Mistakes to Watch Out for During Property Division

There is a lot going on during divorce. From figuring out things like child custody, spousal support and where you are going to live, it can be easy to overlook important matters during property division. Unfortunately, making even seemingly small mistakes when dividing up marital property can have a big financial impact on your future.

Property division should not fill you with dread, though. Instead, you should be prepared to pay particular attention to a few areas. These include taxes, retirement savings and the family home.

How much is that asset worth?

During divorce, you will divide your assets equitably. This means that rather than going for a straight 50/50 split, you and your soon-to-be ex will divide your assets in a way that is most fair. To do that, you have to know what your property is worth.

The problem here is that two assets that are both worth $100 might have different tax implications. For example, $100 in a bank account and $100 in stock will not necessarily be worth the same. This is because the spouse who ends up with the stock may end up paying a long or short term capital gain tax when selling.

Watch out for your 401(k)

Anything that you saved for retirement over the course of your marriage is considered marital property and has to be divided just like everything else. Like many couples, your first instinct might be to simply withdraw some of the funds from the 401(k) and give the money to the spouse not on the account. If you do this, you will end up facing a 20% taxation, and the recipient will actually get less than intended.

To properly divide 401(k) funds, you need to first get a qualified domestic relations order. A QDRO is a document that allows you to transfer money out of a 401(k) without suffering any negative tax consequences. Although there are multiple approaches, one of the easiest ways to use a QDRO is to transfer the funds directly to a new retirement account.

Are you selling the family home?

Whether you plan to stay in the marital home, let your ex have it, or sell it off and split the profits, you need to know how much your home is worth. You should be sure to have a professional property valuation before you agree to anything. There are also other factors — including taxes — that might influence how much a property is worth or how much you will get if you sell.

Maybe this divorce came as a surprise, or perhaps it had been a long time leading up to it. Regardless of how you got here, you know that divorce is just as much an emotional process as it is a legal one. This can make approaching matters such as property division difficult, which is why it is important that Minnesota residents understand their rights and options under state law.


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