Stock options can be incredibly valuable, but they are often overlooked as assets in a divorce. Unlike bank accounts or homes, stock options often involve complex conditions and vesting schedules. Understanding how courts divide stock options during divorce is crucial in protecting your financial interests, whether you or your spouse has stock in a company. Continue reading for more information and secure the help of an experienced Sparta property distribution attorney today.
What Are Stock Options?
Employee stock options are a type of compensation that employers offer to incentivize and reward workers. Instead of a cash bonus, for example, an employer can grant the option to buy a certain number of company shares at a fixed “strike” price, which is often lower than the expected future market value. This means that the employee could profit if the company does well and its value increases.
Stock options generally come with a vesting schedule, meaning they cannot be exercised until a certain period has passed or employment conditions are met. Some vest over several years, while others may only vest if the employee stays at the company or meets certain performance goals.
Are Stock Options Considered Marital Property?
Before dividing stock options in a divorce, the court must determine whether they are marital property or separate. Any options granted during the marriage or for work performed during the marriage are generally considered jointly owned and subject to property division, even if they are unvested. However, if certain stock options were granted before the marriage, for work that occurred before the marriage, or for work that may occur in the future, they could remain separate.
Courts will consider when the stock options were granted, why they were granted, when they vest, and whether the employee was married at the time.
How Do Courts Divide Stock Options in an NJ Divorce?
Dividing stock options in a divorce can be complex, especially because the value of the stock options may depend on future events. However, it is possible with careful consideration of the circumstances.
After calculating the portion of stock options that is subject to property division, the court must determine the value. With the help of financial experts, the court will consider the difference between the strike price and market price, estimates of the company’s future performance, predictions of the value over time, and more to calculate what the options are worth.
New Jersey is an equitable distribution state, so the court will divide all assets fairly based on the length of the marriage, each spouse’s financial standing, contributions made to the marriage, and more. The amount of stock options each spouse is entitled to will be decided during equitable distribution. The non-employee spouse could receive their share in a transfer if the company allows it. Otherwise, they could be awarded additional assets of the same value, like more cash or property, and the employee spouse could retain all of the stock options in exchange.
This process can be complex, and it is imperative that you protect your legal rights and options. Work with an experienced attorney at Paris P. Eliades Law Firm, LLC during your divorce.