Throughout a marriage, particularly if it has been a marriage of significant length, a couple will often accumulate a significant amount of property. Of course, as part of the divorce process, that property must be divided – and figuring out exactly how that will happen can be difficult, and at times somewhat stressful. This is true for all types of property, but it can be particularly true of intangible property like investment accounts.
Knowing exactly what steps to take with respect to dividing your investment accounts can be difficult, as is true with many aspects of divorce. This can particularly be the case if you have a significant and diverse number of assets invested. After all, unlike a simple savings or checking account which has a fixed amount of money, the value of an investment account often fluctuates and depending upon how the accounts are divided, there may be tax consequences and other penalties. As a result, it’s important to think through the process of dividing those accounts carefully before doing so.
How Do North Carolina Courts Make Property Distribution Determinations?
In North Carolina, courts use a property division method known as “equitable distribution.” Essentially, this means that the court will consider all of the assets and debts that a couple has accumulated during their marriage, as well as other factors like the length of the marriage, and the needs and earning potential of each spouse, among other considerations. The court will then attempt to divide the property as fairly as possible, considering all of the circumstances involved. Sometimes, this involves an almost even 50-50 split, and in other cases, in light of varying factors, the division and distribution may be slightly different.
Insofar as investment accounts are concerned, there are many types of investments that are subject to division in a divorce case, including:
- Money market accounts;
- Mutual Funds;
- Retirement Accounts;
- And more.
So, when it comes to dividing your investment accounts, the question of course arises – what is fair, anyway? What is equitable? It can be difficult to determine in many cases, and often there is no one “right” answer. It is also important to realize that courts will be allowed a great deal of discretion in making these determinations – there is no one predetermined formula that will be used. As a result, it’s important to understand that when you leave these matters to a court, you are also bound by the court’s decision. For some couples, that is truly what’s best, and for others, alternative methods of finding a resolution may be more preferable.
Reaching an Out-of-Court Agreement
As you consider the process of dividing your accounts, it is important to understand that a court-determined division of property is not your only option. In fact, it may not be your best option. When it comes to dividing your investment accounts, as with the majority of the issues that parties now face during a divorce, a couple always has the option to settle their issues outside of court, if they wish to do so and believe they can do so amicably.
For many couples, an out-of-court agreement concerning property division is often highly preferable to asking a court to do so. After all, no judge, even a judge with an excellent reputation and the best of intentions, will know your situation as well as you do. If you and your spouse can sit down calmly and cooperatively and reach an agreement with respect to the division of your property outside of court, doing so will truly give you the freedom and flexibility to make decisions that you’re both satisfied with, and that works out best for everyone in the long run.
Of course, this may not always be possible – and if not, that’s okay. Sometimes, for any number of reasons, you may not be able to negotiate a solution to your issues on your own, and in that case, having a court decide the issues may be the best option. Regardless of which option you ultimately pursue, however, one constant throughout the divorce process should be guidance and representation from a qualified and experienced divorce attorney that you can trust. Regardless of what you ultimately choose, there are certain steps you can take and things you can consider that will make the process work more smoothly for everyone involved.
A Few Things to Consider
Often, couples who are divorcing and dividing their investment accounts will find that the process is made easier by:
- Considering a QDRO: For many couples, retirement accounts like 401(k) and IRA accounts are some of the most valuable assets in the marriage. As a result, it’s important to carefully consider those investments, and how they’ll be affected by the divorce. Often, obtaining a legal document called a Qualified Domestic Relations Order will be extremely helpful in outlining how a 401(k) account is to be split – and, it allows couples to avoid taxes and penalties that otherwise may significantly reduce the funds available. In the case of most IRA accounts, a QDRO is not necessary, and funds will be split according to the divorce agreement or court determination.
- Itemize an Inventory: Making an inventory of your investments can be very helpful. This will ensure that all parties are on the same page with respect to the variety of accounts and assets that exist, as well as the current value of those accounts.
- Consider the cost basis of each account: It’s important to keep in mind that the face value of a particular stock or investment may not always end up being its actual value upon division. Some investments may be worth significantly less once things like taxes on capital gains or penalties are taken into account. Knowing and understanding this information up front can be very helpful in the decision-making process.
- Find a financial professional you trust: The process of dividing investment accounts can be difficult, confusing, and stress-inducing, particularly if you aren’t well-versed and knowledgeable about the complexities involved. Finding both a financial professional and a lawyer that you trust to help you through this process can be immensely helpful in reducing stress, and ensuring that the best results are achieved for everyone involved.
The Law Office of Dustin McCrary – Here for You
If you are contemplating or going through the divorce process and you have investment accounts that need to be divided as part of that divorce, you’ll need legal knowledge, experience, and guidance on your side to ensure that the process goes as smoothly as possible and that your rights are protected. At The Law Office of Dustin McCrary, that’s where we come in. We understand divorce law – and importantly, we understand the best legal strategies to pursue on your behalf to protect your investments and your rights, and to help you move forward. If you’re ready to get started doing exactly that, we encourage you to call us at any time. We look forward to speaking with you soon.