When it comes to divorce and tying up financial loose ends, breaking up can be hard to do.
Divorcing couples who plan on getting all their assets divided within a month or two of the final decree may be in for an unpleasant surprise, especially if they are counting on using their share of a 401(k) or 403(b) retirement account to make a down payment on a new house, pay off credit cards, or whatever the case may be.
Lisa Turbeville, a Mt. Lebanon-based financial adviser, is still involved in one case in which a couple have been divorced four years -- and the retirement account they need to divide is still tied up in legal red tape.
Several potential problems can arise when a 401(k) remains undivided for a prolonged period of time following a divorce, she said.
"If you are held up getting those assets divided and transferred to you, you don't have control of the beneficiary," Ms. Turbeville said. "If your spouse dies, their heirs might get those assets instead of you. If your spouse remarries, you could be at some risk because generally these plans have an automatic spousal beneficiary."
"You also have no control over your investment options," she said. "So, it might be in some investments that are really risky and you can't do a thing about it until it's moved into your name."
Depending on how the equitable distribution of assets is determined, it is most likely that couples will split a retirement account, because it is usually one of their largest assets.
Robin Frank, an attorney with the Raphael, Ramsden & Behers law firm, Downtown, said the divorce process can go more smoothly in cases when both parties sign agreements prior to the divorce being granted.
But sometimes that is not possible. She said 401(k) splits must be approved by third-party plan administrators, who may or may not be located in the state the couple lives in.
"You have to correspond back and forth, and that can easily contribute to a delay of weeks, if not months," Ms. Frank said.
Whatever assets are accumulated during the marriage are considered marital assets that must be split in a divorce. If one spouse has inherited an asset, the other spouse may be entitled to a share of the appreciation on the inheritance during the marriage. Spouses also may be entitled to half the appreciation on assets the other spouse brings into the marriage.
"So if you are getting a divorce and you don't have any prenuptial or other agreement, all of those assets are subject to splitting in some form or another in divorce," Ms. Turbeville said. "That goes for debt, too. If you have someone who is running up debts in their own name, that doesn't mean it's not marital debt."
Another substantial asset that becomes a casualty of divorce is the marital home.
Quite often one spouse -- usually the dependent spouse -- will want to stay in the house and will try to work it out so that spouse can do so. If there's a mortgage on the house, the spouse who plans to stay will have to refinance it in his or her own name. That spouse will also need to transfer the deed.
"Transferring the deed is not a problem," Ms. Turbeville said. "But refinancing could be, because if they are relying on support, they've got to show the bank [reserve funds] for three to six months at least. They will need a written document to show how they are getting income and they have got to get qualified by a mortgage company."
"I really highly recommend they don't assume they can refinance a mortgage," Ms. Turbeville added. "They need to go investigate with a bank and find out if they can refinance."
Ms. Frank said one reason a written agreement prior to the divorce is a good idea is that it could put a time limit on how long the spouse who stays in the house will be granted to refinance the mortgage.
If the spouse is unable to refinance during a certain time frame, the spouse could be forced to sell the house so that the ex-spouse who no longer lives there does not have to suffer adverse credit consequences.
If the spouse who lives in the house misses payments, it affects both their credit records. Also, the spouse who no longer lives in the house may not be able to buy another house or car as long as the marital house is still in both their names.
"A lot of times in a divorce, people may not be in the best financial circumstances because they are going from a house with possible two wage earners to a household where only one person is earning income and paying household bills," Ms. Frank said.
"You may have a spouse with credit that needs to be repaired or is otherwise insufficient. They will need to repair their financial situation to get refinanced, and that may take some time to do."
Tim Grant: email@example.com or 412-263-1591.