For most people, money problems cause divorce. For the ultra-wealthy, however, financial issues only just begin once one or both parties file for divorce. A large reason for this is that for the wealthy, much of their money is tied up in investments.
If you and your spouse decide to part ways, taking stock of and managing your investments early in the process can help you maintain control of them. FINRA shares four tips for managing your wealth through the divorce process.
1. Identify all investment accounts
Whether you let your spouse manage the finances while you managed the household, you hired a financial manager to do it for you or you managed them yourself, set aside time to identify all your investment accounts. Know which accounts and assets the law entitles you to, as well as how each are set up. Whose names are on the account? Do you have the login credentials, account numbers and other necessary information to access them? Do you have the authority to make decisions on any of the accounts? To ensure the fairest possible outcome, it is important to know your rights to all available marital assets.
2. Consider taxes and penalties
Before you sell any assets or liquidate accounts, consider the tax consequences and other penalties of doing so. If you have annuities, you stand to pay steep penalties for exiting early. When dealing with standard taxable accounts, you may unwittingly trigger capital gains taxes by selling securities. Withdrawing early from retirement accounts can prompt penalties, and selling during a market decline may mean you lose money on your investments.
3. Act early on brokerage accounts
If you and your spouse own a brokerage account jointly, you must provide a letter to the financial institution requesting that it close your joint account and open two new ones in each party’s name. You must detail, in the letter, how you want the banks to divvy up the assets. If you or your spouse plans to move the account to a new firm, note that transferring certain assets, such as insurance products or investment funds, may trigger tax consequences, penalties and fees. If you fear that your spouse may attempt to liquidate a brokerage account or make poor investment decisions while the divorce is pending, you may want to contact the financial institution and request a freeze on the account.
4. Get professional guidance
High-asset divorces come with high price tags. However, failing to work with a professional who has experience with these types of divorces, as well as with investment-related issues, could add insult to injury. In addition to retaining the right lawyer, consider working with a financial professional, accountant or broker who is familiar with the various types of investments and all the associated tax implications.