What happen to my stock options in a divorce?

Property division varies between states but most locations require an equitable distribution of property. Equitable division usually involves complex calculations and considers the assets brought into the marriage as well as the actual and potential income of each spouse. Absent the rule of equitable distribution, courts follow the community property division where assets are split 50/50 between the parties. In determining whether property is marital property or separate property, courts look at whether the assets were brought to the marriage or were acquired during the marriage.

Dividing tangible property can be complicated in a divorce; it becomes even more complicated when the property is an intangible such as a stock option. In cases of assets that cannot be liquidated or have not matured, or where an exact value cannot be determined, parties may agree to give up their rights in exchange for other assets. This often occurs when the stock options has been granted by a private company to one of the parties.

How marital property, including intangibles such as stock options, is divided depends on the state's divorce laws. For example, in California, there is a presumption that assets acquired from the date of marriage until the date the parties separate are considered community property. The presumption makes the property community property subject to equal division (50/50). The date of separation is pivotal in this case. If a spouse's stock options vest before the date of separation, the stock options are considered general community property. As for the options granted during marriage but that have not vested upon the date of separation, the issue is whether the options even have a present value. Some California courts have determined that unvested options still are subject to division.

Courts may use formulas (commonly referred to as "time rules") to determine what portions of stock options in a divorce belongs to each spouse. Courts will determine why certain options may have been granted to the spouse if the options were granted by an employer. For example, were the options part of a bonus package, or given to attract the employee to the job, or given as an incentive to stay on. The courts have wide discretion in deciding what formula (if any) they will use to determine an equitable division of stock options.

To determine how your stock options may be treated in a divorce, you should discuss your case with an experienced attorney.