After finalizing her divorce, Rachel faced a financial reality that felt not only overwhelming but uncertain. Along with her share of investments and retirement accounts, she now held a significant portion of her ex-husband’s Restricted Stock Units (RSUs) and Non-Qualified Stock Options (NQSOs). These assets were unfamiliar territory, and Rachel knew she needed more than just financial advice—she needed a team that would provide clear, compassionate, and strategic guidance. That’s when she turned to Bordeaux Wealth Advisors. Our Certified Divorce Financial Analyst (CDFA) guided her step by step, ensuring she felt confident and supported throughout the process.
Tax-Savvy Allocation of Retirement Accounts
One of the more impactful strategies we employed was a customized division of her retirement accounts – specifically, a mix of Roth and traditional IRA assets. Unlike a simple 50/50 split, our team structured the division to benefit both Rachel and her ex-husband in a tax-efficient manner.
Why the Roth Allocation Was Smarter for Both Parties
- Maximizing After-Tax Value: Every dollar in a Roth IRA is worth more than a dollar in a traditional IRA because Roth assets grow tax-free and can be withdrawn tax-free in retirement. If Rachel and her ex-husband had simply split the assets evenly, they would have been treating taxable and tax-free dollars as if they were equal—when they are not.
- Rachel’s Higher Tax Bracket: Since Rachel was in a higher tax bracket than her ex-husband, giving her more Roth assets ensured she could access funds in retirement without future tax consequences, while her ex-husband, in a lower tax bracket, was better suited to hold more traditional IRA assets. He would ultimately pay less in taxes on withdrawals than Rachel would have.
- More After-Tax Dollars for Both: Instead of a rigid 50/50 division, this strategy allowed for an equivalent after-tax value split. Rachel retained more post-tax wealth, while her ex-husband minimized his immediate tax burden and benefited from lower-taxed withdrawals in retirement. This approach meant both parties walked away with a more balanced and fair outcome in real dollar terms.
Thoughtful Planning of RSUs and NQSOs
Rachel’s Bordeaux team also developed a tax-efficient plan for her stock options. Rather than advising Rachel to liquidate her stock options all at once, which would have resulted in a large tax hit, we recommended selling her RSUs incrementally over time, reducing her exposure to market fluctuations and allowing her to take advantage of long-term capital gains tax rates when possible. By spacing out the sales over multiple tax years, Rachel avoided a large, unnecessary tax bill and instead gained flexibility and stability in her financial plan.
Other Key Considerations that Shape Rachel’s Financial Strategy
The Bordeaux team takes a holistic approach to divorce financial planning, and Rachel’s case was no exception. In addition to optimizing her retirement and stock assets, we identified several other areas that could have a major impact on her long-term security, including the following two examples:
- Bonds vs. highly appreciated stock. In a typical divorce settlement, the value of bonds and stocks might be seen as interchangeable. However, due to tax liability, $1 worth of bonds may be worth more than $1 of highly appreciated stock. This is because appreciated stock comes with built-in capital gains taxes, whereas bonds generally have lower taxable implications. By carefully considering the tax consequences, we can ensure you are maximizing your wealth.
- Deferred Compensation: Deferred compensation plans are often overlooked in divorce settlements because one spouse may not even be aware of them. However, we may assist in uncovering these assets by carefully reviewing client-provided pay stubs and other financial documents. If deferred compensation is involved, it’s critical to account for its value and potential future payouts in the asset division process.
Divorce can create a mismatch between assets and liquidity. Our team worked closely with Rachel to ensure her investment and income strategy provided ongoing financial stability for her and her children.
Navigating Divorce with Confidence: The Bordeaux Approach to Financial Security
By the end, Rachel was not only equipped to manage her assets but felt empowered by the knowledge her team shared with her. She knew that Bordeaux was there to support her, providing the steady guidance she needed as she adjusted to her new financial future. This confidence, combined with strategic financial planning, gave Rachel peace of mind, knowing she had a compassionate, experienced team looking out for her and her family.
