Investment accounts, stocks, and bonds often represent a lifetime’s worth of hard work, saving, and savvy investing—a lot of which won’t even reach its full potential, until after some lengthy marinating. Hence, it’s completely normal to be worried about what might happen to all that hard work, once you get divorced.
Luckily, Texas courts are committed to handling these assets with the same, attentive care as your other marital property, and will divide them fairly, according to the rules of community property.
Here’s what you need to know about how that process works, and what the Neal Ashmore team can do to help protect your fair share of all those savings.
Separate vs. Marital: Property Type Matters
Texas is a community property state. Investment accounts, stocks, and bonds are all considered property, for purposes of divorce. Hence, their division is also governed by community property rules.
Under community property, anything that either spouse acquires while married belongs to both, equally (regardless of whose name is on the mortgage, account, loan, or paycheck). This type of property is called marital property, and must be divided, upon divorce.
On the other hand, is separate property. Separate property are assets, debts, or investments that were acquired either before marriage, or after it ended. In Texas, gifts, inheritances, and awards of personal injury are also considered separate. When you get divorced, separate property leaves with whichever spouse it entered the marriage with.
When determining whether your investment is separate or marital, some of the questions the court might ask include:
- When were the accounts purchased?
- Who contributed to these accounts?
- Did marital property contribute to the increased value of an investment?
- How much did the investment account appreciate, and was the appreciation timed with the duration of the marriage?
- What are the tax ramifications of the investments?
Here’s a look at how all this might apply to stocks, bonds, and investment accounts.
If the stock was acquired before getting married, then it—as well as any increase in its value—belongs to the spouse who purchased it, and will leave with them, upon divorce. However, if the stock accrues dividends, then things can get more complicated.
According to the Texas Family Code, dividends are considered income, and income—even when derived from separate property—is considered marital property. Meaning that while the original stock might be separate property, any investments stemmed from its dividends are likely marital.
Stock options you received while married, on the other hand, are solidly marital property, even if they don’t vest until after the divorce.
Bonds are a popular type of savings account, which are low risk, protect you from inflation, and accrue interest while you own them. They are often used to save for a child’s education, retirement, or as a gift.
Bonds are valued at the time of divorce, but couples do have options when it comes to division. Sometimes it makes more sense to keep the bond intact, and to not cash it in until it fully matures. Other times it’s easier for one spouse to buy out the other’s share.
If you choose to keep the bond, keep in mind that name changes can affect your ability to collect as a beneficiary, later on. If you want to change your name, your attorney can help you file the right paperwork, to ensure you still have a legal claim over your bond.
The whole point of an investment account (such as a 401(k) or brokerage account) is to incentivize people to save. As a result, dipping into one of these too early can result in some cringy financial penalties.
Unfortunately, this won’t exempt an investment from division, when you get divorced.
As with other property, the court’s first step will be to determine how much of the account’s value is marital, and how much is separate. Unlike a stock (where the value stays separate property, if acquired before marriage), retirement and other investment accounts are often income based, which means that whatever value it accrues during marriage is considered marital property—even if the account started before marriage
On the bright side, couples have options when approaching how to divide this value, including:
- One spouse buying out the other’s value;
- Liquidating the account and splitting the shares; and,
- If multiple accounts are involved, one spouse might take one account, while the other takes another.
Which option you choose will likely depend on what type of investment account you have, how much time you have left, and the penalties for early withdrawal.
If you choose to let a retirement account mature until retirement, make sure you file a QDRO with your divorce order. This document is signed by your judge, and will require your spouse’s employer to automatically divert your portion of the funds to you, once the account is dispersed.
Figure it Out on Your Own
In Texas, couples are always welcome to negotiate their own terms about dividing investments, stocks, and bonds. This can be done on your own, or with the experience guidance of a licensed negotiator during mediation.
Generally speaking, judges are always willing to sign off on an agreement that couples have drafted on their own—even in other areas of divorce, such as alimony or child custody (so state requirements are met, of course).
If you’re worried about your spouse tampering with an important investment during these negotiations, you may want to talk to your attorney about getting a temporary restraining order (TRO). A TRO can be used to temporarily freeze an account until your divorce is finalized.
Divorce Attorneys in Texas
Dividing investments during divorce can be incredibly complex. That’s why you need an attorney who is experienced in handling these complex, financial matters, and who will work tirelessly to ensure you receive your fair share of these savings.
If you have more questions about investment accounts, stocks, and bonds, and how divorce can impact these savings, we want to hear from you. Call the Neal Ashmore tea today at (972) 436-8000, or schedule a consultation online, and let us help you get the share of marital property you deserve.