John Gilligan, a Certified Family Law Specialist, explains whether or not stock options are taken into consideration when dividing assets during divorce.
Are stock options considered an asset to be divided during divorce?
My spouse has stock options at his work. Are those considered an asset to be divided during our divorce?
Stock options are an asset that is divided just like any other asset accumulated during a marriage when getting divorced. The problem with stock options is it typically comes in three different phases. There is a date the stock option is granted; the date the stock option vests; and the date it is exercisable. Also, when it is exercisable, it must have some value for it to be divided or there is no sense exercising it. For example, if your spouse worked at Boeing Corporation and was granted a stock option at $50 a share, which was subsequently vested, and then, when it became time to exercise it, the stock was actually valued at $40 a share according to the New York Stock Exchange value, there would be no sense exercising the stock since it is actually worth $10 less than what you are able to buy it at. This is the stock that is “underwater.”
On the other hand, if that same stock went up to $60 per share at the time it is exercised, it would be worth purchasing it at $50 per share since you already have made a $10 per share profit. This profit gets divided upon Dissolution of Marriage. The problem that occurs many times in this situation is that the date of grant is during the marriage but the date of vesting and the date of exercise is after separation. Also, there may be a condition imposed that your spouse who was given the stock option must continue working for the company or he loses the right to exercise it. In these situations, we call this stock option a “mixed” asset, meaning that it has community and separate components to it. Typically, we divide these by the time rule formula. The formula is a fraction where the numerator is the amount of time the stock option was earned during the marriage, meaning before separation. The denominator is the total amount of time that went by during the option period that is from the date of the grant to the date of the exercise of the option. This percentage is then multiplied by one-half, and the non-stock option spouse receives one-half of this fraction. Obviously, this is a very complicated process which should only be done with a Certified Family Law Specialist representing the parties.
John Gilligan is a founding partner at the family law firm offices of Brandmeyer Gilligan Dockstader & Davidson, LLP in Long Beach, CA. John has over 30 years of experience handling family law, probate litigation, and estate planning matters. He can be reached directly at 562-431-2000.