As you go through a divorce, you will need to divide at least some of your assets. If you have investment assets, you may find that you need to divide them even though they may not yet be vested.
There are two main options that you can use to divide assets like stock options or bonds. The first is to go ahead and sell those investments to get liquid cash. Then, you can divide the proceeds remembering to subtract out the taxes.
The second option is to split the investment holdings. For example, you and your spouse may have 500 stocks, so each of you would be entitled to 250 of them in a 50-50 split. To do this, you could gift the stocks to your spouse (or vice-versa) prior to divorcing. This is not a taxable event, which makes it easier for you to resolve the issue without worrying about incurring taxes.
How do you transfer stocks during a divorce?
If you would like to transfer stocks to divide them, you’ll need a copy of your court order or divorce decree. You and your now ex-spouse should sign a letter to the brokerage firm that is holding the stocks providing information on what to do with the stocks. In your letter, you’ll include the name and number of shares of the stocks that you’d like to have transferred.
Usually, you won’t have to pay taxes on this transfer, but there are exceptions. For instance, if your spouse is a nonresident alien, then there may be taxes to pay. The minor exceptions are why it’s smart to discuss this decision with an accountant, broker or your attorney before deciding if transferring stocks is the right choice for you.
It’s possible to split your assets fairly during a divorce
While many people don’t realize that it’s possible to divide stocks and bonds, you can. It’s possible to do this without selling them if you’d like to keep them invested, too. Since you could sell or could keep them invested, you and your spouse should talk about your preferences before deciding how to divide what you own.