How Your Stock Options May Be Affected By Divorce

Like most other property, stock options are divided in a divorcelargely in accordance with how and when they were acquired. Stock options can vary and at the time of the divorce, they may or may not be exercised depending on whether the right to exercise the stock options has vested. There are also issues of whether or not the stock options are given as past, current, or future compensation.

Know the Law

Illinois law deals with stock options in a divorce by generally defining them as marital property, whether or not the stock options are vested, if they were acquired after the marriage and before the divorce, and are not otherwise considered non-marital property. In considering the division of stock options, the judge takes into account how the stock was acquired, the compensation rewards or incentives and the time it takes for the option to be exercisable.

Proper Valuation and Division

Division of the stock options can be difficult without an accurate way to determine or estimate the value of the options. In a publicly traded company, it may be easier to get a valuation and use a formula to determine how much the non-employee spouse would receive. The court may rely on whatever valuation method is used by the employer granting the stock options to determine the value of the stock options. After getting a valuation, the court may then award the non-employee more marital assets to offset the stock options if the stock options cannot be immediately exercised. While this method would allow the division of marital property to be completed by the time the divorce is finished, it is not the only approach.

Other Alternatives

In some cases, the court may decide to grant the non-employee spouse an interest in the stock options and when the other spouse exercises the options, the non-employee spouse will receive their share. In this scenario, the non-employee spouse would benefit from any unexpected increases in the value of the stock. The law anticipates that in some cases transfer of stock options may not happen by the time the divorce is finalized, and allows for the judge to award stock options to a spouse with this in mind. If the non-employee spouse is to receive the stocks on a future date, the stock options may be held in a trust or other form of protected fund for the benefit of the non-employee spouse.

There are tax implications to exercising and distributing stock options; both the judge and the parties in the divorce should keep this in mind when dividing the property.

Contact an Experienced Family Law Attorney

If you are considering divorce and would like to find out how the divorce may affect your stock options or other high value assets, contact an experienced Orland Park family law attorney. Call Kezy & Associates today at 708-518-8200 for a free initial consultation