If you reside in Florida and decide to get a divorce, there are several decisions you’ll need to make. Some of these include how your investments will be split. Holding annuities, IRAs and 401(k)s requires you to weigh the benefits and drawbacks of each investment vehicle before you decide how they should be split during a divorce.
Should you split a 401(k) in a divorce?
Splitting your assets during a divorce is essential to ensure each party gets a fair value of the assets. If you’re dealing with a 401(k), it’s crucial to examine all your alternatives, which can include:
- Dividing the 401(k)
- Liquidating it
- One spouse continues to hold it
- Rolling it into an IRA
Examining the consequences for each of these alternatives can be vital. If you liquidate your 401(k), you’ll be required to pay taxes. Rolling it into an IRA avoids this problem. It’s also possible for one spouse to continue to hold it and provide the other spouse with an equally valued asset. If the 401(k) is divided, knowing the outcome before it’s completed is important.
How to handle an IRA when getting divorced
One aspect you need to consider if you’re getting divorced, and an IRA is involved, is the rules regarding community property. If one of you entered the marriage holding the IRA, it would likely go back to that person after your divorce is finalized. Tax liabilities must also be considered to ensure each spouse receives a fair value in assets due to the tax-free distributions occurring with a Roth IRA.
Splitting an annuity during a divorce
Understanding how you and your spouse will be affected by splitting an annuity during divorce is also important. Like a 401(k) and an IRA, tax consequences must be considered. One option is to start a single or two new annuity contracts after dividing your current annuity.
Looking at every alternative and knowing the consequences when splitting assets during a divorce is a vital process that must be completed objectively and carefully.