Dear Rick:
I got divorced a few years ago and I’m just starting to get my financial house in order. I have a few questions that I hope you can help me with.
My first deals with a 401(k) plan from my ex-husband. At the time of the divorce, I received the 401(k) plan, and it was put in my name. I was told that I should move the money, but I never have. The money has been sitting in cash for the last few years. My first question is what should I do?
My next question deals with savings bonds. In the divorce, I was able to keep savings bonds that I have. Both of my bonds are HH bonds. I bought one in 2001 and the other in 2002. My question is what should I do with these?
My last question deals with my home. At the time of the divorce, I received a quit-claim deed for the home. The home was in my husband’s name, but the quit-claim deed transferred the property to me. I was told at the time of the divorce that I should have the deed recorded; I never did. Is it important to record the deed at this point in time?
Thank you, Devon
Dear Devon:
Starting with your 401(k) plan, since you are not working for the company, I think it makes since to have the money transferred directly into an IRA. My reasoning is that you will now be in total control of your money. In a company 401(k) plan, you’re limited in your investment options. If you have the money in an IRA, you virtually have unlimited options.
Therefore, whether you use Fidelity, Schwab or Vanguard, transferring the money directly into an IRA is your best option. By directly transferring the money into an IRA, there are no tax consequences.
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In looking at your savings bonds, my recommendation is to cash out the bonds you purchased in 2001. My reasoning is that HH bonds only pay interest for 20 years. Thus, next year you will no longer receive interest on that bond. Therefore, once you have received your last interest payment this year, cash out the bond and reinvest the money elsewhere.
In cashing out the bond, it is important to remember there will be a tax consequence. HH bonds were purchased by rolling money over from an E or an EE bond. Therefore, when you cash out this bond there is interest that you have not paid taxes on. That amount will be taxable to you as ordinary income when you cash out the bond.
With regards to the bond that matures next year, once again, after the bond pays its last interest payment, I would then cash the bond out and reinvest the money.
As a side note, there are many Americans with U.S. savings bonds that are no longer paying interest. If you have U.S. savings bonds, it is important to know if the bond is paying interest or not. A good website for information regarding your bond is www.treasurydirect.gov.
With regards to the deed that you have, I definitely recommend recording it as soon as possible. Recording the deed with the county is what protects your ownership in the home. If your ex-husband was a crook and he sold your house to a third party and the third party recorded the deed ahead of you, in the dispute between them and you, they, more likely than not, will win because their deed was recorded first.
Of course, you would have a cause of action against your ex-husband; however, there are no guarantees you will ever collect from him. Therefore, to protect your ownership in the house, you need to record the deed as soon as you can.
People often get divorced and then delay in implementing the divorce settlement, as is the case at hand. I strongly recommend that if you go through a divorce or some sort of separation, you take the necessary steps to protect your ownership interest. Whether it’s recording a deed or changing a beneficiary on a life insurance policy.
The sooner you complete these tasks, the better it will be for you. After all, we all know how complex life can be, and when you don’t complete these tasks in a timely manner and something goes wrong, not only can you incur significant legal fees, but there also can be substantial economic harm to you. Therefore, don’t delay; make the changes as soon as you can.
Good luck!
Rick Bloom is a fee-only financial advisor. His website is www.bloomadvisors.com. If you would like hin to respond to your questions, please email Rick at rick@bloomadvisors.com
