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Why stocks may not be split evenly in a divorce

| Jun 14, 2021 | Divorce |

In a New Jersey divorce, property division can be a common topic for dispute. People often misinterpret equitable distribution to mean that assets will be split 50/50. However, it means that the property is divided in a way the court deems fair. That may not mean it is evenly divided. The value of the asset is also key. If it is real estate, like a marital home, its value can be assessed relatively easily. With stocks, it is more complex.

Understanding how stocks are valued for property division

Valuing stocks can be complicated, especially for a layperson who may not be aware of the level of investment the couple had during the marriage. Even if the assets seem to have similar values, some factors could be relevant. For example, if a stock has a value of $500, it is not the same as its cash value due to potential taxes. Once it is sold, taxes will be assessed and impact its perceived value.

There are terms that people should understand, such as “cost basis,” which is, essentially, what the stock cost when the person bought it and what it was sold for. When sold, it will be assessed by capital gains taxes. Another issue is the duration of ownership. If it was held for one year or less, it is a short-term capital gain. More than a year will be a long-term capital gain. In a divorce, to equitably divide the stock, the taxes would need to be subtracted from the asset’s value. This differs from retirement accounts, like a 401(k), which would be taxed based on current tax rates.

To know how to divide stocks, experienced advice can be helpful

Property division can be challenging on its own with the marital home, bank accounts, retirement accounts, automobiles and a business. The value could differ based on the property. With stocks, it is harder due to how they are valued and taxed. In these circumstances, it is important to have professional assistance to navigate this terrain and achieve a reasonable outcome.

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