Stock Options at Divorce
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What Are Stock Options?
Stock options are frequently granted to employees as a form of compensation (or in place of additional compensation) by businesses. The way they work is that after an employee has worked at a company for a certain amount of time, his employer will sell him shares of stock in the company for less than the market value of the stock. The employee then can sell the shares of stock on the market for more than the employee purchased them.
Can I Get a Portion Of My Spouse's Stock Options In A Divorce?
Stock options can be divided in a similar manner to pension plans depending on whether your state is a community property or equitable distribution state. If your spouse has earned stock options during your marriage, most courts will award you at least a portion of the options, or their equivalent value, in the event of a divorce. Since stock options are different from other forms of property, (i.e. most cannot be exercised immediately on issue) many states do not have set laws defining how to determine the precise value of stock options in a divorce.
How Do Divorce Courts Typically Determine The Value Of Stock Options?
The valuation of stock options is generally determined by the basic equation that is given in the option agreement between the spouse who has them and the company that he works for. Depending on the terms of the stock option agreement, courts use differing approaches to calculate the value of stock options in the event of a divorce:
- Agreements containing a formula for determining the value of the stock options: In these cases, the value will be the difference between the price at which the stock could be purchased by exercising the option and the market value of the stock as of the date on which the option is exercisable. Depending on your state, the market value of the stock will either be its price on the date of the trial or its price as of the time of the divorce decree.
- Agreements not containing a formula: States also differ on how to determine the value of the stock when there is no formula expressed. Some states will find that the value of a stock option is determinable from the price of the stock, while others may find that there is insufficient evidence to determine the exact value of the stock option.
Do I Need An Attorney To Help Me Obtain My Spouse's Stock Options In The Event Of A Divorce?
Measuring the exact value of stock options that have not yet been liquidated (i.e. converted to cash) for the purposes of asset distribution between spouses can be extremely confusing. Having an attorney experienced in family law to assist you with a divorce is absolutely necessary. Make sure that you tell your attorney whether or not your spouse has stock options. Your attorney will make sure that you get a proper share of your spouse's assets.
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Last Modified: 12-05-2012 04:44 PM PST
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