Divorce can involve financial turmoil when assets, debts and other financial accounts need to be split. Financial security is very important after the divorce and understanding basic laws about property division is equally important. That applies all over the United States, including in Texas.
Common law states mandate that all postmarital property obtained by spouses will be distributed fairly, but not necessarily equally. While dividing assets, the court takes into account factors, such as marriage duration, income potential, responsibilities for children, ancillary liabilities and tax repercussions. However, the nine community property states, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, dictate the equal distribution of almost all assets. Nevertheless, premarital assets and an individual’s inheritance are not subject to division.
Common law states mandate that the person is accountable for individual debt, along with any debt in joint accounts, but the person is not accountable for the other spouse’s individual debt. On the other hand, community property states dictate that the spouse is also in charge of half of the other spouse’s individual debt, only if such debt is for the “general benefit” of the marriage.
Investments gathered during a marriage are considered community property and may be divided during a divorce. If the spouse’s pension or employee benefit plan is conditional on the Employee Retirement Income Security Act, the person will require a Qualified Domestic Relations Order and will be obligated to give it to the other spouse’s plan sponsor before distributions are executed. The court order ensures that the other spouse receives the plan’s privileges, subject to its terms.
Individual retirement accounts are dependent on the Internal Revenue Code rules for transmission following a divorce, which does not require a court order, although it does require a court-issued decree to transfer assets between the spouses’ accounts. The transfer can be initiated before finalizing a divorce if a court order directs separate maintenance and accounts. Also, beneficiary designations must be updated during a divorce.
Having sound knowledge of accessible resources and investments is crucial if the couple separates. It is these fundamentals that go a long way to protect an individual, while meeting added responsibilities, such as individual child support and alimony and dealing with unprecedented crises.
Source: The Pineapple, “Being prepared for life’s transitions: separations and divorce,” Colleen Hasey Schuhmann, Feb. 4, 2014