Divorce is rarely an easy process.  If you have significant assets it becomes even more complex and often times very contentious.  We have discussed in previous articles what happens to retirement accounts during the asset dividing process and what to look out for, but what if you don’t really have a lot of assets or multiple products for retirement?  What if you just have a trading account and a small portfolio of stocks?  How does that get divided?

As with other aspects of the divorce process a lot depends on your states laws concerning the equitable split of marital property, but we’ll cover a few possibilities that could affect you no matter what state you live in.

Sell and Split.  It is possible if you and your spouse cannot come to an agreement as what to do with the stocks, you will be required to sell the stocks a market value and split the proceeds.  This method is the easiest for the court so if you don’t like the idea of selling off  your stock, you need to work something out with your spouse and don’t leave it up to the court.

Let’s Make a Deal.  One option that would allow you to keep your stock is to trade some other marital asset of equal to the value of your portfolio.  This could be “crap shoot” as far as true equality of the assets.  If your stock’s value is down, not reflecting the “true” value of your holdings, you would make out pretty well with the inequity leaning in your direction.  However, if the stock you have has spiked in value for whatever reason, and you make a “trade” for another asset equaling the current value of your stock, and then the stock goes back to a normal value, then the inequity pendulum has swung the other way.  Like playing the stock market, this choice has its risks.

Split and Keep.  Another option, likely the best, is to just agree on a fair percentage and split the stock and transfer it to your ex.  This takes the “value” variable out of the equation and is the easiest to accomplish without being left with feelings that one person or another got the better of the deal.  Transfer of stock pursuant to a divorce is a common occurrence at brokerage firms.  Making the transfer is an easy process. Transfer of stocks is accomplished by written instructions to the brokerage firm that holds the stocks. Both of you sign the letter of instructions, which should list the name and the number of shares for each transferring stock. A copy of the court order or divorce decree is attached.  If the spouse receiving the transfer does not have an account, your brokerage firm will be more than glad to open one.

Fees and Tax Implications.

As you know, there are always fees when it comes to buying and selling stocks.  Splitting up the stock during your divorce will be no exception.Divorce process, Credit after divorce, Divorce counselors

With our first option of just selling off the stock, you will have the cost of the trades plus the tax implications associated with liquidating your stock.

In our second option, there too will you have the same trade and tax implications.  Be sure when putting a value of the stocks, you take into consideration the fees and taxes that you will get stuck with.

Finally the third option.  There will not be a fee for a “trade” since you are not selling the stock, just transferring it.  Your broker will no doubt charge you something for making the transfer.  It is possible however if your spouse’s account is at the same firm, they will make the transfer for you as a courtesy.

 As far as taxes goes, the transfer of stocks incident to a divorce are not taxable.  Future taxes are a little different.  The spouse receiving transferred stock is taxed on the gain or a loss upon selling the stock in the future. This is calculated as the difference between the sale proceeds and the cost basis. The cost basis of the recipient spouse is the same as the cost basis as the transferring spouse.

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