Divorce is more than the end of a romantic partnership — it’s a seismic shift that can significantly alter your financial landscape.

Stakes are high, so understanding how divorce impacts your investments isn’t just a prudent step but a key element in rebuilding your life.

In this article, we’ll explain how to protect your investments during a divorce, along with what you can expect when dividing assets.

5 steps to protect your investments during divorce

Step 1: Understand community property vs. equitable distribution states

Before diving into specifics, it’s important to understand the legal framework that governs the division of assets during a divorce. Different jurisdictions follow different rules, but broadly speaking, there are two approaches: community property and equitable distribution.

Community property states consider all assets acquired during the marriage as joint property, and they are typically divided equally between spouses. On the other hand, equitable distribution states aim for a “fair and equitable manner,” which is subjective and may or may not result in a 50/50 split.

Regardless of where you live, it’s important to remember this: Generally, any assets or money accumulated during the marriage is considered “marital property” and therefore might be up for grabs during divorce negotiations.

Step 2: Take stock of your investments

The first step in protecting your finances during a divorce is to understand what you own.

Maybe your spouse handled the money or managed joint investment accounts. If that’s the case, now is the right time to learn a few details about your financial life so you know where things stand.

In general, it’s good to know:

  • All the investment and financial accounts with assets you may be entitled to.
  • The type of account ownership (joint, in your name only or in your spouse’s name only).
  • The account numbers, login details and other information needed to access these accounts.
  • Whether you have the authority to make decisions about these accounts, including freezing the account or making withdrawals.

“I strongly recommend the spouse who hasn’t been involved in the finances find an hourly fiduciary advisor who can explain what they have in simple practical language,” says Stephanie Genkin, a certified financial planner and certified divorce financial analyst at the Brooklyn-based My Financial Planner, LLC.

Step 3: Consider hiring a financial advisor

If you’re getting divorced, you’re likely working closely with a lawyer or a mediator. But adding a financial advisor to your team of professionals could be a valuable move, especially if you’re dealing with substantial assets.

During a divorce, a financial advisor can prepare your financial affidavit and create a marital net worth balance sheet. By conducting an analysis of all accounts, investments and properties, a divorce financial advisor can help you avoid costly mistakes when dividing assets.

Post-divorce, an advisor can help you create a new financial plan, establish a budget as a single person, help you understand the tax implications of selling assets and provide guidance on how to protect your credit score.

If you and your spouse shared a financial or investment advisor, you might want to consider hiring your own, especially if the investment advisor agreement was only signed by your spouse.

While financial advisors have a fiduciary responsibility to “sit it out” and wait for the divorce to be finalized, “not all advisors know this and [some] have been known to give preferential advice to the spouse with whom they enjoy the stronger relationship,” notes an article from the International Bar Association.

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Bankrate’s AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals.

Step 4: Update beneficiary designations

One of the biggest financial mistakes people make during a divorce is failing to update beneficiary designations on their investment accounts.

These designations take precedence over wills in most cases, so even if you’ve updated your estate plan, make sure you don’t overlook the beneficiaries listed on your retirement account and brokerage account.

Take the time to contact your financial institution and remove your spouse’s name and designate one or more new beneficiaries. You might be able to update it yourself online in a couple minutes. Consult an attorney if you have any specific questions.

Step 5: Document your contributions

In equitable distribution states, the court considers various factors when dividing assets, including each spouse’s contributions to the marriage. To protect your investments, document your financial contributions, both monetary and non-monetary, during the marriage.

  • Keep records of income, bonuses and gifts received.
  • Document any financial contributions to joint investments.
  • Highlight your role in managing investments or any financial sacrifices made for the family.

“An example of this may be the time you spent managing a home renovation, like a client of mine. She’ll get credit for it in the divorce,” says Genkin. “Or if you helped your spouse pay down student loan debt. You want to document the amount.”

This documentation can serve as evidence to support your claim for a fair share of the assets.

How are investments divided during a divorce?

Investments aren’t a single entity, like a home, so splitting them up can be complicated. There’s a lot to consider, including how withdrawals are taxed and long-term impacts on retirement savings.

Here’s an overview of how different types of investment accounts are handled during a divorce, and steps you should take to keep everything legal and above board.

Retirement accounts and pensions

There are no “joint” retirement accounts, but assets within these accounts may still be divided during a divorce. This often happens when one person has more in retirement savings than the other.

So long as those assets were accumulated during your marriage — even if your spouse didn’t work — your soon-to-be ex might be entitled to half. The big exception, of course, is if you signed a prenuptial agreement.

To split a workplace retirement plan like a 401(k) or a pension plan, you’ll need to obtain a court-issued document called a qualified domestic relations order, or QDRO. This order is separate from the divorce agreement, though it’s based on the decree’s contents.

A QDRO must be approved by the court and sent to your 401(k) plan administrator. If more than one workplace account is getting split, you’ll need a separate order for each one.

The order lets the plan administrator pay out money to the other spouse without tax issues. Most administrators require the non-employee spouse to rollover their portion into an individual retirement account, or take a penalty-free distribution.

Make sure your QDRO is correctly drafted and filed to prevent any future complications.

Consider the real value of retirement assets

If you’re curious about the value of retirement funds you might receive during a divorce, it’s important to understand how withdrawals will be taxed.

In general, there are two types of retirement accounts: traditional IRAs and Roth IRAs.

  1. Traditional IRAs: Taxes are due when you withdraw money from the account, since taxes were never deducted when contributions were made.
  2. Roth IRAs: No taxes are due when you withdraw contributions since taxes were deducted when contributions were made. However, taxes are due on withdrawals of earnings if the account holder is younger than 59 ½.

In other words, $10,000 in a Roth is worth more to you than $10,000 in a traditional retirement account because of each account’s different tax treatments.

Experts say it’s imperative to understand the long-term effects of splitting up retirement funds. One spouse might be adamant about keeping the marital home, for example, and is willing to give away all, or the bulk, of retirement accounts in exchange.

That’s a risky move, says Genkin.

“By trading tax-advantaged retirement investments, that spouse is sacrificing future growth and possibly her security down the road,” says Genkin. “The compounding effect of investing over a couple of decades or more will be greater than a home’s increased value — especially when you add in the cost of mortgage interest, property tax payments and maintenance costs.”

If you’re making contributions to a retirement account, you might want to consider filing for divorce sooner rather than later. That’s because any post-filing contributions made to the account aren’t divisible with your spouse. In other words, once you’ve filed, any money you contribute to that retirement account is 100 percent yours.

“Just make sure you agree on the date to separate property,” says Genkin. “It could be the date of filing, or some other date, like when you started mediation,”


You don’t need a QDRO to divide an IRA. Instead, to split an IRA or health savings account (HSA), each financial institution will have its own change of ownership form. At Fidelity, for example, you’ll need to fill out a “transfer incident to divorce” form, as well as provide a copy of the divorce decree or separation agreement.

In many cases, one spouse opens a new retirement account to hold their portion of the assets while the other spouse keeps the original account.

According to the Financial Industry Regulatory Authority (FINRA), the only way to split an IRA in a divorce and avoid taxes is to have a court-ordered divorce decree and roll the separated funds into a new IRA.

Taxable brokerage accounts

If you own a joint brokerage account with your spouse, you should call the broker and ask for the account to be frozen until you reach an agreement about how assets should be divided.

After the terms are settled, you typically must provide a letter to the broker requesting that the joint account be closed. New, separate accounts will then be opened in each person’s name. The letter should also detail which investment assets will be allocated between the two accounts.

If you choose to sell assets in the account, be aware of the tax consequences. Taxes are due when investments like stocks, ETFs or mutual funds are sold, assuming those investments appreciated in value.

Exactly how much you’ll owe at tax time depends on your tax bracket, how long you’ve owned the stock as well as the cost basis (which can get tricky to calculate if you bought multiple shares of the same stock over time). Cost basis is the price at which the security was originally purchased. Appreciated investments owned for a year or less are taxed at your ordinary income tax rate, while investments held for more than a year are taxed at lower long-term capital gains rates.

Before you sell investments, speak with a financial advisor to learn more about tax implications and explore your options.

Bottom line

Divorce is a challenging life event, but protecting your investments can mitigate the long-term financial heartache. By taking a methodical and informed approach, you can navigate the complexities of asset division with confidence. While the emotional aspects of divorce are unavoidable, working with a financial advisor and learning about your investments can pave the way for a more secure financial future.