Careful planning about future tax consequences of receiving particular shares of stock in a divorce property settlement agreement is essential.
Louisiana is a community property state in which both spouses are treated as equal owners of all marital property. While property that one spouse acquired before entering into the marriage may be separate property that is only theirs to keep, property obtained after the marriage is usually part of marital property.
Stock shares that one spouse owned before the marriage may be retained by them after a divorce, so long as they aren’t mixed in with the couple’s other investments.
If a couple has a joint investment portfolio of stocks of a particular amount, such as $400,000, giving each one of them half the current value may appear fair on the surface. However, the cost basis, or how much the stocks were purchased for, will determine how much a spouse will have to pay in taxable profits when the stocks are sold.
If one spouse, for example, receives shares of stock in a divorce property settlement that are currently worth $200,000, but were originally purchased for exactly that amount, they keep all the money earned when the stock is sold. This is because the stock has not appreciated in value.
If, on the other hand, the other spouse receives shares of stock currently worth $200,000, but which were originally purchased for $50,000 they will be taxed on the capital gain of $150,000 when the stock is sold.
A good family law attorney, therefore, can assist a client going through a divorce to negotiate the best property settlement possible by deciding which specific shares of stock the client should seek to retain.
Source: Forbes, “What a Volatile Stock Market May Mean for a Woman’s Divorce Settlement Agreement,” Jeff Landers, Aug. 16, 2011