What to Include When Dividing Investments in Divorce

For many divorcing couples, splitting investment accounts can be one of the most complex and emotionally charged aspects of divorce. These accounts are far more than numbers on a spreadsheet and usually represent years of planning, sacrifice, and shared goals. From a Certified Divorce Financial Analyst’s (CDFA’s) perspective, the key to a smooth division lies in proactively dividing these assets with clarity.

One of the most important and overlooked steps in this process includes making sure the language in your settlement agreement accurately reflects what’s being divided, how it’s being transferred, and when to expect those transactions. In this post, we’ll dive into these specifics.

Why Clear Language Matters in Investment Division

Settlement agreements are legal documents, and vague or missing language can have both financial and legal consequences. Ambiguity about which investments are being transferred, how they’re being divided, or who bears responsibility for gains and losses can spark unnecessary conflict even years after your settlement.

Clarity helps protect everyone involved. It helps prevent the stress of future disagreements, reduces the chance of enforcement issues, and supports a cleaner financial break, which is what most people are hoping for when they finalize a divorce.

Make the Transfer Method Explicit

Even beyond what is being transferred, it’s critical to determine how it’s being transferred, and the latter matters more than you may recognize.

Cash versus Investments

Clarifying whether one person receives a specific dollar amount, or whether a portion of the investment portfolio itself is transferred is critical to a smooth division of assets. This decision affects more than just paperwork and also can impact:

• Taxes: Selling investments to create cash may trigger capital gains.
  
  
• Liquidity: Cash might be needed for immediate expenses, but holding investments could support long-term growth.
  
  
• Growth Potential: Transferring investments “in-kind” allows them to continue compounding without disruption.

These details should be discussed and documented before finalizing the agreement so expectations are aligned and execution is smoother.

Key Elements to Include in Your Settlement Agreement

When cash is being transferred as part of a divorce settlement, it’s important to include clear, specific instructions in the agreement. Start by setting a firm deadline for when the funds must be delivered. Then, define exactly how the transfer will take place. If the funds will be moved electronically, specify the account and custodian to ensure there’s no confusion. If a physical check will be issued instead, include the name of the recipient and the correct mailing address. It’s also wise to account for potential timing delays because transfers around weekends, holidays, or bank processing windows can slow things down. Building in a little cushion around timing can help prevent unnecessary stress.

If Investments are Being Transferred:

Use specific terminology to avoid future disputes. Three common items that should be included if transferring investments are:

• In-Kind Transfer: Specific investments (not cash) are moved “as-is” to the recipient’s account. This means the exact securities, the same number of shares or same positions, change hands without being sold. For clarity, it might be helpful to add that the cost basis (how much the investment was originally purchased for) will also transfer with the investment because this will play a role later whenever the investment is sold in the future.
• Pro-Rata Transfer: This means that each investment in the portfolio is divided proportionally based on the agreed-upon percentage of division in your final divorce agreements. Sometimes these amounts are listed in written agreements as percentages.  If the division amount is listed as a dollar amount, then you will need to calculate what the percentage is based on the dollar amount agreed upon (effectively the dollar amount agreed upon divided by the account value multiplied by 100). This approach ensures fairness by preventing one party from choosing only the highest-performing assets.
• Gains and Losses: One often-overlooked detail in written agreements describing the division of investments is whether market gains or losses that occur between the date of the agreement and the actual date of transfer should be included or excluded. This can significantly impact what each party ultimately receives. For instance, if someone is awarded $100,000 from an account valued at $500,000, are they receiving a fixed dollar amount, or are they entitled to 20% of the account no matter what that value happens to be at the time of transfer? This distinction becomes especially important during periods of market volatility. Clearly outlining how to handle gains and losses helps maintain fairness and manages expectations on both sides, reducing the risk of disputes after the agreement is finalized.

The Role of a CDFA

A CDFA can be an invaluable partner throughout this process. While a CDFA doesn’t provide legal advice, a CDFA can help you:

• Assess tax implications of different transfer strategies
• Understand which assets to keep vs. liquidate
• Plan with an eye toward long-term financial goals, not just immediate needs

Bringing a CDFA into the conversation early can help you avoid costly mistakes, feel more confident in your decisions, and navigate the process with greater clarity.

When it comes to investments, details make all the difference. Taking the time to clearly define how accounts will be divided, and documenting that in your agreement, can prevent future misunderstandings and reduce stress post-divorce.

Whether you’re in the early stages of negotiation or finalizing your settlement, consider bringing a CDFA into the conversation. Getting the support you need from the right professionals throughout your divorce can help your future feel a little less uncertain. Contact me today for a free consultation.