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What Happens to Your Stock During a Divorce?

Fri 16 Dec, 2022 / by / Divorce

Divorce is a highly emotional, complex situation that can become even more complicated when dealing with assets. Not only is the couple splitting up, but all of the assets–that is, things of value that are acquired during the marriage–also have to be split up in a way that the parties agree to. In cases where neither partner has much, this can be a rather simple process. 

When a couple has a number of high assets, however, dividing assets can be difficult to navigate. If you and your ex have considerable finances and resources, it can take a long time to figure out how best to divide everything up. When other investments come into play, such as stocks and bonds, this can further complicate the process as it adds another layer of complexities to the situation.

Why are Stocks Tricky?

While stocks are a sound financial investment, figuring out how best to divide these entities during the divorce proceedings might not be as clear-cut as other finances. A stock is a share of ownership of a company. Depending on a wide host of factors–the global economy, cultural attitudes, the weather–the value of those stocks can go up and down rather dramatically. This makes this type of asset different from, say, a car. Cars do not tend to depreciate or appreciate in value significantly. 

The value of the stocks at the beginning of a twenty-year marriage can be significantly lower than the value at the end of the marriage. This can make division difficult. This may also raise questions about how the value increased and whether those stocks existed before the marriage.

Marital vs. Separate Property

One of the first determinations that Illinois divorce attorneys have to make when deciding the fate of the stocks is to determine whether the stocks are marital or separate property. During the property division phase of your divorce, your assets will be divided into separate and marital property.

Separate property is stuff that is excluded from the asset division process. Some examples of separate property would be property bought before the marriage or money inherited before the marriage.

Marital property involves any property or assets that were acquired during the marriage. This includes real estate and investments including stock options, restricted stocks and brokerage accounts.

Only marital property is divisible during a divorce. However, in most states, separately owned property that increased in value during your marriage can be considered marital property, too. This could include stocks. 

Who Gets the Stocks?

Illinois courts tend to treat stocks as marital property rather than separate property. The Illinois Marriage and Dissolution of Marriage Act (IMDMA) states “all stock options granted to either spouse after the marriage and before a judgment of dissolution of marriage or declaration of invalidity of marriage, whether vested or nonvested or whether their value is ascertainable, are presumed to be marital property.” 750 ILCS 5/503(b)(3).

However, one of the parties can rebut that presumption. You must show that the stock was an inheritance, gift, or acquired before the marriage. If you can demonstrate that, you may not need to split the money.

Determining Valuation 

The other tricky aspects of stocks are the valuation. From day to day, the value of the stocks can change immensely. The value of the stocks affects the other distribution of aspects. Additionally, those assets will likely increase in value in another 20 years or however long the party holds the stock option.

Deciding What To Do

You have a few options. You can sell your investments and split the profits evenly. However, this can present tax consequences. It also may not be the wisest. The stock market increases by about 10% each year. While your mileage may vary, you could be leaving a lot of future income on the table by selling your investments right now. This is because you will have to start over to reap the benefits of compound interest. Whatever you do, wait to cash out before speaking to an attorney. Cashing out during the marriage may make it more likely that what you have is marital property, meaning it is subject to be split.

Another option is to split the investment holdings in half. This can be tricky and dependent on a wide variety of factors. 

Fortunately, a skilled family law attorney will know what to do in these situations. They can help you get a clean financial break. If you are unsure how to proceed or want the process taken care of for you, consult your divorce attorney and they can sort everything out with little stress on you and get you the best deal based on your situation.