Divorce can be an emotionally and financially difficult process for any couple. One of the most complex parts of divorce often involves determining how to split various assets like stocks, bonds, retirement accounts, and more. Stocks can be complicated to value and divide, especially if you don’t fully understand how stocks work.
In Minnesota, all marital property is subject to equitable division in a divorce. This includes stocks purchased or accumulated during the marriage, even if they are only in one spouse’s name. Figuring out exactly how to split stocks in a Minnesota divorce, however, requires some careful consideration.
Here’s what you need to know about valuing, classifying, and dividing stock options and assets when you divorce in Minnesota.
How Stocks are Classified in Divorce
Minnesota is an “equitable distribution” state when it comes to divorce. This means that all marital property will be divided fairly between spouses, but not necessarily 50/50. Separate property, on the other hand, is property acquired before the marriage or through inheritance and stays with the original owner.
In general, stocks purchased during the marriage are considered joint marital assets. It doesn’t matter if the stock is only in one spouse’s name. Even stocks bought with one spouse’s income are still jointly owned in the eyes of the law.
However, stocks acquired before the marriage or received as a gift or inheritance during the marriage are usually considered separate property. For example, if one spouse owned substantial Microsoft stock before getting married, those shares would stay solely with that spouse after a divorce.
Some additional exceptions exist as well:
- Stock options granted after separation – If one spouse receives additional stock options through an employer after separation, those are classified as separate property.
- Increases in value – While stock purchased during a marriage is joint property, any gains in value after separation are considered the separate property of the spouse who owns the shares.
Overall, identifying and classifying all stocks and stock options is a key first step before determining how they will be divided in divorce.
How Are Stocks Valued During Divorce?
Valuing stocks and stock options can be tricky since stock prices fluctuate daily. In general, stocks are valued at their fair market value on the date of separation or divorce.
The following methods may be used to determine a stock’s worth:
- Examining account statements – Brokerage account statements will list the current market price of all stocks held. This provides a clear picture of what stocks are worth today.
- Third-party valuations – For non-publicly-traded stock or stock options, an independent valuation by a financial expert may be needed. They can provide an estimate of the current value.
- Using a set date – Some couples pick a set date (ex., the date of separation) and use stock prices on that date. This prevents changes after separation from impacting value.
- Averaging prices – Courts may average the high and low stock prices over a set time period to estimate a reasonable value.
No matter how stocks are valued, getting an appraisal can ensure stock values are fair and accurate. This prevents extensive disputes over fluctuating stock prices during a divorce.
Dividing Investments in a Divorce
Once stocks are classified and valued, they are ready to be divided. This can be done in a few different ways:
- Asset division – One spouse keeps certain stocks, and the other keeps the rest. Additional assets are divided to balance values.
- Stock transfer – Some shares are transferred from one spouse to the other to divide ownership evenly.
- Cash payout – The spouse keeping the stocks pays the other spouse cash for their share of the current value.
- Combination – Utilizing a combination of asset division, stock transfer, and cash payouts.
No matter how the stock is divided, capital gains taxes will need to be addressed if any stocks are to be sold. Your divorce lawyer can help develop a stock division strategy that minimizes taxes.
Some additional tips when dividing stocks in divorce include:
- Divide high-risk or volatile stocks evenly to share the risk
- Consider who originally owned stocks before marriage
- Weigh sentimental value if one spouse inherited certain stocks
- Compare income and financial security needs after divorce
Taking the time to divide stock assets upon divorce thoughtfully can prevent future conflicts. Having professional guidance can ensure a fair split.
How Unvested Stock Options Are Divided
Unvested stock options earned during a marriage are considered marital property, even if they cannot be exercised yet. So, how does one split stocks that a spouse doesn’t technically own yet? This requires some creative thinking.
Some potential ways to divide unvested stock options include:
- If exercised, split any profits per an agreed percentage when the stock is eventually sold.
- The spouse keeping the stock options pays the other an agreed lump sum for their share of the future value.
- The ownership percentage of the unvested options themselves are split between spouses.
- Delay division until options vest and can be accurately valued.
No matter how unvested stock options are divided, the specifics should be clearly addressed in the divorce decree. This prevents any ambiguity down the road when the stock options finally vest.
Getting Help Splitting Stocks in a Divorce
Dividing stocks and other investments during divorce can certainly be complex. Don’t try to split stock assets on your own without experienced legal and financial guidance.
With the right team of professionals assisting you, splitting stocks in your Minnesota divorce doesn’t need to be overly complex or contentious. You can develop an equitable division that accounts for the nuances of stocks as joint marital property.
At Martine Law in Minnesota, our experienced divorce attorneys provide the guidance and representation needed to split stock assets fairly during your divorce. We aim to make the process smooth while protecting your rights and financial future. Contact us today to learn more about dividing stocks and other investments when divorcing in Minnesota.
