During divorce, marital assets are subject to division with certain limitations, such as income from an inheritance or property shielded by an enforceable prenuptial agreement. This includes a litany of physical, financial, and other assets that most people neglect to include in their settlements. Failing to include such property will result in an incomplete agreement, which is unlikely to be enforced by a court. That often leads to future disputes.
Private Collections
Property accumulated during a marriage that does not fall into any statutory or contractual exemption is considered to be among a couple’s marital assets. This applies even if the property or collection of items was purchased, used, and enjoyed exclusively by one party while the marriage was in effect. When the marriage dissolves, each spouse may have a valuable collection of items that are technically subject to division. In many cases, the other person does not even know how extensive the collection is or what its value might be.
When settling a divorce, there is a temptation to allow the person who collected the items to keep them. Doing so can make settlement negotiations run more smoothly and facilitate harmony between the spouses. To that end, many couples focus on jointly-owned property, ignoring everything else. While these are pragmatic goals, glossing over valuable assets can leave the spouse who waives his or her right to them shortchanged.
While one spouse may have little interest in owning a stamp collection or an assortment of shoes, the monetary value of the collection is still a factor in any divorce. Property acquired during a marriage may include rare or valuable items; rare coins and stamps, in particular, can be worth many thousands of times their face value despite appearing to be worn and insignificant. Hence, any significant collection assets should be valued a professional dealer before settlement negotiations begin.
While the laws vary between jurisdictions, many courts will not enforce a divorce agreement that is grossly unfair to one spouse even if that individual is fine with it. For example, if one party retains a multimillion dollar art collection while the other person receives nothing, a court may refuse to accept the terms of the settlement. From the court’s point of view, if a collection is valuable, the owner should provide some consideration in exchange for retaining it.
Financial Holdings And Income Streams
Many types of financial holdings are easy to overlook when tabulating a couple’s marital assets. Financial holdings extend beyond bank accounts and stocks. Often forgotten are stock options, futures contracts, accounts receivable, and even life insurance policies.
Funds added to investment portfolios during the marriage are likely to be considered marital assets, regardless of the investment vehicle. The type of investment – e.g. contributions to an IRA, 401(k), etc. – may introduce tax consequences when funds are withdrawn. As such, an investor getting divorced may benefit by buying out his spouse’s interest in his portfolio rather than withdrawing the funds and incurring capital gains tax, or triggering some other tax liability.
Retirement accounts are one of the most valuable marital assets that a couple owns. In many cases, the value of a 401(k) or pension plan will exceed the couple’s other financial resources. It’s important to realize that dividing funds from such plans without incurring tax penalties requires a Qualified Domestic Relations Order. This is a court order that directs the plan administrator to distribute the funds in a certain manner.
Withdrawing from a retirement plan early without a QDRO may trigger a significant tax liability for both spouses. As such, each party should discuss their potential exposure with their respective divorce attorneys.
Tax Deductions
Very few people think of tax deductions when calculating their holdings and income. But doing so can have a considerable effect on the amount of taxes due at the end of the year.
For example, individuals can carry forward deductions for capital losses and charitable donations from previous years. To do so, the IRS requires that the losses or donations exceeded the previous year’s maximum allowable deduction. A capital loss carryover can result in large tax savings for high-income couples, thus constituting a valuable marital asset.
Assorted Program Benefits
Most couples recognize that joint credit card debt is a marital liability. However, relatively few couples understand that rewards points, airline miles, and other perks associated with those programs are marital assets.
Benefits from local store programs that have negligible value may not merit a dispute. But program perks such as free vacations, tickets to sporting events, and similar benefits should always be considered during the settlement negotiations.
The above article is merely an introduction to various types of assets that are routinely neglected by couples during divorce proceedings. A qualified divorce attorney can help you sort through these issues. The most important point to remember is that all assets, especially those are valuable, should be included in the divorce negotiations. Neglecting to do so is akin to leaving money on the table.