Just dealing with stock options is beyond the scope of a non-professional—and many professionals. This topic itself is potentially too ambitious for this web site. Here’s why:
Yes, stock options are marital assets and can have a significant impact on how the entire marital property is divided. However, options are extremely difficult to value. They depend on a whole slew of rules like: Are the employee options separate or marital property? Are the options non-qualified or incentive-based? If the stock options are considered partially or entirely marital property, what portions and value should be assigned to each? Are they fully vested, partially vested, or non-vested? What are the vesting requirements? Even the term vest differs from state to state, as does the method of valuation and distribution. Continued employment at the stock-issuing company is nearly always a condition for vesting. In a divorce, stock options become a game of “Pin the Tail On the Value.”
And if that is not enough: Your tax bill can become pricy. If not done correctly, the division can be fraught with serious tax implications. Serious tax implications can open both spouses up to potential audits by the IRS.
The short version of this story is that if one spouse earned stock options during the marriage, the couple’s divorce will include a portion of the stock—or stock value—being awarded to the other spouse. Many assets are subjectively valued in the splitting of property, perhaps none more subjectively than stock options.
Our do-it-yourself advice: Let the professionals handle it. Consult with a qualified attorney, CPA, and/or other relevant professionals before signing your property settlement. This is definitely a matter for the most competent legal and financial experts. The information above is only a snapshot of the potential problems and is not even close to “full disclosure.” Even if you and your former spouse agree with the split, it still pays to run the arrangement by your own counsel to conform to the laws of your state or the fairness of your split.
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