Being able to handle financial assets in a divorce – knowing what the retirement accounts are and how they should be split, is an essential part of the divorce process. But if you aren’t the spouse who normally handles the financials – or even if you are, how do you know accounts aren’t falling through the cracks? Or that you aren’t leaving crucial retirement money on the table?
In this week’s episode of the Divorce & Other Things You Can Handle Podcast, I am so glad to be joined by my guest Stacy Francis, CFP®, CDFA®, CES™. Stacy is the President and CEO of Francis Financial, a fee-only boutique wealth management, financial planning and divorce financial planning firm dedicated to providing ongoing comprehensive advice for successful individuals, couples, and women in transition such as divorce or widowhood. Stacy is also the founder of the non-profit, Savvy Ladies™.
In Today’s Podcast Episode
Where should you start when it comes to handling financial assets?
How to understand the different financial and retirement accounts available to the general public.
Most likely, you have one or a few of these accounts in your name, even if you weren’t working.
IRA stands for Individual Retirement Account
You can contribute to an IRA if you have earned income. Earned income includes things like wages or salaries. Alimony and child support do not count as earned income
Even if your not a spouse who is working, your spouse may still have an IRA invested in your name.
Contribution and limits
The contribution limit is $6,500 per year for those under age 50. They are higher if you are over the age of 50.
Understanding your IRA
You should be getting your IRA statements from the financial institution that holds it on a monthly basis. Assets in an IRA are sometimes pre-tax and sometimes tax free
Traditional Vs. Roth IRAs
When you make a contribution, it will grow tax deferred. You pay taxes when you withdraw funds at retirement. Anyone can contribute to a traditional IRA no matter how much you have in total assets
Contributions grow tax free – there is no tax when you withdraw funds at retirement. If you earn more than $30,000 you start to be phased out when it comes to being able to contribute to a Roth IRA
Splitting IRAs in a divorce
In a divorce, a traditional and a ROTH IRA are not equivalent. Never mix traditional and Roth IRAs in a divorce. Treat these as completely separates assets.
Common myth about IRAs – Do you need a QUADRO?
You do not need a QUADRO – Qualified Domestic Relations Order – in a divorce for your IRAs. All you need are your legal separation documents or your divorce decree to split your IRAs in a divorce.
Why Stacy Francis Is So Passionate About Handling Financial Assets in Divorce
Stacy learned early on in life about the importance of having financial security due to a personal family tragedy
Without this financial security, you may feel trapped in a marriage you should be exiting. Stacy wants to make sure this doesn’t happen to other women. That’s why she started her organizations: to make sure women have the financial resources needed to get divorced
Divorce is when your finances are most in jeopardy
Understanding Employer Plans
Defined Contribution vs. Defined Benefit Plans
Defined Contribution plans
401(k)s, 457, and 403(b) plans. You as the employee define how much you want to contribute up to certain limits. 2023 contribution limits are: $22,500 under age 50; more for over age 50. The contribution comes right out of your paycheck.
Some employers offer an employer match or profit sharing contribution – essentially free money! To know how much your account is worth you can look at your monthly statement from the financial institution holding the plan
Traditional vs. Roth 401(k)s
These are similar to traditional vs. Roth IRAs, respectively. You want to bucket these separately in a divorce as well; do not mix them. Check to make sure there are no outstanding loans held against the account. Go through every page of your statement to fully understand your account
Defined Benefit Plans
Usually it is the employer contributing to these plans. The benefit you receive is defined.
You generally need a QUADRO to split these accounts. There is a cost associated with this. It’s usually around $500 – $1,500 per QAUDRO.
Because defined benefit plans are complicated, seeking professional assistance is a good idea
Stacy is the President and CEO of Francis Financial, a fee-only boutique wealth management, financial planning and divorce financial planning firm dedicated to providing ongoing comprehensive advice for successful individuals, couples, and women in transition such as divorce or widowhood. She is a Certified Financial Planner™ (CFP®), Certified Divorce Financial Analyst® (CDFA®), and Certified Estate and Trust Specialist (CES™) with over 20 years of experience in the financial industry. Stacy is also the founder of the non-profit, Savvy Ladies™, host of the Financially Ever After podcast, and the author of the white paper, Unveiling the Unspoken Truth: The Financial Challenges Women Face During and After Divorce and Financial Help for Widows – A Complete Resource Guide.
Mandy Walker is a divorce mediator and Certified Divorce Financial Analyst® based in Boulder, Colorado. She works with individuals and couples helping them to end their relationships with dignity and respect, creating an understanding of the process and their options so they can feel confident in the decisions they’re making.