Dividing Investment Accounts During Divorce: Unrealized Gains

If you are considering divorce, property division will likely be on your mind. Perhaps you have been married many years and have a large amount of assets tied up in retirement and investment accounts. When you and your spouse are reviewing and negotiating your respective share of the marital estate, you need to be aware of unrealized gains on stock in your shared investment portfolio.

Property division that looks equal or equitable on paper may not be when it comes time to file taxes. The type of asset matters, and not all property receives similar treatment in the eyes of the tax code.

What is Unrealized Gain?

Unrealized gain is the difference between the amount you paid for the stock and its value at the present time. If the stock is worth more today than it was when you bought it, you have unrealized gain. The inverse is true for any stock that is worth less today than it was when it was purchased, which is called unrealized loss. It is unrealized because you still hold the position in the security, it has not yet closed or been sold. The tax consequences are incurred when you sell or transfer the stock. Many investment professionals will value the worth of a portfolio based on the unrealized value.

You may be thinking that the solution is to have the market value when you enter property negotiations with your future ex-spouse. This is true. So, what is the problem? If the property allocation in your divorce awards you stock with unrealized gain, your total property settlement is less, because the tax consequences will eat up the value and cost you money.

What is the Solution?

It for this reason that you need to be aware of how tax consequences impact property division in divorce. You should speak with a CPA or other tax professional to get a full picture of the risks and benefits in your investment portfolio. You may be able to offset gain and reduce capital gains tax using securities with unrealized loss. However, a tax professional will provide you with the full picture, thus you should be aware of it and keep it in mind during negotiations.

Our Satisfied Clients Say
"Cheri Bell has represented me on and off for 15 years, through a divorce and child custody agreement, I have always been very impressed with her high level of integrity. She and her staff have always been very accessible, even when I moved out of the country. Her attention to details, and undeniable commitment to straightforwardness and honesty, have had a very positive effect on our court hearings, and provided time and again the desired." V.C.
"I HIGHLY recommend Natalie Daprile. She is VERY knowledgable of Family Law and VERY ethical, efficient, personable, professional and dedicated to her practice. She is a certified family law specialist which takes years and a lot of hard work to achieve and you can see that talent when she represents you. She helped me get the child support that I needed. She is excellent with support and tax issues and will make sure you and your family get what is fairly due to you." Lisa M.
"Thank you so much, Yselle Dominguez, for helping our family. Throughout the process you were sympathetic and compassionate to our needs. We felt very comfortable and confident. You are very responsive and thorough, and helped us understand the process every step of the way. We give our greatest gratitude and appreciation to you. We are so thankful for everything you were able to resolve for us. We will definitely recommend you to all our friends and family." N.P.
"Finding a great divorce attorney is very hard, and it took me a while to find one. I was fortunate to find Natalie and have her as my attorney, and after seeing her take my very difficult case to an extremely successful resolution, I have the highest recommendations for Natalie and Daprile-Bell Law Firm." Michael C.
"For my personal experience both with divorce and lawyers, I couldn’t have asked for a better lawyer. Natalie Daprile was recommended to me by a friend of a friend. She is a straight forward, tell it like it is, honest lawyer (yes, I said HONEST) and she gets the job done" Barbara I.
Member of:
State Bar of California
Super Lawyers