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Speaker 1: Hi, I'm Stacey Hyde
and I'm back for another episode

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of Better Financial Health in
15 minutes or less, and today

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I'm going to talk about
something that most people don't

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want to think about, and that's
divorce, because when you enter

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into a marriage, the hope is
that it will last till death.

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Do us part, and we hope that is
a long time away.

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But we also have to be real
that half of marriages in this

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country end in divorce, and
unfortunately we're seeing a lot

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more of what we call gray
divorce, that is, people

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divorcing after age 50 and maybe
after 25 or 30 years of

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marriage, and I think it's very
important to understand what

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gets divided.

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So maybe one spouse worked, one
spouse stayed home with the

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kids, but any assets that are
earned during a marriage so

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that's retirement accounts,
pensions, other savings,

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investments, maybe starting a
business those are all

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considered marital assets and
are subject to division.

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The other thing to keep in mind
is if you inherited some assets

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and you always kept them
separate, then those are not

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marital assets.

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The problem becomes after a
30-year marriage.

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You know, maybe those assets
were used to provide a vacation.

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Every year you regularly dipped
into those, then they could

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potentially be considered a
marital asset.

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That'd be something to talk to
your attorney about and really

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keep an eye on.

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So those are kind of those are
going to get divided.

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But in this case, the devil's
in the details.

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How you divide a 401k or a
pension if you're lucky enough

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to have had one of those has to
be done very, very carefully.

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It requires what's known as a
quadro, a qualified domestic

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relations order, and those are
complicated, partly because most

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attorneys are not super
comfortable with them and they

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have to be handled very
meticulously to make sure that

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the account gets divided
properly meticulously to make

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sure that the account gets
divided properly.

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Oftentimes the divorce decree
will say that the assets are

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going to be divided, but the
document has to be prepared to

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go to either the pension
provider or the 401k or 403b

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provider.

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One thing I would encourage you
, if you're in this situation or

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know someone who is, is many of
the large record keepers that's

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the Fidelity's, then Powers,
the Vanguard's.

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They've kind of gotten sort of
threw up their hands and said

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this is crazy time we're having
to charge all these fees that

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our plan sponsors are not happy
about.

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So now they've created portals
that have sample language that

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you can provide your attorney
that says okay, in order to

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divide my 401k.

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This is what the court order
needs to say.

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That will save you so much
money and so much going back and

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forth arguing over.

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For example, with Empower, they
have one fee if the attorney

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drafts the language.

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If the attorney uses their
language, the fee's like 10% of

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the other fee, because they're
not having to get their

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attorneys involved to review it,
and it makes it much simpler.

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The key thing to keep in mind
most of those quadros say that

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assets should be divided evenly.

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So that means if there's Roth
assets in there, if there's

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pre-tax in there or after-tax
dollars, it's all going to get

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split equally.

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If that's not the case, you
really want to be careful with

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it because oftentimes the record
keeper's just not going to do

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it.

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They're only going to divide it
equally.

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So if there's some thought that
well, this spouse is going to

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get more Roth, this spouse is
going to get more pre-tax, make

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sure that that can be handled by
your record keeper.

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We had one where it clearly
said he got the Roth, but when

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they processed the Quadro it
just all went evenly and there

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was really nothing we could do
about it at that point.

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Iras are completely different
and this is a key point.

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So maybe you had a 401 and
that's being divided by a Quadro

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, but you also had an IRA from a
former employer that's there.

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Make sure your documents don't
refer to a quadro when referring

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to the IRA, because it's not
going to work and oftentimes

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cause issues.

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It's going to be a transfer
incident to divorce, so don't

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think you're going to go ahead
and pull the money out.

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Give it to your ex-spouse.

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That's going to be taxable
income to you.

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If you're under 59 and a half,
that's going to be subject to a

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10% penalty tax.

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It needs to be handled properly
with whoever holds your IRA.

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So that means that your divorce
decree needs to say that it is

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to be divided and what
percentage is going where and

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what percentage is going where.

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And so you get that.

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You have your ex-spouse open
their own IRA with their

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preferred financial institution
and the assets are transferred.

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A key point here and this is a
little nuanced is if your

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ex-spouse that separates, they
cannot contribute to that IRA,

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even though it's theirs in the
year of divorce.

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So they'd need to have another
IRA.

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If they're making contributions
to contribute After the year of

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divorce, they can contribute to
it.

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It is their IRA, but in that
first year it needs to stand on

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its own I think that's likely so
that the IRS can track that

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with a Form 5498 and they know
exactly what's going on there.

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So that's a key point of
contention.

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And the other thing that you
want to make sure of is that you

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remove your ex-spouse from bank
accounts, credit cards, your

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ex-spouse from bank accounts,
credit cards, in particular,

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life insurance beneficiaries,
401k beneficiaries Because if

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you don't and something happens
to you, those assets are still

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going to go based on what the
beneficiary designation.

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There is some catch, like, for
example, tennessee has a rule

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that says if you're the
ex-spouse and it wasn't updated

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after the date of the divorce,
it's going to be disregarded.

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But I think Tennessee may be a
little bit unusual there and

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that only applies to specific
accounts.

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It's not going to necessarily
apply to life insurance or

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things like that and, as you can
imagine, ex-spouses are not

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likely to give back the money if
it goes to the wrong person.

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So really make sure that you go
through and you update all of

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those things.

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Also, if you have powers of
attorney and you no longer want

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your ex-spouse to be your
financial power of attorney, you

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need to update those as well.

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So that's really important.

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To stay on top of all of that
and I know we've covered a lot

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we're actually going to be
posting a couple of these

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checklists to the Envision
Financial Planning Facebook page

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If this applies to you or you
have a friend that you want to

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share this information with, so
that they can share it with

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their attorney.

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So I actually hope this doesn't
apply to you, but if it does,

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we want you to be prepared.

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And if it doesn't apply to you
but you have a friend or a

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family member that it does, you
can pass this information along

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to them.

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Thanks for tuning in.

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This has been another episode
of Better Financial Health in 15

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Minutes or Less.