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How do stock options influence divorce?

On Behalf of | Sep 2, 2021 | High-Asset Divorce

If your spouse made significantly more money than you during your marriage, you may have relied on his or her income. Perhaps you did not have a job of your own or only worked part-time.

Now that you and your spouse are divorcing, you must divide your property equitably between the two of you. According to Kiplinger, this can be a challenge if some of your spouse’s assets consist of stock options.

What are stock options?

Stock options are a way for corporations to reward hard work and loyalty from their employees. The stock price on the day that the company grants the options is the price that employees can purchase stock in the company after a vesting period of several years. The vesting period ensures that your spouse cannot simply exercise his or her stock options and then immediately leave the company.

Once the vesting period is over, your spouse has the option to buy shares in the company at the original stock price. If the current price is higher than the original grant price, your spouse can sell off the shares and pocket the difference.

How do stock options affect divorce?

If your spouse is still in the vesting period when you decide to divorce, he or she cannot exercise the stock options yet. This means that you and your spouse have to wait to split the profits until the vesting period is over. That is assuming that the price of the stocks goes up and your spouse stands to make a profit off them.

While equitable distribution is a requirement of your divorce, your spouse’s employer may not allow him or her to transfer stock options to another person. This results in a complicated situation in which your spouse must put at least some of his or her shares in a trust that lists you as a beneficiary. That way, you can receive some of the profits once your spouse exercises his or her stock options once the vesting period is over.

There can also be difficulties with locating stock options if your spouse fails to disclose them. They are often absent from common financial documents, such as pay stubs and tax returns.