EP 17: Dividing Your Investment Portfolio in Divorce

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What to Ask When Dividing Investments in a Divorce

During divorce, you are facing the division of all your assets and debts and each one has its own complications. Oftentimes, one of the largest liquid assets is a taxable investment portfolio, which can include stocks and bonds, hedge funds, mutual funds and other financial instruments.

If you are thinking about how to properly divide investment accounts during divorce, you should consider asking the following five questions to keep you from making major investment mistakes with these assets. 

1. Do You Have Any Investment Accounts?

One of the first things you need to determine is if you have any taxable investment accounts. You may not have been actively involved in the day-to-day finances during your marriage, but there are still some clues about how to find investment accounts.

For example, check your mail. If you have statements from financial firms such as E*Trade, Ameritrade, Charles Schwab Corp., Scottrade or Merrill Lynch, that is the first clue. You should be looking for statements or accounts at these firms to negotiate the divorce settlement process.

2. What Types of Investments Do You Own?

Once you gain access to the relevant investment account statements, you need to analyze what types of investments you may own. For example, does the account contain stocks, mutual funds, exchange-traded funds, bonds or other types of investment instruments? You will need to familiarize yourself with the meanings of these types of investment terms.

Furthermore, you should make note of how much money is in each of these accounts. If the investment accounts represent a large percentage of your net worth, you should make sure you really dive into the details.

3. Do You Want to Keep the Investments?

Many names and acronyms exist for financial assets in different types of investments and they are often very complex. In addition to some of the financial instruments mentioned in question two, you may have hedge funds, index funds, bonds or many subsets of these items.

You will need to understand the intricacies of investment and whether it is something you may want to continue to own after the divorce. A financial expert, such as a Certified Financial Planner or Certified Divorce Financial Analyst, can be very helpful for guiding you through the intricacies of various investments. This person can help you evaluate prior performances and future prospects of those accounts.

4. Are the Investments Easy to Sell?

All investments have different liquidity, which means they cannot necessarily be sold immediately and converted to cash. Some investments (e.g., most stocks) allow you to sell your shares at any time during market hours. By contrast, a mutual fund usually involves not receiving your money until the next day. It becomes a bit complicated if you have a private equity fund or hedge fund, as they can sometimes hold your money for years at a time before you have the opportunity to get it back.

If you are negotiating your divorce settlement, you will need to know how long it may take you to get money from a particular investment if you need the funds. Otherwise, you could be facing this situation - you to try to sell but cannot access the money from a particular investment.

5. What Are the Tax Implications for Selling?

You should determine the tax implications of selling your share on the investment, specifically the capital gains tax. Short-term gains could be taxed on a federal and state level as high as 50%, depending on your income. Meanwhile, long-term gains (for investments that have been held over one year) generally have a lower tax rate.

When it comes to evaluating your investment portfolio, it is not what you get that is important, but what you keep. You need to know the potential tax consequences for selling any investment. Otherwise, you could find yourself facing a large tax bill further down the road.

Know Your Options

Investment portfolios can add an additional layer of complexity to divorce settlement negotiations. When considering which investment assets you want to keep, you should keep the five questions above in mind during the process. Then you can make an informed decision and avoid regrets down the line. 

Shawn Leamon, MBA, CDFA is the host of the “Divorce and Your Money Show” and Managing Partner of LaGrande Global, with offices in Dallas, New York and Hanover, New Hampshire.

 

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Welcome to the seventeenth episode of Divorce and Your Money Podcast. Your host, Shawn Leamon, MBA and a Certified Divorce Analyst, discusses the taxable investment portfolio and what you should do with it in a divorce.

Want to listen to this episode on your mobile device? Just use one of the following links: iTunes | Google Play Music | RSS Feed | YouTube or click on the episode player above.

An investment portfolio covers such items as stocks and bonds, hedge funds, mutual funds, and other financial instruments and investments that you might own and will have to divide during a divorce. 

One of the first things you need to determine is if you have any investments. One of the spouses will often not know the financial details of such matters. These are particularly necessary when you are getting divorced, and this podcast will help you to get through it in an easy-to-follow manner.

If you are not aware of any investments, check your mail. If you have statements or mail coming from such companies as Etrade, Ameritrade, or any similar company, then you may have an investment portfolio, which could include a simple investment account, mutual funds, exchange traded fund, or bonds. These are just the basic financial concepts, all of which will be necessary to examine.

You will need to know how much these accounts are worth. They can be a major proportion of your net worth, and you may not even know anything about them. You need to ask yourself three key questions in considering whether or not you should keep the investment: how good is the investment, identifying the liquidity or any selling constraints, and identifying the consequences of holding or selling that investment.

Is it a good investment? Many names and acronyms exist for financial assets in different types of investments, and they are often highly complex. You need to be aware of the ends and outs of what you own. Evaluate past performance and future prospects of those accounts. A financial expert can be very helpful in guiding you in such matters.

What are the liquidity constraints, and how quickly can you sell them? Some accounts allow you to sell your shares at any time, while others don’t. A mutual fund usually takes a day to process. It becomes a bit complicated if you have a private equity fund or hedge fund, as these can sometimes hold your funds for years.

Determine the tax implications of selling your share in the investment, specifically the capital gains tax. The gains you make after selling will be subject to a percentage of the capital gains tax. For short-term gains, these consequences are much higher compared with long-term gains, which could be as much as 50% of your gains, which is why it is so important to be aware of this information. Again, a financial advisor and Certified Divorce Financial Analyst can guide you through this process.

Key Learning Points:

  • An investment portfolio covers stocks, bonds, hedge funds, mutual funds, and other financial instruments and investments.
  • Find out if you have any investments, for example, look for information in the mail.
  • Determine how much your investment is worth.
  • Evaluate whether or not it is a good investment for you.
  • Find out the liquidity constraints and how quickly you can sell them.
  • Check the tax implications of selling your share in the investment.

Thank you for listening to the Divorce and Your Money Podcast. We hope the show helps you through one of the most difficult periods of your life. Shawn Leamon is also the author of Divorce and Your Money: The No Nonsense Guide. One-on-one divorce coaching services are available at www.divorceandyourmoney.com.

If you enjoyed the show, please take a moment to leave a review on iTunes, as it will help other people discover this helpful advice.

Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.