Divorce often equates to dividing stuff. Since you and your spouse are no longer one, it’s time to take back what is rightfully yours. Apart from the house and bank accounts, stock options are one of the most difficult items to divide during the proceedings.
Yes, divorce also covers employee stock benefits.
Defining Stock Options in Divorce
Options are specific types of employment benefits. The employing company provides employees with options to buy company stocks at discounted or fixed prices. Instead of offering stocks as benefits, employers give their workers a chance to buy stock at reasonable prices in the future. It’s for this reason that dividing stock options becomes an issue during divorce.
According to a blog post from Divorce Matters, employee stock options may be considered marital property, meaning you can divide it between you and your soon-to-be ex-spouse. As stock options are not tangible assets, how do the courts divide them?
Valuing the Option
Once the courts consider options as marital, each option will have a subsequent value. This complex process requires several methods for completion.
Some methods use calculations, which subtract the option strike price from the current stock, followed by multiplying the number of options one spouse owns. Separating couples with publicly traded stocks benefit greatly from this method, but its simplicity might result in value drops.
Another option called the Black-Scholes model places better value on stock options. This type of approach requires assistance from a forensic accountant. It also produces theoretical estimates based on investment instruments.
Division of Options
After the vesting and assigning of values, the work is not over. Once you determine the value, it’s time to address the distribution issues with the non-employee spouse.
One of the easiest ways is by having the employee spouse who owns the option to offset agreements upon the option valuing. Instead of splitting the option (which may result in tax consequences), non-employee spouses can take the exact value of the option by accepting another asset.
Despite the headache from all these divorces and tax options, it pays to settle them once and for all. Seek the help of a professional attorney and hope the odds will be in your favor.