When a marriage ends, the division of assets can be one of the most complicated aspects of the process. Stock options, especially, can be tricky to handle.
What are stock options?
Stock options are company stock that an employee can purchase, usually given to them as part of their compensation package, at a certain price and and during a specific period.
Fair and equitable division of assets
Knowing that Washington follows community property laws is critical to understanding how the courts divide stock options.
This implies that any assets accumulated during the marriage belong to both spouses and will be fairly and equitably divided by the courts upon divorce.
In contrast, assets acquired before the marriage or after the couple separates are treated as separate property and are not subject to division by the courts.
Determining ownership
The first question courts ask is who the stock belongs to. The answer often depends on when and why the stock options were granted to the employee spouse.
Another important question courts ask is whether the options were vested during the marriage, meaning whether the employee spouse had the right to exercise those stock options.
If the stock options were granted and vested during the marriage, they are typically treated as community property and, therefore, subject to division.
If the stock options were granted during the marriage but vest after the couple separates, courts typically consider why the options were granted.
For example, if they were granted as a reward for past performance, the court may determine they are community property. If they were given as a future incentive, the court may consider them separate property.
If the stock options are granted and vested after the couple separates, they are usually considered separate property unless they were given as a reward for work done during the marriage.
Valuing stock options
After the court determines whether the stock options are community property or separate property, the next step is to determine their value.
This phase can be complex because stock options have potential future value but no guaranteed worth. Financial experts are typically brought in for this phase to help estimate the value.
Dividing stock options
After valuing the stock options, the court will decide how to divide them. Common methods include:
- Immediate division
- Deferred division
- Transfer of options
Of course, the parties can negotiate (usually through their attorneys) and reach a favorable settlement if the court approves the agreement. Either way, there is much to consider when dividing stock options and consulting with a family law attorney with experience in this area.
