Property and asset division during divorce rarely involves just your house, car and furniture. Instead, there is a wide range of less-concrete property, such as retirement accounts, family businesses and stock options. In this blog post, we will discuss dividing unexercised stock options during your high-asset divorce.
Stock options are agreements made to purchase stock. Usually, a company gives its employees the option (but not requirement) to buy or sell stocks at a certain price if done before the option expires. Stock options are marital assets that should be divided with the rest of the property involved in a divorce.
Dividing vested stock options
When an employee receives stock options, it usually takes a number of years (often 3-5 years) before the employee has control of those options. During this “vesting period,” the employee cannot transfer or sell the stock options. Vested stock options are options that an employee can exercise because the vesting period has passed.
When dividing vested stock options, spouses may determine the value of the stocks and divide them with the marital estate. They must decide how to receive their share of the options. For example, should the options be used to offset other marital assets or should the non-earning spouse receive a lump-sum payment for the options?
If the spouses cannot come up with a specific value for the options, the non-earning spouse can ask the other spouse to hold his or her shares in a trust to be paid to the non-earning spouse in the future.
Dividing unvested stock options
Unvested stock options are options still in the vesting period. These options are more difficult to divide since they will likely vest after the divorce and are not easily valued. There are multiple ways to divide unvested stock options. For example, the court could retain jurisdiction to divide the options when the benefit is paid. Usually, courts choose to divide unvested stock options using a formula that gives each party a percentage of the pension to be paid if and when it becomes payable.
Source: Forbes, “Splitting Stock Options in a Divorce,” Marlene M. Browne.