If future services are required, then the stock options were not earned during the marriage. Therefore, the court cannot divide them. Read: What is the Definition of Property?
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Valuing stock options is often difficult because they are usually subject to restrictions or the benefits accrue over a number of years. They may be forfeited if employment is terminated or become worthless if the employer goes out of business. There are two basic ways to value stock options: intrinsic value and Black-Scholes method. To determine the intrinsic value you subtract the cost of the stock option from the current market value of the stock.
Classification and Division of Stock Options and other Stock Awards in Virginia Divorce Law
The Black-Scholes method is a more complicated actuarial method. Read: How is Property Valued in a Divorce? Most employers do not allow employee benefits — including stock options — to be transferred to a non-employee like a spouse. As a practical matter, it can be easier to get the non-employee spouse owner his or her share of the value of the stock options via other assets.
Alternatively, experienced divorce lawyers make complex arrangements that are then clearly detailed in the divorce agreement. You also need to consider the tax impact of exercising stock options. Read: What is Equitable Distribution?
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Stock options and restricted stock will not appear on tax returns or paystubs unless and until the options are actually exercised and the restricted stock has vested. They can easily be overlooked or even deliberately not disclosed. The discovery process gives divorce lawyers tools to located stock options. How to divide property is one of the most important issues in divorces.
There are no set formulas or rules on how property will be divided. The good news is that creates tremendous flexibility for experienced divorce attorneys to craft an individualized approach. In order to prepare to make solid and informed decisions, you need to understand how property division works. Our Comprehensive Connecticut Property Division Guide tells you everything you need to know about property division in Connecticut.
For more information about Connecticut divorce and family law, check out our Divorce Information and Facts. We look forward to serving you soon. Dividing property and assets in a divorce is complicated and often messy. Both spouses may bristle at the thought of losing assets or part of their financial nest egg. In complex divorces, couples may own stock options. These options are often difficult to divide fairly and can be a major source of contention in the divorce. If you own stock options and are considering a divorce, it is imperative that you speak to an experienced Barrington divorce attorney as soon as you are able.
Your attorney will need to evaluate your finances, assets, and property to ensure that you receive a fair distribution of those assets in accordance with Illinois law. Stock options are often offered by companies and corporations as a way to financially compensate their employees.
These options give the employee the right to buy company stock at a set price in the future. The idea is that by locking in a rate now, you may be able to cash in for a greater profit in the future when the price of the stock increases. Restricted stock is similar, but employees must meet certain criteria and conditions before they can obtain those stock shares.
Divorce Matters | Dividing Stock Options in a Divorce | Pittsburgh Divorce
These are often used in lieu of salary increases, bonuses, or extra financial incentives. When a couple decides to divorce, they must determine how to split these stock options. After all, they are part of the marital estate and should be accounted for. According to Illinois law , the court presumes that stock options granted during the marriage are marital property whether vested or non-vested. Even if you cannot determine their value, these options are marital property and are to be divided accordingly.
When you are going through a divorce, you may not even realize that your spouse has stock options. After all, these will not show up on tax returns or other financial documents. Spouses may attempt to hide these assets during a divorce in order to avoid splitting them.
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As such, your attorney will need to make extra effort to determine whether or not your spouse is hiding assets, including stock options. Once your attorney uncovers stock options, the next step is to evaluate the worth of these options.
To ensure that you receive equal financial compensation, the correct value of all stock options must be determined. Stock options and restricted stock are financial rewards based on a future implied wealth. Determining the value of stock options for a privately owned company is complex and difficult.