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Stock Options During a Divorce

Stock options are a common form of compensation, the idea being to align the interests of the company and the employee. Therefore, the employee will have a vested interested in the company’s performance. But when spouses no longer have a vested interest in one another, the question arises over who has a vested interest in the stock options.

Stock options present one of the more complicated issues in the division of property during a divorce. First a court must determine if the options are “vested.” The term vested for family law may be very different than vested for IRS purposes. In family law the courts look to determine whether the employer can withdraw or retract the options.
To be martial property the options must also have matured. By matured, the focus is whether the option holder can exercise the options or turn them into cash. Then, the court must determine whether a vested and matured option is martial property which is often very specific to each individual case. An option to induce some future performance such as continued employment is usually not marital property. An option for some past performance usually is martial property. For example, an option granted to induce a move in work location or an option granted to change companies would be marital property.
Each option grant has to be evaluated separately to determine the nature and extent that option is marital or separate property.