of account involved.

401(k)s and Pensions: The Role of the QDRO

Employer-sponsored plans like 401(k)s and pensions are subject to strict federal regulations. To divide these funds without incurring early withdrawal penalties or immediate tax liabilities, you generally need a Qualified Domestic Relations Order (QDRO). A QDRO is a specialized court order that instructs the plan administrator to pay a portion of a participant’s retirement benefits to an alternate payee (the ex-spouse). This is a critical step; without a properly drafted QDRO, you may not receive your share of the assets, or you could trigger significant taxes.

IRAs: A Different Approach

IRAs are somewhat different, as they generally do not require a QDRO. Instead, the division is usually handled through a “transfer incident to divorce” designation. This allows funds to be moved tax-free from one spouse’s IRA to the other’s, provided the divorce decree clearly outlines the division.

Dividing Investment Accounts

Investment accounts such as stock portfolios, bonds, mutual funds, and brokerage accounts are also subject to division. While these accounts don’t typically require a QDRO, they come with their own set of challenges.

Valuation and Tax Implications

Dividing investments isn’t just about the current cash value; it’s about the cost basis and potential tax liability. For example, $50,000 in a savings account is worth exactly that. However, $50,000 in stocks could result in a significant capital gains tax liability if sold. If not sold, the value may fluctuate. It is essential to consider the “after-tax” value of these assets and to set a valuation date for equitable distribution.

Experienced Counsel Helping You Prepare for the Future

You have worked hard to build your financial portfolio, and protecting it during a divorce is paramount. At Lucido & Manzella, we understand the complications that can come with dividing complex assets like retirement funds and investment accounts. We are dedicated to providing the empathetic yet authoritative guidance you need to navigate this process with confidence. Contact us today to schedule a consultation and start taking steps to protect your financial future.

Talk To An Experienced & Aggressive Lawyer Today.

We offer a free initial consultation so you will get an opportunity to meet us, and we will have an opportunity to learn more about your legal issue.

Free Consultation with an Experienced & Aggressive Macomb County Lawyer

Our consultations offer an opportunity for you to meet our team and discuss your legal issues.

Hear From Our Clients

Get In Touch With Us