Stock options can be one of the most valuable benefits of employment, but one of the most complicated when it comes to divorce. Unlike a marital home or bank account, stock options may be unvested, tied to certain conditions, or based on performance that has not even happened yet. Understanding how stock options are divided during a divorce is crucial for protecting your finances and future. Read on and speak with a skilled Suffolk County property distribution lawyer for more information today.
What Are Stock Options?
Stock options give you the right to purchase shares of your company’s stock at a set price, usually called the strike price. They are often used as a benefit for employees or an incentive to perform well.
The value of stock options is that you can purchase them at the strike price even when the value increases. If the stock is trading higher than your option price, you can “exercise” the option by buying the stock at the lower strike price and then immediately sell it for a profit, or hold onto the shares.
However, options don’t always vest immediately. When an option is vested, you are legally entitled to exercise it at any time. Unvested options often come with a vesting schedule, meaning you have to stay with the company for a certain amount of time or meet specific performance goals before you can use them.
Why Are Stock Options Complicated for Property Division?
The vesting schedule is what makes stock options complex when it comes to divorce, especially if the waiting period overlaps with the marriage. Whether the options are considered marital or separate property depends on when they were granted, why they were granted, and when they vest.
For example, stock options granted during the marriage for work performed during the marriage are generally considered jointly owned, regardless of when they vest. However, this means it may be difficult to divide because the employee may not have the right to exercise them yet.
Options granted before the marriage are typically considered separate property, but what if they were granted as an incentive for future work that is performed during the marriage? The timeline of these assets can complicate things. Courts typically use formulas and specific schedules to determine which options are marital and which are separate.
How Can Stock Options Be Divided in My NY Divorce?
Once it has been determined which stock options are subject to equitable distribution and the amount that each spouse is entitled to, they must be actually divided. The first option is deferred distribution, meaning that the non-employee spouse receives a percentage of the options only if and when they vest.
It is also possible for the employee spouse to essentially “buy out” the other, meaning they pay a lump sum or sacrifice other assets based on the estimated value of the stock options in exchange for retaining ownership of all the options.
Some companies may allow transfers of ownership so the non-employee spouse can be given access to their share of the options. However, many employers prohibit transfers, so it is important to review the terms.
This process can be overwhelming, so it is highly recommended that you secure legal representation. Reach out to an attorney at Peter V. Mandi & Associates, Inc. for more information today.
