Divorce can be expensive. Laura Kuntz CPA/PFS, MBT, looks at reasonable ways to go to your portfolio and get the cash you need to finalize your divorce. She details the kinds of accounts to consider, tax implications, and questions to ask your financial advisor or CPA to find opportunities to take money out without penalties.
Transcript
Often times, clients will be referred to us during the middle or toward the end of their divorce. And a key question will be: How do I go to my investment portfolio and find some cash, and find some cash for legal fees, find some cash for moving expenses, find some cash for a home down payment? All sorts of things.
So how do I look at my investments or my retirement accounts and what’s a smart way to create cash? Well, one thing to consider, of course, is the investment strategy. And you should be talking to your financial advisor about what they might recommend for your investment strategy and how raising cash might impact your investment strategy.
There are tax considerations that are critical, and you should be talking to your financial advisor and CPA about these. One tax consideration is if you have a taxable or regular portfolio of stocks and bonds, if you sell some securities, you’re probably gonna pay some capital gains tax. So being very careful of that, maybe netting capital gains against capital loses to reduce tax, et cetera, picking out the right securities, that’s a big deal.
Also, you want to carefully check with your broker or financial advisor, what are the costs to sell? Are there any backend charges? Are there some ticket charges to sell? So those are all good questions.
Another opportunity to raise cash from an investment portfolio or retirement accounts is through your Roth IRA. And we often think of Roth IRAs as retirement money for the very long term, and they are, because they’re so beneficial because they grow tax free. But, to the extent that you’ve made contributions to your Roth, not a conversion, but contributions, you can take out all the contribution amount with no penalty, no federal tax, no state tax*. That’s a big deal.
Then, in addition, you may have retirement accounts. So for example, you might be receiving a portion of your ex-spouse’s work plan. It’s called a Q-D-R-O transaction, a QDRO transaction. And if you’re receiving money pursuant to a QDRO; in other words, a part of your ex-spouse’s work retirement accounts, if you do it right, you can take out money with federal and state tax*, but no 10% penalty. And that’s quite an opportunity.
In addition, if you’re over age 59 and a half, you could take money out of IRAs with no 10% penalty. And if you’re over age 55, age 55 or older, and you’ve got work plans from previous employers, you may be able to make money out with no penalty.
So there are all sorts of reasonable ways to go to your portfolio and get the cash that you need to help finalize and wrap up this divorce.
* Depends on the state. Check with your CPA.
Laura, the founder of LWP, is a Senior Wealth Manager, Chief Investment Officer and Shareholder. She has a master’s degree in tax and is an excellent listener. While she is a sophisticated financial planner with experience in complex issues, her priority is ensuring a financial plan works for people.
