You Got the House or the Retirement Account in Your Divorce Settlement. Now What?
Settlement negotiations have a way of collapsing complicated financial decisions into simple trades. She keeps the house, he keeps more of the retirement accounts. Or she keeps the 401(k), he keeps the investment property. These trades often make sense in the room, especially when both sides are exhausted and just want the process to end. But almost nobody walks out of that negotiation with a plan for what actually happens next, and the asset you fought hardest to keep can quietly become the thing that causes the most confusion a year later.
If you came out of your divorce with the house, the retirement account, or both, this is the part that usually doesn't get covered: what to actually do with it now that it's yours.
I kept the house. What do I need to do first?
The first thing to sort out, and often the most urgent, is whether your name is the only one on the mortgage. Keeping the house in a settlement and removing your ex-spouse from the loan are two separate steps, and a lot of women assume the divorce decree handles both. It doesn't. If your ex-spouse's name is still on the mortgage, you'll generally need to either refinance the loan into your name alone or, depending on the loan terms and lender, potentially assume the existing loan or obtain a formal release of liability. Each path has its own qualification requirements and timeline, so it's worth starting the conversation with your lender early, since your ex-spouse will understandably want off the loan as soon as possible too.
The second thing worth knowing, especially for California homeowners, is that transfers of property between spouses due to a divorce are generally eligible for an exclusion from property tax reassessment. In other words, keeping the house as part of your settlement typically shouldn't trigger a jump in your property tax bill the way a sale or transfer to a non-spouse might. This exclusion isn't automatic in every case, though, and it usually requires the correct form to be filed with your county assessor. It's worth confirming this was handled, since a missed or incomplete filing can create problems well after the fact.
The third piece, and the one people think about least in the moment, is cost basis. If you and your spouse originally purchased the home together, your basis in the property carries over from that original purchase rather than resetting to the home's value at the time of the divorce. That basis matters enormously if you ever sell the home, since it determines how much of the sale price counts as taxable gain. Married couples selling a primary residence can generally exclude a substantial amount of gain from tax, but that exclusion is smaller for a single filer than it was when you were married and filing jointly, which is one more reason it's worth running the numbers with a CPA before assuming a future sale will be tax-free.
Beyond the mechanics, it's worth asking a more honest question: does this house still make financial sense for you, separate from what it means emotionally? Maintenance, property taxes, insurance, and the fact that a large share of your net worth may now be tied up in one illiquid asset are all real considerations. I go into this in more detail in Managing Real Estate Concentration in Newport Beach Portfolios, which is worth reading even if you're confident you want to keep the home, simply to understand what you're taking on.
I kept the retirement account. What do I need to do first?
This depends heavily on what kind of account it is, because employer retirement plans and IRAs are treated very differently in a divorce, and getting this wrong can turn a tax-free transfer into a taxable one.
If the account is an employer-sponsored plan, such as a 401(k), most plans require it to be divided using a qualified domestic relations order, a separate legal document from the divorce decree itself that specifically instructs the plan administrator how to split the account. A share received under a qualified domestic relations order can generally be rolled over tax-free into an IRA or another eligible retirement plan. But the order has to be drafted correctly and approved by the plan administrator, and I've seen cases where the divorce was finalized months earlier while the actual account split was still sitting unprocessed because nobody followed up on the paperwork.
IRAs work differently. There's no qualified domestic relations order for an IRA. Instead, the transfer generally needs to happen through a change of ownership or a direct trustee-to-trustee transfer, specifically authorized by the divorce or separation agreement. If someone simply withdraws funds from an IRA and hands the money to a former spouse, rather than transferring it correctly, that withdrawal can be treated as a taxable distribution, potentially with an early withdrawal penalty attached if you're under the applicable age. This is one of the more expensive mistakes I see in divorce settlements, and it's entirely avoidable with the right paperwork.
Once the account is actually in your name, the next question is whether it's invested appropriately for you. A retirement account that was built around your ex-spouse's timeline to retirement, or a risk tolerance that was really his, needs the same kind of review as any other inherited asset. It's now yours, on your own timeline, and it deserves an allocation that reflects that.
What if I got both?
Some settlements result in one spouse keeping both the house and a larger share of retirement assets, particularly when there are young children involved and stability matters more than an even split on paper. If that's your situation, the questions above still apply individually, but it's worth stepping back and looking at your full balance sheet together rather than addressing each account in isolation. A home that's expensive to maintain paired with a retirement account that isn't generating income can create a cash flow squeeze that isn't obvious until a year or two in, even though your net worth on paper looks solid.
This is really the core of what integrated planning is supposed to solve. Your house, your retirement accounts, and your tax return aren't separate problems to be handled by separate people. They're one financial picture, and decisions in one area almost always affect the others. I talk about why this matters more broadly in Why Clients Need Integrated Tax and Financial Planning.
When should I bring in help?
If you're still in the process of finalizing your settlement, this is actually the best time to get a CPA or financial planner involved, not after the ink is dry. Decisions about who keeps which asset should factor in the tax basis, the liquidity, and the ongoing cost of each asset, not just its face value on a settlement worksheet. Sometimes when reviewing settlement proposals, the split looks even on paper but was significantly lopsided once taxes and carrying costs were factored in, something I discuss further in Women, Divorce, and Settlement Asset Valuation.
If your settlement is already final and you're just now working through what to do with what you kept, that's a completely normal place to start too. The goal at this point isn't to redo anything, it's to make sure the asset you fought to keep is actually set up to work for you going forward.
In Short
- Keeping the house in a settlement and removing your ex-spouse from the mortgage are separate steps, typically requiring a refinance, a loan assumption, or a release of liability, depending on the loan
- Interspousal property transfers due to divorce are generally eligible for an exclusion from property tax reassessment in California, but the correct paperwork usually needs to be filed with the county assessor
- Your cost basis in a marital home carries over from the original purchase, which affects the taxable gain if you sell later
- Most employer retirement plans require a qualified domestic relations order to divide the account, which allows a tax-free rollover when done correctly
- IRAs require a direct transfer authorized by the divorce agreement, since a simple withdrawal can trigger taxes and penalties
- Once an asset is fully in your name, it deserves a fresh review of whether it still fits your goals, not just gratitude for having kept it
Property tax rules, capital gains exclusion amounts, and retirement account transfer procedures can be technical and occasionally shift, so it's worth confirming current details with your CPA, lender, or plan administrator before acting on anything specific to your situation.
Katherine Leonard is a CPA and CFP® who started KCL Wealth Management after years of watching people get pulled between an advisor, a CPA, and an attorney who never actually talked to each other. She wanted to be the person clients could bring their whole financial picture to, someone who actually has their back. If any of this feels relevant to your own situation, she'd love to talk it through. Visit kclwealth.com/contact to request an intro call.
FAQ
If I keep the house in my divorce, is my ex-spouse automatically off the mortgage?
No. The divorce decree determines ownership, but the mortgage is a separate legal obligation. Depending on the loan, you may need to refinance into your name alone, assume the existing loan, or obtain a release of liability to remove your ex-spouse.
Will keeping the house in my settlement cause my property taxes to increase?
Generally, transfers of property between spouses due to divorce are eligible for an exclusion from reassessment in California, but it's worth confirming the required paperwork was filed correctly with your county assessor.
What is a qualified domestic relations order?
It's a separate legal document, distinct from the divorce decree, that instructs an employer retirement plan how to divide the account between spouses. Most employer plans require one to transfer funds from a 401(k) or similar plan without triggering taxes.
Can I just withdraw money from an IRA and give it to my ex-spouse as part of our settlement?
No, not without creating a taxable event. IRA transfers related to divorce need to be done through a direct trustee-to-trustee transfer or change of ownership, specifically authorized by the divorce agreement.
What happens to my cost basis in a house I kept from my marriage?
Your basis generally carries over from the original purchase price plus any qualifying improvements, rather than resetting to the home's value at the time of the divorce. This affects how much gain is taxable if you sell later.
Is the capital gains exclusion on selling my home different now that I'm divorced?
The exclusion amount available to a single filer is smaller than what's available to a married couple filing jointly, which is worth factoring in before assuming a future sale will be entirely tax-free.
Should I keep the family home after my divorce?
That depends on your full financial picture, including the ongoing costs of maintaining it, how much of your net worth it represents, and whether it fits your long-term goals rather than just its emotional significance.
What should I check on my retirement account after divorce?
Confirm that any required transfer or rollover was actually completed and processed correctly, and then review whether the account's investments still match your own timeline and risk tolerance, rather than your ex-spouse's.