Divorce During the Coronavirus Crisis

As we have seen with the Coronavirus risk, market fluctuation can be significant.  For example, since the beginning of the year, Norweigan Cruise lines stock is down 39% and American Airlines stock has dropped 37%. Both cruise and airline industries have been hit hard by the Coronavirus fear.  So, if a spouse receives cash in lieu of shares of stock the valuation date is key.  If the date of valuation coincides with panic striking the stock market, the change in value can be significant.  Transferring ½ the shares to the other party, or liquidating those shares and paying out the proceeds eliminates this risk.

In a divorce, a decision must be made as to how to divide the marital assets.  All assets owned by each spouse are considered marital assets.  Either by agreement or judgement, someone will decide how to split the assets.  The judge has broad discretion as to how assets will be divided.

Even when both parties agree to divide assets 50/50, how that is done can be significant.  The fairest way would be to simply divide everything in half.  This is not always practical, for example with real estate or retirement funds.  If one party wants to keep the house, they can offer up another asset of the same value as 50% of the house.  The problem is that different assets behave differently.

Public stocks are traded in an orderly market so current value can be obtained instantly however the value can change rapidly.  Items like jewelry and real estate need an appraisal.  An appraisal can also be made to determine the current value of a pension plan.  Businesses can be particularly difficult to value with experts disagreeing on the proper method to value the business.

It is uncertain as to whether some assets will come to fruition at all.  A pension may never be paid out if the party dies, stock options are of no value if there is a job change and future royalties are unpredictable.

The tax treatment is also different on various assets.  Retirement funds have an income tax burden; when the money is withdrawn it will be taxed as ordinary income.  Contrast this with a bank account that has no fees or taxes associated with withdrawal.

The date used for asset valuation can be significant.  Some possibilities are the day the parties last lived together, the day the divorce summons was served, or the day the divorce becomes final.  For stable investments that don’t rapidly change value, it probably will not make a major difference; but with assets like a 401K there are continued employee contributions, employer contributions and market fluctuations.  Considering all of the unpredictability surrounding value, it is important to be aware of all of the possibilities.

If you have questions, please contact Attorney Frank Grimaldi.

Further Information on Divorce in Massachusetts