Trading Assets

December 11, 2006 by wendy.

   Some people believe that a divorce settlement should be precisely 50/50.  Generally, an equal settlement for each party is often the result, but a case can be made for more or less, depending upon the circumstances of the couple.  More about that in another posting.  The 50/50 proposition, however, can be taken too far.  I have seen couples who divide up each of the IRAs and various accounts, and create a lot of unnecessary work and expense.  Sometimes the division of assets in a 50/50 spread also creates unexpected and unpleasant tax results.

   If a couple is trying to achieve a 50/50 settlement, each can trade assetsfor other.  For example, one person could take all of the IRAs and some additional cash, to make up for the amount the other spouse would have in a 40lK plan.  This could save money and effort of writing Qualified Domestic Relations Orders, with the result of a 50/50 settlement without all of the extra paperwork and complications.

    Moreover, depending on their circumstances, one person might need more cash, and less retirement funds, or need and want the house in lieu of the IRAs.  Trading assets between a couple is often a good way to settle things without going to court.  However - a divorcing person should take care not to give up assets that could be potentially more valuable than the stated dollar amount (such as 40lks or pensions).  If a person does trade assets that have more potentialfuture value, the divorcing person should  have very carefully considered their options, or should have received an incentive (such as extra cash) to make up for the possible “lost opportunity cost”.

Posted in Uncategorized | Print | No Comments »