Stock options add a layer of complexity to divorce settlements, especially when one or both spouses have a high net worth. These assets don’t work like cash or property. Their value depends on timing, employment conditions, and future company performance.
Understanding stock options in a divorce
Stock options give you the right to buy company stock at a set price in the future. Some options you can exercise right away, while others vest over time. In a divorce, the court looks at when the options were granted and why. If the company granted them as compensation for past work during the marriage, the court may treat them as marital property.
When do stock options become divisible?
Options granted during the marriage usually count as marital property. If you earned them for work done while married, even if they vest later, the court often divides them. Options granted before the marriage or after separation usually stay separate. But if they reward work done during the marriage, the court might still divide them.
Valuing stock options fairly
Valuing options gets tricky. Future stock prices can change, and some options might not ever vest. Courts often use formulas or rely on professional opinions to estimate their worth. These methods help ensure both parties receive a fair share, even when the exact value remains uncertain during the divorce.
Make sure you include all stock-based compensation in the settlement. This includes restricted stock units (RSUs), incentive stock options (ISOs), and non-qualified stock options (NSOs). Each type follows different rules and tax consequences. Knowing what exists helps prevent misunderstandings and unfair outcomes.
