When a couple decides to dissolve their marriage, the division of marital property will likely be a contentious issue as each party’s hard-earned assets are at stake. While couples may not have an issue when it comes to dividing household furniture, it’s a different story when it comes to stock options. Stock options are among the most difficult to divide in a divorce, as there can be a mixture of vested and unvested options. If you do not know whether or not your spouse has options, now’s the time to find out to ensure you receive a fair property division. Please continue reading to learn how divorce settlements treat stock options and how a determined Bristol County Division of Assets and Debts Lawyer can help you protect your rights.
Are Stock Options Considered Martial Assets?
Firstly, a stock option is a specific type of employment benefit that gives an employee the option to buy shares in a company in the future at a discounted rate or stated fixed price once the option has vested. Instead of the employee receiving stock as a benefit, they are given the opportunity to purchase stock at an attractive price at some point in the future. This can make valuing and dividing stock options in a divorce challenging. Vested options may not be exercised, meaning the shares have not been purchased yet at the strike price. If this is the case, it’s crucial to understand that options that have not yet been vested have no concrete value until their vesting date. They merely represent future opportunities. So, the unvested stock would be lost if they leave the company before the options vesting fate. Since there’s no universal formula for how unvested options are to be valued, the court will use different solutions depending on the case’s specific circumstances.
Nevertheless, Massachusetts follows equitable distribution rules, meaning marital property will be split fairly between a divorcing couple, but not necessarily in an even 50/50 split. Stock options granted to an employee spouse during a marriage are considered marital assets. This means the stock options would be subject to property division, even if the options vest after the parties are officially divorced.
How Are Stock Options Divided in Divorce?
When negotiating your settlement, there are numerous ways in which you can divide stock options. One of the most common methods is to have the employee spouse who owns the options offset the agreed-upon value of the options with another asset. The non-employee spouse would give a marital asset equal to their stock option share. For example, if the stock options were valued at $100,000, the non-employee spouse would give the employee spouse an asset equivalent to $50,000 for their share. Couples can also choose to sell some of their exercised shares to generate cash for the division or agree to wait until the option has been vested, and then they can buy and sell shares to generate money for the non-employee spouse. Remember that there may be capital tax gains to pay from the proceeds.
If you are facing a contested divorce based on unresolved property distribution issues, please don’t hesitate to contact the Law Offices of Cynthia L. Hanley, P.C., who can help you determine the best approach to divide stock options.