5 Tips for Dividing Mutual Funds and ETFs In a Florida Divorce
Dividing mutual funds and exchange-traded funds (ETFs) during a divorce can be tricky, but it doesn’t have to be stressful. If you’re divorcing in Florida, these five tips will help you navigate the process, protect your interests, and work toward a fair resolution.
1. Consider Your Short-, Medium-, and Long-Term Financial Interests
Before you even think about dividing assets, you should take the time to consider and write down your short-term, medium-term, and long-term interests. For example, are there investment opportunities now where liquidity is important? Or do you wish to build on the relative stability of a buy-and-hold strategy? Do you have an employment-based retirement or profit-sharing plan where it will be easier to save for the future? Or do you need to keep more of the family’s tax-advantaged accounts to secure your long-term plan? Do you prefer the control of a defined contribution plan or the consistency of a defined benefit plan? Working with a Collaborative Facilitator and Neutral Financial Professional during divorce can help you identify your interests and adjust your strategy to ensure it aligns with your new circumstances.
2. Understand Florida’s Equitable Distribution Law
Florida follows the law of equitable distribution. This means marital property, including mutual funds and ETFs acquired during the marriage, is divided fairly, though not always equally. Yes, both spouses usually end up with approximately 50% of your family’s net estate, but you can agree to divide it however you wish. Many spouses mistakenly believe that this means that every asset and every account has to be split in half, but that is not the case. So long as both of you end up with approximately 50% of your net estate, with adjustments particular to your circumstances, you do not have to split every brokerage or bank account in half.
You can begin by gathering detailed statements for all your investment and other accounts. Identify which assets are marital (shared) and which are separate (this is a complicated area of the law, and an experienced family lawyer can help you do this; you can read more about asset protection here). This will help you understand what’s on the table for division.
3. Consider the Costs of Liquidating Investments
Dividing investments the wrong way can trigger fees, penalties, and/or tax consequences. For example, cashing out ETFs may incur capital gains taxes, while selling funds in a retirement account like an IRA could result in penalties. Fortunately, there are exceptions to many of these challenges when directly transferring ownership of many of these accounts pursuant to a divorce from one spouse to the other. Further, you can divide certain qualified retirement accounts (such as 401(k)’s) without penalty using a special court order known as a Qualified Domestic Relations Order, also known as a QDRO.
Keep in mind QDROs are very specialized documents and add costs, complexity, and additional time to the division of assets. Accordingly, one strategy that some families utilize to reduce costs is to minimize the amount of qualified retirement accounts that they divide. Instead, they use other assets, such as taxable brokerage accounts or IRAs, to reach a fair and efficient resolution. Before agreeing to a particular schedule of equitable distribution or liquidating assets, calculate the costs and explore other options with your lawyer and/or a financial professional.
4. Know the Tax Implications
Taxes play a big role in dividing investments. Even if two assets seem to have the same value, their tax liabilities could be very different. For example, you have already paid taxes on mutual funds and ETFs in a Roth IRA, 401(k), or 403(b), but you are going to have to pay taxes in the future on mutual funds and ETFs in a traditional IRA, 401(k), or 403(b). Similarly, in taxable brokerage accounts, funds may have unrealized capital gains, meaning you’ll owe taxes when they’re sold. If you keep a Health Savings Account (HSA), and you only use the funds to pay for medical expenses, you may never have to pay taxes on the funds it contains. To avoid surprises, consult with a financial advisor or CPA (or your Financial Neutral) to understand the tax consequences of dividing your mutual funds and ETFs.
5. Use the Collaborative Divorce Process
Dividing assets doesn’t have to mean going to court. The Collaborative Divorce Process allows you and your spouse to work together with a team of professionals, including a financial expert. Additionally, each of you have your own separate lawyer to give you each independent advice. The lawyers are restrained and prohibited from fighting in court, and focus solely on helping you and your family reach an out-of-court resolution. This approach keeps control of decisions in your hands, not a judge’s, and fosters open discussions in a respectful environment. It also keeps your privacy to the fullest extent allowable by law.
When it comes to dividing mutual funds and ETFs, a Financial Neutral—an expert shared by both parties—can analyze tax consequences, fees, and other financial factors. They’ll work to help both of you walk away with a fair share, minimizing unnecessary conflict.
Final Thoughts on Dividing Mutual Funds and ETFs
Dividing mutual funds and ETFs during divorce takes careful planning, but it doesn’t have to be overwhelming. By identifying your financial interests, understanding Florida’s laws, and using the Collaborative Divorce process, you can move forward with confidence. A fair, informed approach benefits everyone and sets the foundation for a secure future. And your first step can be to speak with a Collaborative Divorce lawyer.
Adam B. Cordover is co-editor and co-author of an American Bar Association book on Collaborative Divorce. He is a former Board Member of the International Academy of Collaborative Professionals. Adam is also recipient of the inaugural Visionary Award of the Florida Academy of Collaborative Professionals. Adam and Family Diplomacy: A Collaborative Law Firm accept clients throughout the State of Florida. Family Diplomacy also has offices in Tampa, St. Petersburg, and Sarasota.
