The Impact of Tariffs and the Economy on Family Law
As we all know, the economy is an ever-evolving landscape, and recent changes—including tariffs—are causing ripples in many financial sectors. These shifts are not only affecting businesses but also have a direct impact on individuals, especially those going through life-altering events like divorce. One aspect of divorce that is often complex and financially significant is the division of retirement accounts, and with the current economic climate, the process may require even more careful consideration.
Understanding the Impact of Tariffs on the Economy
In recent years, tariffs have played a significant role in the economic environment. Whether it’s on goods imported from other countries or changes in trade policies, tariffs affect everything from the price of consumer goods to the stock market. Industries like manufacturing, agriculture, and technology have been particularly impacted, leading to fluctuations in employment rates, business revenues, and ultimately, people’s financial stability.
When someone goes through a divorce, their financial picture becomes a central element in the process of asset division. For those with retirement accounts like 401(k)s or pensions, determining the value of these accounts is key to ensuring an equitable distribution between spouses. However, the ongoing tariff-related disruptions can complicate this process in several ways.
How Tariffs May Affect Retirement Accounts
Stock Market Volatility and Retirement Accounts
One of the most immediate effects of tariffs and trade disputes is stock market volatility. The value of investments tied to the stock market, such as 401(k)s and IRAs, can fluctuate significantly in response to trade wars, shifting tariffs, and changing global economic conditions. In times of market volatility, the value of retirement accounts can rise or fall dramatically, making it difficult to determine an accurate figure for division during a divorce. In some divorces, retirement accounts include investments that are less traditional—like foreign stocks, sector-specific mutual funds, or commodity-based ETFs. These assets can be especially sensitive to global trade tensions and policies.
For example, imagine if, during the marriage, one spouse contributes to a 401(k) account that is invested in a variety of stocks, including companies that manufacture goods affected by international tariffs—like steel, electronics, or agricultural products. Then, the couple decides to divorce right after a new round of tariffs is announced. As a result, the stock market becomes volatile and the value of certain investments within the 401(k) drops significantly—maybe even just days or weeks before the account is valued for division. If the account was worth $200,000 just a month ago, but due to market volatility and tariff-related uncertainty it is now worth $180,000, that $20,000 drop could have a real impact on how much each party receives. This raises important questions:
- Should the value be fixed on the date of the parties’ hearing, mediation, divorce decree, or some other valuation date?
- Should one spouse bear the full weight of the market dip if they receive the 401(k), while the other walks away with cash or home equity?
- Would a Qualified Domestic Relations Order (QDRO) splitting the 401(k) as a percentage rather than a dollar amount help share that risk more fairly?
Market Uncertainty Can Make Valuation Difficult
Courts in Colorado are required to value assets as close to the date of the decree of dissolution of marriage as possible. However, in a volatile market, that valuation may not reflect the real value a few weeks later. If the account is awarded in full to one spouse, and then the market rebounds (or crashes), it can leave the other spouse feeling short-changed. This can mean a few things in practice: negotiations may stall while parties wait for the market to stabilize, litigation costs may increase as experts are brought in to value or forecast account performance, or creative settlement solutions may be needed such as dividing accounts by percentage rather than fixed dollar value.
Shifting Investment Strategies Before or During Divorce
Fear of market volatility from tariff news might cause a spouse to reallocate retirement assets—moving from stocks to bonds or cash equivalents—right before the divorce. This can create disputes over whether such moves were done in good faith in the ordinary course of business or to manipulate the account value. Courts may scrutinize these decisions if one party claims the other tried to “tank” or dissipate the value of the marital estate.
Business Ownership and Retirement Accounts
If a spouse owns a business and contributes to their own solo 401(k) or SEP IRA, tariffs that increase material costs or reduce demand for their products may lead them to cut or skip retirement contributions altogether. This can lower the value of the account and affect the overall property division.
Addressing the Complexities of Division During Economic Uncertainty
Given the economic uncertainty surrounding tariffs and other trade policies, the division of retirement accounts in a divorce requires more diligence and foresight. Here are some steps that individuals going through a divorce can take to ensure that their retirement accounts are fairly divided, even in volatile economic conditions:
- Work with a Financial Expert: When the value of retirement accounts may be impacted by market conditions, it’s essential to consult with a financial expert who can assess the current and projected value of your accounts. Financial planners and forensic accountants can help account for market volatility and ensure that both parties are aware of the value of their retirement assets before making decisions.
- Consider the Long-Term Impact: It’s easy to focus on the short-term fluctuations of retirement accounts, especially during periods of economic instability. However, the long-term growth potential of retirement accounts should also be factored in. A volatile market now might recover in the years to come, meaning that the division of assets should account for both current values and future growth.
- Explore Mediation or Collaborative Divorce: If both spouses are willing to negotiate and work together, mediation or a collaborative divorce process can be an effective way to address complex financial issues, including the division of retirement accounts. These processes allow both parties to work with neutral experts who can guide them through the division of assets in a way that takes into account the economic uncertainty caused by tariffs.
- Update Retirement Plans and Beneficiaries: After a divorce, it’s critical to update retirement plans, especially the beneficiary designations on accounts like 401(k)s or IRAs. In the context of an evolving economy, staying on top of these updates ensures that the funds go where they are intended and helps avoid potential complications later on.
Contact Our Colorado Divorce Attorneys Today
The current economic environment, marked by tariff-related uncertainty, is affecting many aspects of personal finance. For individuals going through a divorce, the division of retirement accounts can become even more complex as markets fluctuate, businesses adjust, and personal finances are strained. It’s crucial to understand the potential effects these economic shifts can have on your retirement accounts and to work with a Colorado divorce attorney who can help you navigate these challenges effectively.
By approaching the division of assets with a clear understanding of the financial impact and seeking professional advice, you can ensure that the division of retirement accounts is fair and equitable—regardless of what the economy may bring. The attorneys at Solutions Based Family Law have vast experience with dividing assets and are here to help. Contact us to schedule a consultation or call us at 720-420-3610 and secure your financial future.