A shrewd investment can go a long way toward shoring up your finances, and many of us hope to take advantage of this opportunity. One Gallup poll found 55% of Americans said they do indeed own stock, either by themselves or jointly with a spouse.
A divorce can dramatically change an individual’s financial outlook. This is, in part, because investments are almost always considered marital property. Therefore, they need to be accounted for during property division negotiations. Here are three ways stocks might be handled in a divorce.
1. An exchange of assets
Stocks are often quite valuable, but require active management. Someone who plays the market may be more inclined to hold on to certain investments even after divorce. One common solution is to negotiate what is, essentially, an exchange.
One spouse takes full ownership of the stocks, while the other receives other marital assets of roughly equal value. This allows both parties, in theory, to get something they want.
2. Divide the investments
If both separating partners want to hold on to stocks, they could choose to split them down the middle. If you hold 500 shares in Company A, for example, each spouse gets 250 of those shares. While this sounds straightforward, there may be complicating factors (such as tax repercussions).
3. Sell the investments and split the proceeds
Two spouses going through a divorce could choose to sell off their stocks and divide the proceeds evenly. Some individuals are reticent to take this path, however, because investments are a long-term play. Jettisoning them now may undermine that goal.
An accurate valuation is key
Critical to this property division process is the proper valuation of the investments in question. Only by knowing how much a share is worth can you accurately place it into the context of broader marital property discussions (which can be quite complex with stock options, in particular). This is even more important when unpredictable economic conditions can cause drastic, unexpected swings.
Property division is not intended to punish people and reward others. Instead, it is to ensure each party is treated fairly when it comes to the financial questions still remaining from the marriage. By protecting your interests, you can help ensure you begin this new period of life on solid footing.