How Does a Declining Stock Market Impact Your Divorce?

Divorce is already a complex process—emotionally, legally, and financially. When you add a declining stock market into the equation, the financial implications can become even more uncertain. If you or your spouse own stocks, retirement accounts, or business interests tied to market performance, understanding how market fluctuations affect divorce proceedings is essential.

Below, we explore how a down market can influence asset division, support obligations, and long-term financial planning during divorce. For questions about your divorce or property division, speak to one of our attorneys today: (303) 781-0322

Table of Contents

1. How Will Stocks Be Divided?
2. Valuation Date Matters
3. Dividing Retirement and Investment Accounts
4. Will My Losses Impact Child Support and Alimony?
5. Can Support Payments Be Modified According to My Losses?
6. Strategies for Navigating Divorce in a Declining Market
7. Should You Wait Until the Market Is Back to Normal to Get a Divorce?

How Will Stocks Be Divided?

In Colorado, vested stocks will become part of marital, or community property, during a divorce case if the stockholder purchased them during the marriage. As part of community property, they will be subject to division during a divorce. The courts handle unvested stocks differently, however. In most cases, unvested restricted stocks will be part of marital property if it carries dividend and voting rights. The courts will also view unvested options as marital property, but only to the extent that the person has an enforceable right to the options through a contract.

The Colorado courts can view stocks as income or property depending on the situation. In a divorce case involving stocks, the courts in Colorado may give couples multiple options. The couple could sell their stocks and divide the profits as part of marital property, but this could have tax implications. They could also split the stock holdings as if it were property – down the middle, splitting the investments equally. Since the division of stocks during a divorce can be complicated, you may wish to hire a divorce attorney for assistance.

The financial stakes are high—especially when investments are uncertain. Our experienced divorce attorneys can help you protect your future, even in a declining market. Speak to an Attorney

Valuation Date Matters

A key issue in divorce proceedings involving investments is the valuation date—when assets are appraised for division purposes. There are typically two options:

1. Date of Separation: Some courts value assets as of the date spouses separate.
2. Date of Trial or Settlement: Other courts prefer to value assets when the divorce is finalized.

If the market drops significantly between these two dates, one spouse might receive substantially less value unless provisions are made to equalize post-decline losses. In many cases, divorcing couples agree to share gains and losses up to the date of distribution to ensure fairness.

Dividing Retirement and Investment Accounts

Retirement accounts, such as 401(k)s and IRAs, often constitute a large portion of marital estates. These are usually divided using a Qualified Domestic Relations Order (QDRO).

In a falling market:

• The actual value received may be lower than expected
• Delays in executing the QDRO can result in further loss
• It’s important to specify a method for dividing investments—either by current dollar amount or by percentage of holdings

Using a percentage-based division can help mitigate the impact of market fluctuations and keep the split proportional, regardless of performance.

Will My Losses Impact Child Support and Alimony?

When determining child support and alimony payments during a divorce case, the Colorado courts will assess many factors specific to each spouse. These include the spouse’s current income. In general, the courts will not count earnings or losses related to the stock market as part of a parent’s income. Instead, the courts will only calculate a child support order based on both parents’ combined adjusted gross incomes.

The courts will use child support guidelines that calculate an award based on a mathematical formula. The courts take into account gross income and costs related to childcare. Then, they adjust the support award based on a child custody arrangement. To determine an alimony award, the courts will compare both spouses’ incomes and look at the quality of life each spouse had before the divorce.

Can Support Payments Be Modified According to My Losses?

During times of economic downfalls, such as recessions or the current pandemic, many parents may suffer financial losses that impact their ability to pay child support and/or spousal maintenance. If you lost your job or suffered another significant decrease in income, you could petition the courts to receive a temporary or permanent support modification. Unless a decline in the stock market directly impacts your income, however, you most likely cannot use your investment-related losses as a reason to reduce your support payments. Since the Colorado courts look at your income, not your earnings from investments, to calculate support amounts, a decline in the stock market most likely will not constitute a valid reason for a modification.

Strategies for Navigating Divorce in a Declining Market

Here are a few strategies to help mitigate risk:

• Negotiate based on asset type: Try to allocate more stable assets (e.g., cash, real estate) to the spouse who is more risk-averse, while allocating volatile assets (stocks, options) to the spouse who is more investment-savvy.
• Freeze or agree on valuation dates early: To avoid disputes about fluctuating values.
• Include provisions for post-division changes: If possible, agree to share losses or gains until the asset is distributed.
• Work with financial experts: A Certified Divorce Financial Analyst (CDFA) can provide critical insights into how market conditions affect settlement outcomes.

Should You Wait Until the Market Is Back to Normal to Get a Divorce?

If a decline in the stock market or the US’s economy impacts your ability to earn a living wage, this could affect your divorce. A change in the amount you or your spouse earns could change how much the court gives in child support and spousal maintenance. It could also be more difficult to afford the costs of divorce during a recession. In addition, property values can decrease. While it is ultimately up to you whether to postpone your divorce, it is generally not necessary to wait. You will always have the power to seek a support modification from the Colorado courts if you or your spouse’s financial situation changes in the future.