Stocks don’t have to be complex, but sometimes they are anyway. It depends, to a great degree, on how the ownership, purchase and sale of the stocks were memorialized during the marriage.
For instance, let’s say you had 100 shares of stock in IBM when you got married. The stock has increased in value, had a few stock splits, and received some dividends. The first thing to know is that the original 100 shares was your separate property because you had it before you got married. When the stock split and your 100 shares became 200, no other money was put into the asset. It’s still your separate property. It went up in value. That value is still inside of your separate property asset. The hard part comes with the dividend because dividends are income. Since income from separate property is community property (and, therefore, subject to division upon divorce), the dividend from your separate property shares of IBM stock are subject to division. If those dividends are reinvested, your separate estate and the community estate are starting to become commingled.
At this point, it’s still pretty simple. You still have the original 200 shares of post-split IBM stock, plus a few more from the dividend. The extra is easily traceable and you can maintain your separate property.
But, what happens if you then sold part or all of the IBM stock, kept some in a money market account and bought Microsoft stock with the rest? Where is the community estate’s money? The short answer is that everything belongs to the community unless you can prove by clear and convincing evidence that it’s your separate property. That’s only with one transition from stock to cash to other stock. What happens if there are dozens, hundreds or thousands of transactions? Mutual funds, for instance, have stocks within them which get traded every day to capture rises and falls in the market, dividends, splits, or any number of other strategies your financial advisor used to help grow your wealth.
There are many rules and theories of tracing your separate property that may come into play. This is where your attorney needs to be experienced in tracing assets in general and stocks in particular. This might also be where a forensic accountant is needed to help with your case.
The experienced attorneys at Orsinger, Nelson, Downing & Anderson can help you determine how complicated, or not, your stock situation may be as you divide assets in your divorce.
- Deferred Compensation Plans
- Restricted Stock divorce division
- Stock Options divorce division