Dividing assets in a divorce can be complicated. In a complex divorce, couples may have accrued significant employment benefits that are more difficult to divide such as stock options.
What are Stock Options?
Stock options are offered to an employee to purchase company stock at a set price, at a future date. Many companies attract employees by offering stock options as a component to their compensation. As the company grows, ideally company stock will go up and the opportunity to purchase stock at a discounted price will result in a tidy profit when the employee sells his or her shares.
If you and your spouse are divorcing, stock options can be very valuable assets and are taken into account when dividing marital property. It is important to discover all the employment benefits a spouse may have to determine if there are options that are subject to division in a divorce.
Stock Options May (or May Not) Be Marital Property
If a spouse was granted stock options to reward past work that occurred prior to the marriage and as a carrot to ensure an employee will stay on (while married), the options may be a mixture of both separate and marital property. Any compensation for work completed during the marriage will likely be subject to division in a divorce. Determining whether stock options are marital or separate property can be difficult to determine, but an examination of employment documents often hold the key as to whether an option was granted for past or future work. An experienced family law attorney can determine which assets are considered marital or non-marital property.
Are Unvested Stock Options Subject to Division in a Divorce?
Vested or not vested? The vesting period refers to how long the employee has to wait before he or she can exercise (sell) the option. Typically 10 years will pass before options are fully vested and an employee can cash in on stock options. If options are granted in 2010 for example, but cannot be exercised until 2020, the options are considered unvested. Although a vesting schedule can complicate the division of stock options, unvested stock options can be classified as marital property subject to marital property division.
Valuing and Dividing Stock Options in a Illinois Divorce
To get at the cash value of the stock options there are many variables to consider such as the stock price, exercise price, time to maturity, annualized volatility and more. Once valued, sometimes the employee spouse will agree to give another asset comparable in value or, if the employee spouse has no additional assets to offset the balance owed the other spouse, the couple may opt for a deferred distribution detailing how the non-employee spouse will be paid once the employee spouse has exercised the stock option. When making decisions regarding stock options always have an eye toward tax consequences – consulting with an attorney or cap help you avoid costly mistakes.
Attorney Ronald L. Bell has over three decades of experience handling high asset divorces in Illinois. If you have questions regarding dividing employment benefits in a divorce, contact the marital property division law offices of Ronald L. Bell & Associates for more information today at 847-495-6000.