Protecting Investment Accounts in a Divorce

Protecting Investment Accounts in a Divorce

When you are involved in a divorce, you have several financial worries. Besides worrying about money (both today and in the future), you are also concerned with the actual division of your assets. In some contentious divorces, you may need to take steps to protect yourself when you are worried about how your spouse may handle the community property of the marriage. One of your major assets may be your investment account. You should always be vigilant in monitoring this account and take steps to protect yourself. Here is what you need to know about protecting investment accounts in a divorce.

Learn Your Account Balances and Investments

The first step is to familiarize yourself with the investments in your account. You can only know what has changed if you know what is in the account in the first place. You must be vigilant and track the investments and assets to ensure your spouse is not taking any risks upon which you have not agreed and is not taking money out of the account. If you have noticed any changes, you must question them—both with your spouse and the brokerage.

Do Not Make Large Investment Decisions

It is usually better to avoid making large financial decisions during the time your divorce is pending. You may be dealing with the financial stress of ending your marriage and worrying about your future. One does not make their best financial decisions when they are afraid and stressed because they are not in a frame of mind that will allow them to think clearly and rationally. You and your spouse may want to agree to largely leave things as is until the divorce is final. If your spouse is trying to make rash decisions, you should withhold your consent.

Freeze Your Account in a Difficult Divorce

If you are involved in a contentious divorce, or a large amount of money is at stake, you may want to freeze your assets. Given the equal division of the investment account, your spouse may think they have a motive to withdraw money or take large and unwarranted risks with the money that you have worked hard to save and invest.

You can request your brokerage place a freeze on the account by calling them and asking. Most financial institutions would be cooperative given the situation because they could get in trouble if they failed to do so. Otherwise, you can petition a court to seek a temporary restraining order on your assets to keep your spouse from doing anything to change the status quo or withdrawing assets from the account. The freeze would be lifted once you agree with your spouse on the division of the investment account.

Get Legal and Financial Help

If you have substantial assets in an investment account, you will need both legal and financial advice to navigate the situation. You may need to work with your spouse to make investment decisions if it will take some time to resolve the divorce. If there is market turmoil, or you need to rebalance your portfolio, you should make joint decisions about the assets, considering that you and your spouse both have a presumably equal share in the investment accounts (because Texas is a community property state).

If you work with an investment professional, make sure they are licensed and do not have a disciplinary history. If you are making decisions with your spouse based on investment advice, you should also perform due diligence on the investment adviser.

While a financial professional will give you advice on the investment side, an experienced lawyer will tell you what can be done with your investments in the meantime and how to do it. An experienced high-net-worth divorce attorney can connect you with estate planners who can help prepare you to receive the assets that you may award in the divorce. They can also inform you of the tax implications of the divorce and what you may owe if your investments are sold so they can be divided between you and your spouse.

Be Mindful of Taxes and Early Withdrawal Penalties

Your IRA or other retirement accounts are also subject to division in a divorce. You should use the same general principles when tracking investments in these accounts. Your spouse may withdraw funds or make risky investments during the divorce process. When you are dividing assets in a retirement account, bear in mind you may have to pay taxes and an early withdrawal penalty.

You should understand the tax consequences of any distribution of your investment account. If you keep investments and pay your spouse for their share, make sure the amount you pay reflects your potential tax liability. If you have held an asset for a while, you may have significant capital gains on which you owe money.

If you are forced to exit an investment early, you may end up having to pay penalties. You should try to settle your divorce in a way that keeps you from having to pay any early withdrawal penalties. For example, you may owe money if you have to divide a retirement account or terminate an annuity.

Update Account Beneficiaries

Once the divorce is final, you should update the account beneficiaries on your investment account. You may not be able to do this while the divorce is pending if the investment account is part of the marital estate. However, once the divorce is complete, you will need to change the beneficiary so your ex-spouse will not inherit the account if something happens to you (unless, of course, you want them to).

To schedule a consultation, contact us today. Our Brazoria County, Texas family law attorneys are ready to help.

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