Dividing Restricted Stock Options In Divorce

Employee stock options can potentially be considered marital property in a divorce, meaning that it is possible for stock options to be divided between you and your divorcing spouse. But stock options are not always a tangible, easily valued asset ”“ so how is it that the courts go about dividing them?

The key to dividing stock options lies with whether they are presently enforceable. This means that in order to have your employee stock options divided, the courts must look at the conditions required for you to have earned the vesting of the stock options.

Restricted Stock Options

Many employee stock options are what is known as restricted stock. These are stock options granted at no cost to the employee but with conditions that must be met before the employee is allowed to transfer them. It is a common part of benefits packages, especially for small businesses and startups. The idea is that, while the company is small, the stock options are easy to provide to employees with the promise of a big payoff when the company is worth much more in the future. The restrictions applied to these stocks vary ”“ one common one is that the employee must remain with the company for a set number of years before the stock options are transferable.

Typically speaking, restricted stock will be considered marital property if it is given to the spouse for services provided during the marriage. If the stock is given for future services that do not occur during the marriage, then typically, the stock will not be considered marital property. If the stock agreements are complex (as they often are) and involve several different conditions for the stock to be granted, then the courts will have to examine each condition to determine if any partial division of the stock options is appropriate.

Can My Actions Post-Divorce Change My Divorce Settlement?

Suppose you have been divorced for a while, and despite a couple road bumps, you and your ex-spouse get along well enough. When something comes up, you are sometimes willing to help, even if the help you are giving your ex is not specified in your divorce settlement agreement. Let’s say you are providing financial assistance despite a lack of an alimony (spousal maintenance) arrangement. Time goes on, and the relationship becomes more and more strained, so you do not want to provide that assistance anymore. Your ex plays their trump card ”“ you’ve set the precedent; you must continue to pay.

Your ex is wrong. It might not be in your ex’s best interest, but you have no legal obligation to continue to pay, provided that the payments are not included in your divorce settlement.

The Importance Of Your Divorce Settlement Agreement

The divorce settlement is the final determination of your obligations to your ex-spouse following divorce. That is why it is important for you to be active in the drafting of the agreement; to prevent uncomfortable situations in your future. A line in the agreement that seems like a throwaway could very well lead to loopholes ”“ every word counts in a divorce agreement.

When you are drafting the agreement with your lawyer, don’t be afraid to ask questions about anything you don’t understand. Articulate your needs and demands. Otherwise, you stand a good chance of having those needs ignored.

If something should arise in the future, you will know that you have your divorce settlement standing by to protect you.

Planning For Retirement In Divorce: What To Do With Your Retirement Accounts

Gray divorce ”“ divorce for couples over 50 ”“ has been on the rise in recent years. As a matter of fact, one in four divorcing couples these days divorce past the age of 50. Because of this growing trend, we thought we’d address some considerations that these couples should make regarding retirement and how a divorce might affect it.

Even if you do not plan on getting a divorce anytime soon, or at all, it is still wise to discuss what to do with your individual retirement funds before the question ever arises. Too often, couples avoid discussing the D word almost like it’s Bloody Mary ”“ say it three times, and it comes for you. But this fear can lead to financial ruin in your retirement years. Luckily, preparation can prevent that. If divorce arises, know the following:

  1. You may think you want the house more than retirement savings as part of your equitably divided divorce assets. In the short term, it may seem like the house is more valuable than any money you’ve thrown into a 401(k) or an IRA, but the housing market is volatile and a house is much more likely to come with unexpected expenses, plus the costs of maintenance and taxes. Think very carefully about trading your retirement funds for the house.
  2. Speaking of taxes, depending on the types of retirement funds you and your spouse have, the amount of money you will be able to take out in retirement may be affected, so remember this when determining assets in divorce. Some types of retirement accounts, such as 401(k)s, are taxed when money is taken out in retirement. Others, like Roth IRAs, are not. So if you have a $500,000 401(k) and your spouse has a $500,000 IRA, your spouse will actually have more retirement money upon withdrawal due to taxes.
  3. Your Social Security benefits can be affected by divorce. If you were married to your spouse for longer than 10 years, you can receive some amount of his or her benefits if you are unmarried, 62 or older, your ex-spouse is eligible for benefits and those benefits exceed the amount you are entitled to based on your own work history.

What Are My Options For Dividing The Marital Home In Divorce?

Following divorce, there are a lot of considerations to make with the family home. Who gets to keep it? What’s the easiest way to get one spouse’s name off of the mortgage so they won’t be held liable for the home in the future? Where will the departing spouse live afterward?

You have options, but some are easier than others. Here are three possible ways to deal with property division on the marital home:

  1. Often, the simplest way to split the home is for both parties to wash their hands of it entirely. Selling the home and splitting the money gives both parties equal (or at least, equitable) footing with which to begin their new lives. Additionally, this means that you will no longer have your name on a document with your ex-spouse. However, realize that there are some complications you might have to endure when selling the home. The economy can have a huge effect on whether selling the home is a worthwhile endeavor; if the housing market is down, it may make more sense to rent the property out instead. If the market is up, there are tax implications to consider for capital gains that are affected by your filing status (married couples get a bigger tax exclusion, so it might make sense to sell before the divorce).
  2. For couples that decide not to sell, it may be prudent for one party to buy out their half of the home. This is a good way to keep the home in the family (for the benefit of children, for example, or for sentimental purposes) but it may not always be financially feasible. Both parties in this situation should seek appraisals on the home ”“ it’s always best to have a second opinion before committing to something so important. If the departing party cannot afford at the time of divorce to buyout his or her half, then the couple can consider a delayed buyout, but there are some long-term headaches associated with this method (keeping both names on the mortgage post-divorce, namely) so it’s not usually recommended due to potential financial and credit ramifications.
  3. There’s always cohabitation if you and your ex-spouse split amicably. On one hand, it could be a good idea for both parents to be around for the kids; on the other hand, you just got divorced from the person who is now your housemate, with all the potential baggage this situation brings up.

How Can A Trust Protect My Adult Child’s Inheritance During Divorce?

On Monday we talked about the importance of discussing prenups with your adult children as they prepare for a wedding, especially for high-asset families. Prenups are not always the most comfortable thing to bring up with a fiancée, but they are very important tools for protecting one’s property in case of divorce. But parents with high-assets who wish to ensure that their estates transfers to the desired party (in this case, an adult child) without any hang-ups related to divorce or the lack of a prenup can rely on another tool to preserve their estates: creating a trust.

Benefits Of A Trust To Protect Inheritance In Divorce

A trust gives you much more control over your adult child’s inheritance. You decide the terms of the trust and can order the trustee to only pay out to your son or daughter in certain circumstances. Here are just a few terms you can throw into a trust to ensure that the assets go where you desire:

  • You can name a trustee other than your adult child. This makes it so that a future ex-spouse of your adult child has no claim whatsoever over the assets. You can then declare that the trustee only distribute funds to the beneficiary in a separate account that is strictly used for their inheritance and to monitor all transactions the account is used for; this helps prevent commingling of assets in joint accounts held by your adult child and their spouse (commingling can give the spouse a claim, as joint assets are generally considered marital property)
  • You can tell the trustee that assets are for specific uses in the future, such as your grandchildren’s educations or other expenses.
  • You can tell the trustee that assets are not to be distributed to your adult child without the existence of a comprehensive prenuptial agreement or postnuptial agreement that ensures that assets remain with your adult child and not their spouse.
  • You can even declare that certain assets are not to be distributed contingent upon expectations that you set forth.

If you do decide to create a trust, you must make sure that the terms of the trust leave no room for loopholes or leeway. An estate attorney can help you do just that.

Protecting Your Assets From Your Adult Child’s Ex-Spouse

If you have an adult child who is set to inherit your collected assets in the future, and that adult child is in a serious relationship and may be planning marriage soon, you may be so ecstatic about the upcoming nuptials that you fail to consider that your adult child’s spouse stands to inherit your assets as well.

There are a few ways you can ensure that your life’s work does not fall into the hands of a vengeful ex in-law if the upcoming marriage ends in divorce. The first is something we talk about a lot ”“ the prenuptial agreement.

Convincing Your Adult Child To Get A Prenup

There are a few circumstances where prenups are highly important to consider (although we recommend that every couple thinks about a prenup before tying the knot). Those circumstances are the following:

  • When you have a substantially wealthy family
  • When your adult child is employed in a family business that you own
  • When your adult child has children from a previous marriage or relationship
  • When you have gifted significant assets to your adult child in the past

If any of the above is true, be sure to convey to your son or daughter the importance of a prenup to protect any current and future assets, including those that the adult child would inherit from you in the future.

If your son or daughter says no to the prenup (we get it ”“ it’s an awkward conversation to have with a spouse-to-be), you have another option to ensure that your assets are divided the way you want: creating a trust. We’ll go in depth on that subject this Wednesday.

Did You Change Your Insurance Policies After Divorce? Are You Sure You Didn’t Forget Anything?

If you are in the process of getting a divorce, one consideration you might not think of immediately is how it will affect your insurance policies. In many cases, you will need to have your name taken off of an insurance policy when the divorce is finalized ”“ here’s a primer on some types of insurance you’ll need to change.

Filing for divorce starts an automatic, temporary injunction regarding financial matters and insurance. This means that neither spouse can modify an insurance policy, remove the spouse from the policy or stop paying premiums. However, after the divorce, spouses will likely need to have separate insurance policies, so plan ahead for these changes.

Health Insurance

If you are a dependent on your soon-to-be-ex spouse’s health insurance, you will no longer be able to be on it once the divorce is final. So, you should prepare ”“ you can buy health insurance from the health insurance marketplace, or seek it through your place of employment if it is offered. Don’t let a divorce lead to a lapse in your health insurance history, or you may regret it come tax time next year.

Car Insurance

Are both of you named on an auto insurance policy? That’s no bueno. One of the problems here is that you are both going to have to speak to your insurance provider because they are not allowed to remove one person from a joint insurance policy without the consent of the other. Taking care of this prior to divorce will make it so that you and your ex can have a clean ”“ or at least, cleaner ”“ break than having to take care of it after a potentially contentious divorce proceeding.

Home Insurance

If you’re not living in the marital home, then you probably don’t want to be on the insurance. Whoever leaves the home should remove his or herself from the insurance policy. If you are the one leaving and you’re planning on finding a small apartment to live in until you get back on your feet, look into renter’s insurance. There are a lot of people in apartment complexes, and you want to ensure your belongings are protected from those little things like theft or fire. Basic renters insurance can be very reasonably priced.

Speaking to a Denver divorce attorney about your case is the first step in ensuring that your finances are in order after your separation.

Dealing With Intangible Assets In Divorce: Intellectual Property

Dealing with property division in divorce is a complicated process. Some parts can be relatively straightforward ”“ tangible assets like bank accounts and property, for example. But what about intangible assets, things that are difficult to value? For couples who own intellectual property, such as patents and trademarks, an equitable division can be incredibly complex. How do you figure out the value of an idea?

The vast majority of divorcing couples will probably not have to worry about intellectual property in divorce, but for authors, musicians, actors, artists, business owners and startup founders, etc., serious consideration must be given to the value of trademarks, patents and copyrights.

Who Owns A Patent, & How Is It Split In Divorce?

Generally, someone with an interest in an intellectual property has two choices in divorce. The first of those is to have the value of the assets appraised to determine if the assets are subject to valuation. While this can be expensive, it can help the IP holder fight for a final division of the property, eliminating any potential entanglements involving the ex-spouse in the future.

The second option is for the couple to come to an agreement on a proportional split of some type of the proceeds from the intellectual property holdings. For example, the property holder could offer a percentage of the royalties to the spouse on a continuing basis. Depending on the relationship between the two, however, these sorts of entanglements may be undesirable, or there may be problems determining exactly how much of the future royalties should go to the other spouse.

At any rate, intellectual property is very complex and you should discuss any reservations with your financial advisors, IP experts and your family law attorney to scope out the best path moving forward.

I’m Getting Divorced. How Do I Check My Spouse’s Credit?

If you suspect your spouse of hiding assets, you might consider looking into their personal records to try to find those assets. But before you go snooping, just know that there are certain paths that you should not dare to tread. One such example: trying to pull your spouse’s credit report.

The credit report can contain a treasure trove of information that can prove to you that your spouse has been stashing cash in secret places. It could identify any financial accounts or credit that you might be unaware of. Naturally, this is a powerful piece of evidence, but it is illegal for you to request a copy of your spouse’s credit report.

In order to legally request someone else’s consumer credit reports, you need what is called a permissible purpose to do so. Situations with permissible purpose could be, for example, your spouse trying to get a job, a loan or insurance from you. Marriage ”“ and even divorce ”“ do not qualify.

However, if your spouse is a business owner, you are able to check his or her business credit reports and scores legally, since those are not regulated the same way as consumer reports.

Now, despite the illegality of requesting someone else’s consumer credit reports, in this day and age some spurned spouses have taken to other methods of acquiring those reports. Namely, the Internet ”“ sites like CreditKarma make it easy for consumers to access their own credit reports, and though there are plenty of security measures in place, spouses may be able to access them online through their intimate knowledge of their partner’s personal information. If your spouse can answer your security questions, they may be able to weasel their way into your credit report. But, again, this is illegal, and if you are caught (if your spouse notices inquiries he or she did not make, for example) you may end up paying for it in court.

The services of a divorce attorney can help you pursue legal avenues to discover hidden assets in your divorce.

When It Comes To Bitcoin, It Can Be Hard To Find Hidden Marital Assets

We talked last week about the Panama Papers and how they show evidence of hidden assets in divorce. This week, we’d like to look at another target for hiding marital property ”“ cryptocurrencies, of which bitcoin is the most popular.

Bitcoin is a type of digital currency, created and held electronically. Bitcoin is decentralized, meaning no bank controls the value ”“ the value is generated via computers solving mathematical problems. It’s cheap, easy, anonymous and transparent ”“ and, in many ways, can be helpful for the shady spouse looking to hide money in divorce.

There are several ways to trace hidden assets through paper trails and digital data. But when you introduce the ability to easily hide money overseas in cryptocurrency, you might have to get creative to prove that there is money being hidden.

There are many other ways that bitcoins can be made difficult or impossible to find, and many excuses that could be used. One could claim that the private key that denotes ownership and value of the bitcoins has been lost. If a freezing order is placed on the bitcoins, they can still potentially be trafficked through the Dark Web, given that no centralized service controls the movement of bitcoins.

Bitcoin is not entirely untraceable, though it is harder to do than to follow a paper trail. There are services called blockchain explorers that can allow you to identify suspicious transactions that might indicate money is being hidden. However, given that bitcoin is still in its infancy, the chances of the average divorcee knowing how to use blockchain explorers is not likely. In these cases, you might be best off hiring a forensic accountant to help.

Our Denver divorce attorneys work with a variety of experts to ensure that your property is divided equitably during divorce.