Splitting Assets In a Down Market
By Amanda Singer
A lot is going on right now in the world. For those of you currently involved in a divorce, one of the many things you might be worried about is how this down market is going to affect your division of assets as investments, retirement accounts, businesses, and even potentially real estate values fall. It isn’t impossible to get divorced during a down market. Now we understand that divorce is a time when financial anxieties grow, and when the stock market and economy are going crazy, you might worry about how you are going to make this divorce work. That being said, financial anxieties are normal and completely understandable no matter what the market looks like, and you can still get divorced during a down market and even come out with some financial security.
What is more important now than ever is to make sure that your mediator or attorney has the financial understanding and wherewithal to give you the help you need or can make sure that you’re working with a financial professional through the process. Having a mediator or financial advisor with a CDFA (Certified Divorce Financial Analyst) means they understand not just economic issues in general, but also those that are specific to the divorce you’re going through.
The very first thing I’ll say is it’s essential to take a deep breath and realize that you will get through this and you will be able to put yourself in a secure financial position. What’s important is that you don’t make any drastic decisions, and you review any decisions with the right professionals. Don’t make any decisions until you feel that you can do so in an educated manner. One thing that is important to think about is the date of separation versus the date of valuation. In California, the date of separation is considered the legal end to the marriage and is when you unequivocally decided to get divorced. This date is usually used for valuing assets and debts as anything after the date of separation is separate property. However, if a lot of time has passed since your date of separation or situations has changed, you may choose to use a different date for valuation purposes. This is something you should discuss with your mediator or attorney to see whether that would be best for your situation.
Next, you need to be aware of what kind of accounts you have, are they retirement accounts such as an IRA, 401(k) or 403(b)? Or is there other money invested in the stock market in a non-retirement account? Different accounts have different tax ramifications to them. Additionally, you and your spouse need to make sure you do full financial disclosures and that they provide you with all of the information and statements for the accounts so that you understand what there is before you agree to any division of assets.
Additionally, you need to look at the retirement accounts separate from the non-qualified investment and bank accounts because the taxes on these accounts are handled very differently. When you address the non-qualified accounts and stocks, it’s important to pay attention to the cost basis. The cost basis of an individual stock is the cost you and/or your spouse paid for it at the beginning. While it is always important to look at the cost basis and to split the actual stocks as opposed to just the value of the accounts, it’s even more important at this time because some stocks may have increased in value, and some may have decreased in value. Also, if there has been a loss on the stock, it’s possible that this could also benefit you for tax purposes, so it’s important to make sure that you’re splitting not just the stocks that have increased but those that have decreased as well.
For the retirement accounts, this can vary depending on where you are in your life. For those who are farther away from retirement, even if the account values are currently down, you have more time for them to rebound before you need to retire, and understanding that you’re investing for the long-term can help you survive even a volatile market. If you are closer to retirement age, then your financial advisor should be working with you to make sure that less of your assets are in risky positions, and you have more stable money.
We understand that it’s common during a marriage for one spouse to be the one who makes the majority of the financial decisions, and the other spouse has other decisions they handle. When you’re divorced though, for the non-financial decision-maker, it can seem very daunting to figure out how to handle these new accounts, and you can be inclined to make knee-jerk financial choices that may not be best for your financial health. This is why it’s important to have the information and the right professionals to help you through this difficult time. Don’t ever feel like you have to make any decisions before you’re ready.
All of our mediators at SDFMC have their CDFA and are here to help you navigate the financial uncertainty during this time and can provide a referral to a financial advisor as needed. Contact us or give us a call at 858-736-2411, and we can set up an online meeting with one of our mediators so you can get divorced during a down market.