Navigating a divorce can be challenging enough, but then you throw investments into the mix, and you have a whole new layer of complications. Alongside physical assets like properties and vehicles, you also have to think about ownership for equities. If you’re unsure what happens to your stocks and shares when you divide marital property, the following information may provide the knowledge you’re looking for:
Determining the Division Method
Whether you’re undertaking financial planning during divorce in Melbourne, Australia, or on the other side of the world in the United States, the division method will be one of the first things your chosen financial advisor will focus on. How assets are divided up varies from one location to the next.
Most states use equitable distribution, which means marital property is divided fairly rather than equally at 50/50. Judges typically consider factors such as the length of the marriage, each spouse’s financial position, and earning potential. However, some states rely on the community property method, which mandates equal division of all marital assets.
Selling and Splitting Proceeds
Regardless of the approach used, be it equitable or equal, spouses can choose how to divide their stocks. If they can’t agree, a judge decides for them. The most common option is selling the stocks at their current market value and splitting the cash proceeds. It’s a quick and efficient method.
Buyout
If one spouse doesn’t agree to sell the stocks and would prefer to keep them, they can choose to buy out the other spouse. This might be through a cash payment or by trading other assets they own of similar value, such as real estate, vehicles, or retirement funds.
Ownership Transfer
When one spouse agrees to take over ownership of stocks, ownership transfer must occur from a joint account to separate accounts for each spouse. It’s so common that the Financial Industry Regulatory Authority (FINRA) even provides guidance for this very situation. They recommend:
- Updating account beneficiaries to remove a former spouse’s name and designate one or more new beneficiaries
- Getting access to investment accounts if you don’t already have it
- Considering the possible tax consequences, costs, and penalties of selling securities
- Deciding how to divide taxable investment accounts
- Evaluating retirement accounts
- Enlisting the services of financial experts
Deferred Division
Not all investments are sales-ready. For example, you might have unvested stocks or pre-IPO equity. In that case, a couple can agree to split the proceeds at a later date, when there’s a liquidity event or the stocks vest.
What to Consider When Selling Stocks During a Divorce
You may have no choice in determining whether or not to sell stocks, but there are some key considerations as this situation unfolds:
The Valuation Date
If you’re an experienced investor, you know how volatile some markets can be. As a result, determining a specific date for valuing your stocks is crucial. The value of some stocks can dramatically differ from day to day.
Legal Protections
It’s only natural to want to get stuck into finalizing the details of a divorce so you can end the chapter and start a new one. However, it’s important not to jump right into managing your investments without your spouse’s involvement.
To stop you or your spouse from selling, transferring, or hiding any marital assets without the consent of the other spouse, courts often issue temporary orders when divorce proceedings first begin.
Tax Advice
Getting out of investments can often be a lot harder and more expensive than getting into them. For example, there can be penalties for withdrawing from retirement funds. If you sell stocks, they can also trigger capital gains taxes.
In most cases, if you sell stocks that you’ve held for one year or less, they are considered short-term capital gains, so you’re taxed at your ordinary tax income rate. If you’ve held them for over a year, they are long-term capital gains and are taxed at 0%, 15%, or 20%, depending on your income and filing status.
Professional Financial Advice
Asset division in divorce can be messy, especially when investments are involved. It’s always worthwhile to consult a financial advisor to maximize outcomes for both parties.
Divorce is a minefield when it comes to stocks and other investments. If you’re trying to tidy up your and your spouse’s financial interests during a divorce, now is a good time to enlist the services of a financial advisor to improve your chances of the best outcome for all involved.
Shikha Negi is a Content Writer at ztudium with expertise in writing and proofreading content. Having created more than 500 articles encompassing a diverse range of educational topics, from breaking news to in-depth analysis and long-form content, Shikha has a deep understanding of emerging trends in business, technology (including AI, blockchain, and the metaverse), and societal shifts, As the author at Sarvgyan News, Shikha has demonstrated expertise in crafting engaging and informative content tailored for various audiences, including students, educators, and professionals.
