How to determine which assets to keep in a divorce

house in a divorce retirement accounts in divorce
assets to keep in a divorce

Most of the time, when I sit down with couples preparing to dissolve their marriage, individuals assume that each account will be divided in half. Did you know that's not always the case? In states like Ohio, where the law requires an equitable distribution of assets in a divorce, it's important to remember that equitable is not always equal. If you have options, how do you determine which assets to keep in a divorce? Rather than ramble on about all of the issues to consider, let's take a look at an example of a couple with whom I recently worked. I will refer to them as Michelle and James and have tweaked the details so as not to divulge their confidential information.

An Example of Dividing Assets in a Divorce

James and Michelle were married for the last 18 years. Michelle is a teacher who has worked in a local Ohio public school district for 23 years. James has a job in IT in the private sector and has worked at various companies throughout his career. He has been with his current company for the last six years. Between the two of them, they have accumulated the following retirement and investment assets:

  • 401-K at current employer (James): $230,000
  • ROTH IRA (James): $46,000
  • ROTH IRA (Michelle): $48,000
  • Traditional IRA (James): $657,000
  • Annuity (James): $275,000
  • Stocks (joint): $442,000
  • STRS pension (Michelle): $965,000 (present value of future benefits earned during the marriage)

Factors to Consider When Deciding Which Assets to Keep in a Divorce

As I worked with the couple, we considered the following in determining how to divide assets:

  • Need for liquidity
  • Future income needs
  • After-tax value
  • Risk tolerance
  • Return potential
  • Knowledge about and interest in investing
  • Life expectancy

Ultimately, the couple decided that James would keep the ROTH IRA in his name, the 401-K at his current employer, the stock investment account, and the annuity that was in his name. Michelle would transfer James' IRA into her name. She also retained the ROTH IRA in her name and her STRS pension in its entirety.

At face value, it may appear that Michelle exited the marriage with substantially more assets. However, one of the items that is not listed above is the social security that James has paid into throughout his career. It was determined that the income that James would receive from social security when he retired offset quite a bit of Michelle's STRS benefit. Having not paid into it and with the amount of her pension benefit, Michelle will not be eligible to receive social security benefits.

James had other reasons for not pursuing a portion of Michelle's pension. The biggest driver was that James enjoys actively participating in his investment decisions. Thus, it made more sense for him to keep assets that would give him that control. (This is also why he retained the stock account.) From Michelle's perspective, she prefers not to be involved in investment decisions. She was much more comfortable with the guaranteed income she would receive from her pension once she retired. Of course, liquidity is still an essential factor. We made sure she would have enough liquid assets to complement her pension.

Needless to say, there are many other details (e.g., the types of assets held in each account) that went into the parties' settlement agreement. The idea here is to give you some insight into the factors to consider when determining which assets to keep in a divorce.

Do you need some help determining which assets to keep in your divorce? Contact me for a financial consultation.


Additional Resources:

10 Effective Strategies to Make Your Divorce Settlement Last


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