Does a Volatile Market Impact Asset Division in a Divorce?

 Posted on February 10, 2025 in Family Law

Like many things in the United States right now, the stock market seems to be full of shocks and surprises on a daily basis. Financial gain in the stock market is never a given, but during a divorce, financial anxiety is already present, and a volatile stock market can increase that anxiety by leaps and bounds.

To come through your divorce with your financial security intact during a tumultuous stock market, you must be particularly strategic during the division of marital assets. This is also the time to have an experienced, highly skilled family law attorney from Mevorah & Giglio Law Offices by your side.

How Could the Market Affect the Division of a Marital Retirement Account?

Many working couples save for retirement by using IRAs or 401(k)s or by investing money in the stock market. A retirement account is known as a "qualified account." When funds are removed from an IRA, the money is taxed fully, and if you are under 59.5 years old, you could be hit with an additional 10 percent penalty.

When you cash out a 401(k) account, you are also taxed on the funds, but if they are taken out under a Qualified Domestic Relations Order (QDRO), you will not pay the 10 percent penalty. Keep in mind that these rules apply to cash distributions; any retirement monies moved into your IRA will not be taxed.

When the market is "iffy" it is a good idea to work with a financial analyst to determine whether this is the best time to convert retirement funds in preparation for the division of marital assets or to convert to a Roth IRA. A Roth IRA allows you to pay taxes due now on lower values but skip paying taxes in the future should the account grow significantly. Non-retirement accounts mean the taxes are handled differently.

How Are Non-Qualified Accounts and Stocks Best Handled During a Volatile Market?

Cost basis is the issue when considering stocks and non-qualified accounts. The basis of a stock is what you and/or your spouse paid when it was first purchased. If you then need to split the value of the stocks during a divorce, you will need to look at the current value to determine which stocks have increased in value and which have decreased. When considering tax issues, it may conversely be better during divorce division if a stock has decreased in value.

The government will not tax financial losses, so not only are you not taxed, but you can hope that the stocks will increase in value down the line. If you are splitting stocks that have increased in value, the taxes you pay in capital gains could actually result in less payout for each spouse.   

In many cases, one spouse largely - or totally - purchased and handled the stocks for the couple. The managing spouse may have a much higher risk tolerance for the stock market's ups and downs, while the spouse with no experience in the stock market may want to sell immediately and have money in the bank, complicating the division further.  

While the court measures the value of the asset as of the date of dissolution, assets are actually divided at the entry of the judgment of divorce. Since there is a delay between the dissolution agreement and the entry of judgment, a stock market downturn between the two can lead to an unequal settlement. If the difference is substantial, the court can be asked to reallocate assets.    

Contact a DuPage County, IL Divorce Lawyer

When the stock market is volatile, the division of marital assets becomes even more complex. Having a Naperville, IL divorce attorney from Mevorah & Giglio Law Offices can make a real difference in the outcome of your divorce. We are a large law firm with more than 175 years of combined experience. We are proud of the fact that our firm is highly client-centered and that we always remain in communication with our clients. Call 630-932-9100 to schedule a free consultation to discuss your divorce.