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Dividing brokerage accounts during a Texas divorce

The process of dividing marital wealth is among the most complex and stressful aspects that divorcing couples will face. Both sides want to ensure that the division of wealth is fair, but there are also tax ramifications to consider. Understanding how taxes will be incurred by various property division options is important, as the outcome could shape each spouse's financial security for many years to come. The following are some of the most common divorce mistakes that people in Texas make when approaching the division of brokerage accounts.

When it comes to stocks, it is important to look at the initial cost of the stocks, as well as the current value. That is because capital gains tax will be incurred at the time the stocks are eventually sold. Shares should be divided evenly at each price point, so that one spouse does not end up with an equal share of the investment's total value, but with a much higher tax burden due to a difference in tax basis.

Another common misstep that couples encounter involves dividing one spouse's IRA. In some cases, the spouse who funded the IRA will simply withdraw those funds and place them into his or her personal bank account, with the intent of transferring half of the money to the other party. Taking this approach, however, means that the withdrawing spouse will be subject to income tax on the total amount of the withdrawal. A better option would be to have the broker who handles the account transfer the assets directly from the employee's IRA account into the spouse's IRA account.

When moving through a divorce, there are seemingly innumerable details that Texas spouses must address. It is easy to make mistakes, and some mistakes are easier to bear down the road than others. When it comes to dividing brokerage accounts, these are just two issues that should be kept in mind. Texas spouses should know that while the divorce to-do list seems endless, there is certainly light at the end of the tunnel, and there are plenty of opportunities to save money along the way.

Source: The Huffington Post, "4 Hidden Tax Issues in Your Divorce", Stann Givens, June 13, 2016

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