How are stock options divided during divorce?

| Apr 16, 2021 | Uncategorized

According to Kiplinger, many high-level execs receive executive compensation as a bonus for their hard work and success. If your soon-to-be ex spouse holds such a position and receives executive compensation, stock options might feature in your divorce proceeding.

When an employee purchases stock options, they are often subject to a vesting period that can range from one year to five years. That leaves a lot of uncertainty towards the value of the stock. If the company does not perform to its expectations, the value of the stock is less. Also, the tax burden for stock options is often high, which decreases their value even further.

How to split stock options

Another complication is that employers do not permit their workers to transfer stock options to another party. Accordingly, you must work with your attorney to create a divorce agreement that contains a viable plan for stock options. This usually entails the creation of a trust to hold the value of stock. Terms should also touch upon tax obligations to prevent one spouse from receiving the full burden.

How to find less obvious assets during divorce

Even finding executive compensation is a chore. This is because they do not appear in the usual places, such as on a tax return or pay stub. Employers sometimes provide award letters with stock options, which provide insight. They can also appear on incentive compensation plan or offer letters provided when a person is first hired for an executive position.

Divvying up stock options is a complex undertaking no matter how you look at it. That is why it is up to you to perform due diligence and uncover hidden assets when your spouse is not forthcoming about them.