Be wary when it comes to divorce and splitting up the assets in a retirement plan. Why? On the surface it sounds like the retirement plan just has “retirement assets” and we can split up 50/50. When you look a bit closer you might just see more than meets the eye. Furthermore you may not want to split it up 50/50 or receive (or transfer) the retirement assets at all. It all comes down to how you manage the outcomes of your divorce.

Retirement plans contain securities with different attributes associated to them

For instance, your spouse may have non-qualified stock options or vested restricted stock options. Your spouse may have transferred stock or received a stock split too. There may have been cash rewards provided to your spouse or pre-taxed distributions. There may be trigger events built inside the retirement plan that you may or may not be eligible to receive or transfer.

When life insurance exists inside a retirement plan

Some retirement plans have what are known as spousal survivor benefits. This relates to life insurance and whether you will receive certain benefits after your spouse passes away. If you are unclear whether your spouse has named you as a beneficiary on the life insurance contract will determine whether you will receive the benefits. Your spouse usually has the option to choose among various life insurance options. If your spouse selects an option that does not benefit you then you may just be out of luck. Some spouses are required to sign away their rights for the participant to the retirement plan so they can pay a lower life insurance premium. Before you sign away your life (more specifically, your future life insurance) be sure you know what you are signing. Strive to maintain this beneficiary relationship on the contract otherwise you may need to spend money for your own life insurance in the future.

Be careful of the cost basis in the assets you retain or transfer in your divorce process

If you receive the assets in a retirement plan you will want to be careful of what is known as your tax cost basis. This will define the amount of built in tax gain that comes with the assets you receive from your divorce. Let’s not forget many retirement plans (e.g. 401k plans) can be taxable when you distribute the funds to yourself or are forced to distribute them through what is known as an RMD (required minimum distribution) when you reach 70.5 years old. In other words the value you thought you would receive in the form of retirement assets may be less than you think when you finally receive the distribution as you will have to pay monies to the government in the form of taxes. You may also be in a higher or lower tax bracket which could further influence the amount of money you keep in your pocket and your future wealth at risk (see separate article on wealth at risk).

Before making any decisions around which assets get allocated to whom, you may also want to take a peek at:

  • how the investments have performed over time
  • how they are positioned in the marketplace now
  • the current economic landscape
  • among other factors to review

If your various securities were purchased through your spouse’s retirement plan at different points in time then you likely have different acquisition prices included in your cost basis. If you transfer or retain the wrong securities you may be subject to a lower cost basis than you prefer. 

You will also want to look at whether you are receiving assets on a FIFO basis (first in first out), LIFO basis (last in first out), or based on a specific identification methodology, which is the most preferred. Each methodology can impact you tax-wise, positively or negatively, later in life. To avoid any confusion everything should be diligently spelled out in your divorce decree to mitigate the future tax liability you could owe the government. You need to know how much you will pay the government so you can manage your future wealth at risk.

About the Author

Larry Smith CPA, MBA

Larry is a Founding Partner of Divorce Outcomes, a specialty professional services firm that analyzes, architects and negotiates all of the financial aspects of a divorce.

Since 2003, Larry has worked with divorcing parties as their fiduciary to design sophisticated divorcing strategies that enable clients to preserve and create wealth from their divorce. As a technical financial expert, he uncovers hidden tradable components through various analytical and architectural processes to arrive at desired outcomes. He is an alumni of KPMG and Andersen and has expertise in:

  • technical accounting, taxation, business consulting, risk management, M&A
  • forensic analysis, performance analytics
  • M&A, business valuations, divorce management, family equity transfers, multi-party negotiations, communications management
  • advanced process engineering, cognitive performance technologies

If You Have a Question

If you have a question, feel free to contact me at [email protected] or 617-680-5222. The call is free. I will spend 30–60 minutes with you. I will provide you an honest assessment as to where I think you are positioned in your divorce process or answer any questions you have. I may provide you some guidance, insight or advice that you can take with you as you wish. There is no obligation to move forward. The phone call is designed to ease your fears, provide you some options to pursue and a potential road to run on that can lead you down a path to achieve a successful outcome.

About Divorce Outcomes

Divorce Outcomes is a specialty services firm that helps people both domestically and internationally manage all of the financial decisions that arise in a divorce process. We are not attorneys. We are financial experts who partner with our clients as their personal financial advocates. We help our clients:

  • manage their divorce process
  • uncover hidden financial risks
  • architect divorce solutions
  • manage ever-changing negotiating positions
  • communicate complex financial matters
  • close the divorce process as soon as possible

Throughout the process we evaluate our clients’ current wealth-at-risk and architect desired outcomes to best preserve or create wealth.

Learn more about us at or review our blogs to gain a clearer understanding about our approach and how we maximize the financial outcomes for our clients.


This communication is for general informational purposes only which may or may not reflect the most current developments. It is not intended to constitute formal advice or a recommended course of action as every person’s situation is unique and different. The information here is not intended to be, and should not be, relied upon by the recipient to make a decision without professional guidance.

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