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What Happens To Stock Options In A Divorce?


Stock options are a form of deferred compensation. Generally, when an individual is hired by a company as an employee, they may be given stock options after a vesting period. A stock option is not a piece of property in and of itself. Rather, it is reserving the option for you to purchase a certain amount of the company’s stock at a predetermined price in the event that the company you are working for goes public. While this may feel far too tangential to even be considered in a divorce, stock options can actually be a point of contention and focus during asset distributions in a divorce. They are, after all, an asset.

Are Stock Options Marital Property?

The most important determination made when it comes to asset distribution in a divorce is whether an asset is marital or separate property. Generally, assets that are acquired prior to the marriage are considered separate property, whereas assets that are obtained within the duration of the marriage are considered marital property. This is true even if the asset is obtained by one of the spouses seemingly entirely outside of the marriage. This becomes complicated when considering stock options, since the stock options may be acquired during the course of the marriage, but what if the employee began working at the company prior to being married and the option to buy shares only vested during the marriage? Further, what if the option to purchase shares will not vest until after the divorce? These questions can feel overwhelming, and can lead many couples to hit a dead end. However, the law is fairly well established when it comes to the division of stock options. The law views the actual option to buy stock as the asset here, so if the employee-spouse acquires the stock options through their employer during the course of the marriage, the stock options will be considered marital property. Any stock options that were accumulated during the course of the marriage will be considered community or marital property and will be subject to division. The easiest way to divide stock options is generally to determine what the value of half of the stock options would be and have the employee-spouse pay an amount equivalent to that value to the other spouse. Of course, the parties always have the right to arrive at their own decision about how to split or allocate the stock options. The court only needs to get involved if the couple is unable to come to an agreement on their own. If the parties have a pre- or postnuptial agreement that covers the treatment of stock options, this agreement will dictate. This is true even if the prenuptial or postnuptial agreement specifies that stock options should be treated as separate property.

Contact Peeples Law in Birmingham, Alabama

If you are going through a divorce and want to make sure that you receive a fair and comprehensive settlement, contact the experienced Birmingham divorce attorneys at Peeples Law to schedule a consultation and find out how we can help you.

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