Understanding Savings Bonds During a Divorce


  • There are different types of savings bonds that come in different monetary increments.
  • Reissuing a bond or changing a name, ownership title, or beneficiary on a bond requires legal documentation.
  • It's important to understand bond maturation and the tax consequences of dividing savings bonds during a divorce.
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For those experiencing a divorce, sorting out financial assets is part of the experience, especially when there are children involved. Children tend to gather a lot of financial assets without them knowing, in the form of gifts, checks for their bank accounts, and savings bonds, especially if they have a lot of older relatives.

What are savings bonds?

When a family member or a close family friend would have a child, one of the customs for older generations would be to purchase a savings bond from the United States Department of Treasury, in order to help pay for the child’s college fund, which would be close to the maturation of the bond. Savings bonds still are available for purchase on the Treasury Direct website, since the United States Bureau of the Public Debt stopped selling savings bonds over the counter as of January 1, 2012.

These savings bonds come in eight values: $25, $50, $75, $100, $200, $500, $1,000, and $5,000 and come in two different types: EE and I. According to the Treasury, EE bonds earn the same rate of interest (fixed rate) for up to 30 years. They are designed to be given as a gift, to pay for education, to supplement retirement income, and to save in a reliable, low-risk, government-backed product. I bonds are low-risk savings bonds and earn interest and protect you from inflation while you own them. They also are used to finance education, supplement retirement income, and to be given as a gift.

The difference between the two is the rate you receive on the bonds, according to the Treasury. Rates for EE bonds depend on the issue date and are either a fixed rate of return or a variable rate based on 90% of 6-month averages of 5-year Treasury Securities yields, while rates for I bonds are calculated by combining fixed rates of return and semi-annual inflation rates based on the Consumer Price Index for All Urban Consumers.

Name, ownership, and beneficiary

In a divorce, the financial assets of the couple involved all fall under a microscope, and when sorting out savings bonds, it can be a challenge. Many ex-spouses who divorce find themselves changing their name or even the name of their child or children, which can affect any savings bond under the names in question.

In order to change the owner name on a savings bond without any change in ownership during a divorce, the bond would have to be reissued. This would require the owner of the bonds to sign both present and former names and complete the Treasury’s authorized reissue form, certifying the manner in which the change occurred. According to the Treasury’s guide, more information may be requested, depending on the nature of the reissue.

If the bond is co-owned by both spouses or a parent and the benefiting child, there is a separate reissuing form. This form is broken down depending on if it’s being reissued to one of the co-owners, one of the co-owners with another person, or another person entirely. If it is just one of the co-owners alone, it is to be signed by the owner whose name is being eliminated. If it is just one of the co-owners with another person, it is to be signed by both of the co-owners named on the original bond. If it is just for another person entirely as the owner, it is to be signed by both co-owners named in the original bond, as well.

If the name of beneficiary on the bond has been changed, due to a divorce, the beneficiary must sign both present and former names and complete the statement on the form, certifying the manner in which the change has occurred.

Evidence normally asked for when changing these bonds or the names on the bonds include the owner or co-owners’ social security card(s) and the divorce decree. These legal documents allow for legal proof as the reason for these changes and the transfers of governmentally-insured funds.

Purpose in a divorce

The point of savings bonds is to eventually use the money once the bonds have matured. Given older generations’ propensity to purchase savings bonds, the chances of owning multiple bonds are pretty high. Before you cash them in, make sure your ex-spouse is aware of any and all savings bonds involved, as to not be accused of hiding any funds or assets and risk the legal ramifications of that.

Once they are in the loop, make sure to check what they are worth and some of the consequences of cashing the bonds in. The Treasury has a value calculator set up on their site to help determine the bond’s maturity. According to the Treasury, there are ramifications for redeeming paper bonds too early, besides losing out on potential earnings from not waiting the maturation period.

The risks are very specific to the type of bonds issued and when they were issued. According to the Treasury, EE savings bonds issued from May of 1997 onward, as well as all I savings bonds can be redeemed any time after the first 12 months, but bonds redeemed before five years from their issue date are subject to a three-month interest penalty.

If the savings bonds are not for their children or there were no children in the marriage, many couples choose to divide the savings among each other. However, there are tax consequences to the division of the bonds. Any tax implications need to be taken into account in the costs, when dividing the assets.

Savings bonds are supposed to act as insurance to future educational opportunity for our children and financial security in trusting in the government. It also has the capabilities to supplement income in retirement, so in order to insure future financial security during a divorce for yourself and your children, it’s important to recognize that your ex-spouse and co-parent wants the same things you do in the division of assets. In recognizing that fact, you can plan a much clearer financial future moving forward.

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