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Stock options and divorce property division

On Behalf of | Jan 10, 2023 | High-Asset Divorce |

As marital assets increase in value, their diversity also tends to increase. Couples might have a range of securities, collectibles, real estate and business interests in addition to the more typical family home and shared bank account.

One common example is the stock option. This type of reserved or restricted stock unit often causes some confusion and conflict during a high-asset divorce.

Stock options defined

A stock option is a complex securities-based instrument. Treatment — especially tax treatment — might differ based on how someone exercises the options. The terms of stock options, set out in grant agreements, might also differ significantly from one company or position to the next.

All of these variables could come into stark focus during a divorce. This is because, if the options are subject to division, both parties tend to have an interest in maximizing the potential value of the stock options and minimizing the disadvantage that any exercise or subsequent sale of stock might incur.

Reasons companies grant stock options

Organizations tend to include stock options in executive compensation packages for one of three general reasons. The first is to provide an incentive for a high-performing executive to join the company. The second is reward performance in an active leadership role. The third is to provide an incentive for a leader to remain in the company in the future.

Although it might seem like a technicality, the reason someone holds a stock option could be of great importance during a divorce. For example, if someone received stock options during a marriage for work that was also done during the marriage, the court might decide to divide them — even if they vest after the finalization of the divorce.