Stocks are unlike other assets because their values fluctuate. This makes them a complex financial asset during a divorce. Here is what you should know about how Florida law handles stocks.
How are stocks divided?
Stocks acquired during the marriage are often considered marital property and may be subject to division under Florida’s equitable distribution law. The division usually happens in one of the following three ways:
- Depending on the settlement agreement, some or all of the stock shares are transferred from one spouse’s brokerage account to another.
- One spouse retains the stock while offsetting its value with other marital properties or assets.
- Both spouses agree to liquidate the stocks and divide the proceeds between them.
If the spouses choose to offset assets or liquidate, the court will establish a specific valuation date for the portfolio that is just and equitable under the circumstances.
How does stock valuation take place?
Valuation depends entirely on the type of stock. For publicly traded stocks, the court may consider the fair market value on the chosen valuation date to determine their worth. Restricted stock units (RSUs) have a layer of complication because their value and ownership rights may depend on future vesting schedules. Further, the RSUs are taxed differently from publicly traded stocks. That is why the division of RSUs requires help from financial professionals.
What should one look out for?
When it comes to the division of stocks, there are certain caveats you should look out for. Make sure your legal team carefully evaluates how you will handle:
- Capital gains taxes: Liquidating stocks carries tax implications. For example, if an investor sells stocks held for a year or less for a profit, the transaction triggers short-term capital gains tax.
- Unvested RSUs: RSUs may be subject to division even if they haven’t vested yet. However, if the company granted RSUs in anticipation of future performance, they may fall under the category of separate property.
- Commingled investment accounts: If a spouse had been buying stocks before marriage and has maintained them under the same portfolio, the asset becomes “commingled.” A forensic accountant may be necessary to determine which portion remains separate property.
These intersecting financial and legal variables can quickly make stock division a messy affair.
Why legal guidance may matter
Stock division often involves more than simply determining the number of shares each spouse receives. Issues involving valuation dates, taxes, vesting schedules and ownership history can significantly affect the outcome. To ensure the division of stock is not met with any unforeseen legal obstacle, a divorce professional could be a great help.