Beware If You Are Splitting Stock In Your Divorce

Julie Hupp, CDFA®, CFP®

June 8, 2020

Sandra consulted me after her divorce to sort through the financial distributions in her marital settlement agreement. Her husband was an executive at Walgreens and had accumulated company stock over the years through the Restricted Stock benefit program. The settlement agreement indicated that she was supposed to get 50% of the existing shares. Her question to me was – Does it matter what shares I get?
Absolutely! Shares of stock have 2 values that are important – The current market price and the cost basis. The difference between the 2 is considered income if the owner sells the shares. Since you have to pay taxes on the income, you always want to minimize the gain so you have more money left over.

What Is Fair?

Sandra’s husband originally was suggesting that she take the older shares. As we reviewed all of the holdings, we realized those had the lowest cost basis and would result in the highest taxes for her. She was able to counter with a different proposal, one which was fairer in relation to the cost basis.

“Shares of stock have 2 values that are important – The current market price and the cost basis. “

The following chart shows an example of this issue. If this was Sandra, the newer shares would result in the most money to her.

Current Share Price $85
Shares Date Purchased Current Value Cost Basis Total Gain Total Taxes After Tax Value
500 2/5/2015 42,500 20,000 22,500 5,625 36,875
500 2/5/2016 42,500 25,000 17,500 4,375 38,125
500 2/5/2017 42,500 25,000 17,500 4,375 38,125
500 2/5/2018 42,500 42,000 500 125 42,375

** Assume 25% Federal Tax Bracket

Minimize Your Risk

If you are in process of getting a divorce or you are post divorce, you can minimize the risk of these issues by working with a financial professional such as a Certified Financial Divorce Analyst™ (CDFA®) or a Certified Financial Planner Professional™ (CFP®). Ideally, the settlement agreement can specify exactly how shares like this are to be split to avoid any conflict post settlement.

We specialize in working with women during and post divorce. Please call 847-986-2680 with questions or a consultation.

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