How a divorce might impact your financial future

How a divorce might impact your financial future

On Behalf of | Mar 18, 2021 | Divorce |

Typically, joint assets are divided in an equitable fashion when a Maryland couple ends their marriage. Therefore, if you have an investment portfolio, you should expect to cede a portion of your holdings to your estranged spouse. This may be the case even if their name isn’t on the account. Let’s take a closer look at what you need to know about the impact a divorce could have on your financial future.

Splitting a portfolio could trigger a taxable event

If you sell a stock, mutual fund or other type of equity for a profit, you may need to pay capital gains taxes. Alternatively, if you sell a portion of your portfolio for less than what you bought it for, you will likely incur a capital loss. A capital loss can typically be used to offset any other money that you made throughout the year. Your divorce attorney may be able to provide more insight into how dividing property in a settlement might impact your tax bill for a given year.

Retirement accounts may need to be divided

To divide a 401(k) properly in a divorce proceeding, you will need to obtain a qualified domestic relations order (QDRO). The QDRO tells the plan administrator that any withdrawal from the account is pursuant to a divorce, which will prevent you from being charged a 10% penalty. A divorce decree is all that is needed to properly divide an IRA, however.

Don’t forget to update your estate plan

It may be a good idea to change the beneficiaries to your retirement, bank and brokerage accounts. If you have a life insurance policy, it may also be in your best interest to choose a beneficiary who is not your former spouse.