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Transfers

How to Transfer Assets After a Divorce

We’re here to help you understand what happens next in terms of dividing assets held within Betterment.

Articles by chandlercornwell

By Chandler Cornwell
Customer Operations, Betterment  |  Published: April 11, 2019


TABLE OF CONTENTS


What paperwork do I need in order to transfer assets due to my divorce?

Once your divorce is finalized, you can begin the process of transferring assets to your ex-spouse, as designated in your divorce decree.

In order for us to complete a transfer from one Betterment account to another, we will need:

☑ Original Certified Copy of Your Entire Divorce Decree

It should clearly identify the legal terms of your divorce, and you should also include all supplemental documentation ordering the transfer of your assets.

Supplemental documentation may include a QDRO, marital settlement agreement, and property settlement agreement. If you have any of these documents relating to your divorce, they must be sent to us along with your decree.

Note that all certifications of your court documentation must be dated within 60 days—or 120 days if you are a New York resident—of the day we receive it at Betterment.

☑ A Signed Letter of Instruction

This letter must clearly state:

  • The name of the ex-spouse to whom the assets are being transferred.
  • The Betterment account number from which the assets are being transferred. Your account numbers can be found here.
  • The Betterment account number to which the assets are being transferred.
  • That you approve the transfer of a specific dollar amount or percentage. Please note, if the letter specifies a percentage of the account must be transferred and does not include a percentage as of a certain date, we will use the current balance of the account on the day the paperwork is approved by the Betterment team and deemed to be in good order.
  • The signature of the owner of the original account from which the assets must be transferred.
  • Either a notary or a medallion signature guarantee—see below. If the letter isn’t notarized or doesn’t have a medallion signature guarantee (see below for how to determine which one is required), we will not be able to accept it.

If the assets being transferred are over $100,000, the letter of instruction needs to contain a medallion signature guarantee. A medallion signature guarantee can be obtained from an officer of a bank, a trust company, or a member firm of a U.S. stock exchange. A notary public cannot provide a signature guarantee. It must also show the name of the institution issuing the guarantee.

If the assets being transferred are under $100,000, the letter of instruction will need to be notarized.

☑ A Signed Letter of Acceptance

This letter must clearly state:

  • The name of the ex-spouse to whom the assets are being transferred.
  • The Betterment account number from which the assets are being transferred.
  • The Betterment account number to which the assets are being transferred.
  • That s/he approves the transfer of a specific dollar amount or percentage. If a percentage is specified, the valuation date for calculation purposes will be the day that our team is reviewing and approving the documentation, if no date of valuation is provided.
  • It must be signed by the party receiving the assets.
  • It should also match the details included in the Letter of Instruction.

The receiving party will also need to open a matching Betterment account type if they have not already done so. For example, if funds need to be transferred from a Traditional IRA, the spouse receiving those funds will need to open a Traditional IRA in their own name. If funds in a taxable account need to be transferred, the spouse receiving those funds will need to have a taxable account open, with a matching allocation as well, in order to minimize any tax impact of turning back on rebalancing after the transfer.

All documentation needs to be physically mailed to:

Betterment
c/o Transfer Department
61 W. 23rd Street, Floor 4
New York, NY 10010

Can I transfer assets to my ex-spouse before the divorce is finalized?

If you want to transfer assets from your individual account (whether IRA or taxable) to your ex-spouse’s individual account, we’ll need the finalized divorce paperwork before we can move forward.

If you want to divide taxable joint account assets before your divorce is finalized, we can help you transfer these assets from your joint taxable account to your spouse’s individual taxable account as well as your own. We can assist you through our joint-to-personal account transfer process, which involves having each of you sign and notarize a transfer document.

As this transfer would be occurring in advance of any divorce decree, we recommend that you consult your attorney for advice on whether this is the best way to proceed with the transfer of jointly-held assets.

To proceed with the transfer, email our team at divorce@betterment.com.

Does my ex-spouse need to open a Betterment account to receive funds?

If you wish for Betterment to facilitate the transfer of funds between individual accounts, then your ex-spouse does need to open a Betterment account. Among other things, this allows us to verify their identity, which is a required part of the transfer process. As soon as the funds have been transferred to an account in their name, they may transfer to a different provider if they wish.

What is a QDRO?

QDRO stands for Qualified Domestic Relations Order. According to the Department of Labor, a QDRO recognizes a spouse’s, former spouse’s, child’s, or dependent’s right to receive benefits from a participant’s retirement plan. Under ERISA law, a judgement must be issued by a state authority in order to grant the payee’s rights in a domestic relations order.

When is a QDRO or other supplemental documentation necessary?

We request that you send any supplemental documentation that you have, whether it be a QDRO, marriage settlement agreement, or property settlement agreement.

You should not need to create any supplemental documentation for Betterment that was not already created through your divorce process with your attorney, as long as the division of assets is clearly outlined in your divorce decree and your existing supplemental documentation.

If the division of assets is not clearly and explicitly defined in either your divorce decree or supplemental documentation, we will need court-approved documentation that explicitly identifies the amounts and account numbers you wish for Betterment to transfer.

How can I transfer assets held in my Betterment for Business 401(k) account(s)?

If the funds you are transferring due to a divorce are held in your Betterment for Business 401(k) account(s), please email divorce@betterment.com to get the appropriate forms you’ll need. Please note that this process will require a QDRO.

Is dividing assets due to divorce considered a taxable event?

IRA: The IRS states that the transfer of an IRA to a current or former spouse—under a decree of divorce, separation agreement, or a written instrument incident to the decree—is not considered a taxable event. A common scenario is that ½ of the IRA is transferred to the ex-spouse’s IRA. This transfer of ½ of the IRA is not a taxable event but withdrawals from the IRA in the future may be taxable, depending on age and account type.

Taxable account: The IRS states that typically there is no recognized gain or loss on the transfer of investments between current or former spouses if the transfer is due to divorce. This means that the transfer itself from one person’s taxable account to the other is not a taxable transaction.

Note that Betterment is unable to choose specific lots on transfer requests. Transfers are executed based on current market value of those holdings.

A common scenario is that ½ of the account is transferred to the ex-spouse. That transfer of ½ of the account due to divorce would not ordinarily be a taxable event, but selling assets out of the receiving account in the future could be a taxable event.

Do I file a joint return for the year in which I got divorced?

Marital status is determined by your status on the last day of the year. If you are divorced on December 31st of that year, the IRS considers you to be single for that entire year. If you are legally married on December 31st, the IRS considers you to be married for that entire year. You can only file a joint return if you were legally married on the last day of the year.

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We’re here to help you understand what happens next in terms of dividing assets held within Betterment.

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