For most couples, marriage is intended to be forever. As such, couples work together in almost every area of their life to create a brighter future, including their finances. Unfortunately, when the marriage ends and they go their separate ways, it can be a complex process to untangle these arrangements, especially regarding investments.
One of the first measures the court will apply to determine how an investment is handled during the divorce settlement is the ownership distinction. In short, who is the primary owner of the asset, and when did the ownership begin? For example, a 401K owned solely by one spouse will likely be protected and not included as community property. While on the other hand, a joint stock portfolio would be considered community property.
If the asset is considered community property, the court will assess its current value for the settlement. The court will not solely focus on the original investment. Consider a portfolio worth $100k, for instance. If the original investment was $10k, and one spouse put in $7k and the other $3k, the court would not necessarily apply a 70/30 split. Instead, it is more likely that the entire value of the account would be split 50/50.
Another important factor to consider is the method of funding for the account. This factor is especially important when it comes to investments where one spouse is the sole owner. In this instance, the court will attempt to determine whether or not the non-owning spouse also financially contributed to the investment, such as via a loan or additional payment. In this case, the other spouse may have legal grounds to also claim ownership. If you are in this predicament, it is best to have an attorney involved.
Lastly, the court will also afford the couple the opportunity to come up with an agreement on how they want to divide their assets. For example, consider a couple with a property worth $250k and a stock portfolio worth a similar amount. Instead of splitting each asset up, they could decide to delegate one asset to each party. Again, an attorney will be especially helpful in this process to ensure you are protected.
With any divorce, the assistance of an attorney is helpful, but when it comes to these delicate financial matters, the help of an attorney becomes even more critical. Be sure to speak with a divorce attorney about your situation.