Divorce Settlements in a Volatile Economy

By many accounts, September 23, 2011 marked the end of Wall Street’s worst week since the economic crisis of 2008. The previous gains and losses underscores the market’s volatility following Congress’ compromise over the national debt ceiling in August. While market experts predicted that the market may lose steam in the second half of 2011, traders are increasingly nervous about its wild fluctuations. Without any predictable markers to anticipate future activity, investors are especially anxious about their portfolios.

Couples facing divorce in NY also share this anxiety, as they are unsure about how they may be affected by sudden downturns. Specifically, will market fluctuations affect their property settlement agreements in divorce?

Marital vs. Non-marital property

Forbes columnist Jeff Landers highlights some important considerations in dividing property during divorce. Initially, it is important to understand what stocks will be considered marital or community property in NY as opposed to non-marital or separate property. In NY, community property is defined as all property accumulated by the parties during the marriage. Separate property consists of assets acquired prior to, and after, the marriage. Property acquired by gift or inheritance is generally considered separate property, even if given during the marriage.

However, Landers explains that if stocks and bonds you have inherited are commingled with other securities that are jointly held, these could also be considered marital property. This is could create a windfall to the community estate for division in the divorce.

Cost basis

Another consideration is the cost basis for the stocks. “Cost basis” is the original price paid for each security, whether it be an individual stock or mutual fund. It is prudent to understand the cost basis in the stock since capital gains taxes could significantly affect what you eventually receive as part of your settlement. If you are given stocks that have significantly appreciated (compared to stocks that have not), the taxes you would have to pay actually devalues your settlement and may not be a fair distribution of property.

Specific language

The wording of the property settlement agreement may also affect the amount received. Landers suggests adding language to account for any increase (or decrease) in stock values after the date of the agreement to divide the stocks but before the divorce is actually finalized. With the market being volatile and unpredictable, the valuation date should be when the divorce is finalized or as close as possible to it.

There are a number of other issues to be considered in making a property settlement in NY. An experienced Vangorodska attorney can answer your questions on family law.