The more complex your finances are, the more challenging your divorce becomes. While homes and bank accounts split relatively easily, compensation packages with stocks create special problems.
For executives, business owners and wealthy individuals, stock options and investments often make up a big part of their wealth. However, when it’s time to divide these assets, not many know how to proceed.
Figure out what counts as marital property
The court looks at when you got the assets. Stock options granted during marriage typically count as marital property. Additionally, this means that even if options are not yet vested, they can still count as part of the marital estate.
Options you received before marriage but gained access to during marriage may also count partially as marital property.
Take note that Massachusetts follows the “equitable distribution” rule. This means that courts divide marital property fairly, but not necessarily an equal 50/50 split. Depending on your financial situation, your spouse may receive a larger share of the stock option and other assets.
Valuing vested and unvested options
Vested options are easier to assess as they are available for exercising or purchasing company stock. Having the option to exercise your vested options helps you figure out the exercise price, taxes and other costs faster.
Meanwhile, unvested options depend on future events, like continued employment. Their true value remains uncertain until they vest. Valuing restricted stock units is challenging due to their similar nature. These two generally require:
- Figuring out what future benefits are worth today
- Calculating the taxes you’ll pay when you eventually use them
- Assessing risks that might affect their future value
- Looking at when you’ll gain access to them
- Considering how well the company might perform
Most courts hire financial experts to determine accurate values using special formulas. The longer you must wait to access the stocks, the more complicated the valuation becomes.
Finding creative solutions for peaceful division
A clean division helps both people move forward without ongoing financial ties. Instead of splitting each stock option, you might trade for other assets, buy out your spouse’s share or create special accounts to manage future payments.
Some couples make agreements where the non-employee spouse gets a percentage of the actual value when the options become available. With good planning and experienced legal counsel, you can develop solutions that protect your finances while minimizing ongoing connections to your former spouse.