Navigating Divorce: A Smart Approach to Asset Division

Divorce can be an incredibly challenging experience—emotionally, financially, spiritually,

and psychologically. Understanding how courts and states approach the division of

marital assets is essential when making critical decisions about your family's financial

future. Being informed about key financial concepts used in the divorce process can

significantly impact your financial well-being, both now and in the years to come. Today,

we’ll explore two important concepts that often play a vital role in the division of

matrimonial assets.

Equitable Distribution

Equitable distribution is the fair, though not necessarily equal, division of marital

property between spouses during a divorce. Such a decision is based on factors like

income, contributions, and future needs. Assets to be divided may include cash,

investments, property, business interests, and even personal items such as furniture

and jewelry. Equitable distribution is state-dependent, as each has its own laws and

criteria for what is considered"fair." States may differ in the factors they consider: (e.g.,

length of marriage, earning capacity, contributions to the marriage, future financial

needs, and even age and health); how they define marital vs. separate property; and

even whether they follow community property laws, which divide assets 50/50, such as

California and Texas.

By thoroughly finalizing a property settlement agreement, you enhance the chances that

a judge will approve it as-is, making it legally binding and enforceable without requiring

further modifications.

A lack of understanding of the laws, misinformation, limited financial knowledge, and

misrepresentation by a spouse and/or legal counsel can lead to unfavorable outcomes

that may be irreversible and impact your family’s finances for many years to come.

Qualified Domestic Relations Order (QDRO)

A QDRO is a specific legal tool that dictates how retirement benefits are divided

between divorcing spouses. It often involves transferring retirement account assets from

one spouse’s qualified retirement plan to the other spouse’s IRA and/or making a lump-

sum distribution.

It specifies items such as who gets a share of the retirement plan (the "alternate payee"

usually the non-employee spouse), what portion or percentage of the plan is awarded to

the alternate payee, how and when the payments will be made (e.g., lump sum, ongoing

payments), and any survivor benefits or rights related to the plan that the alternate

payee may receive.

Further, a QDRO only applies to qualified retirement plans (like 401(k)s or pensions),

not IRAs (which require a different process). It allows the division of retirement assets

without early withdrawal penalties or immediate tax consequences. The plan

administrator must approve the QDRO before it is implemented.

Understanding Equitable Distribution and QDROs is essential for achieving a fair and

legally enforceable financial settlement in a divorce.

When both spouses are educated on the financial considerations and impact of their

property division, there is a greater chance of an expedited divorce. This will ideally

result in a civil and less contentious divorce, which, in turn, will result in reduced legal

expenses for both parties.

Next month, we will discuss how your insurance policies are affected in a divorce.

For more information or to arrange a consultation, please click here.

The Second Act Money Guide Blog appears once a month. If you have questions or

need advice, please contact Jason Cole at Full Court Strategic Wealth at 267.970.6464

or jcole@fullcourtstrategicwealth.com. Visit the website

at https://fullcourtstrategicwealth.com/.