Are Stock Options Marital Property in a Divorce?

Some assets are considerably more difficult to divide than others. Stock options can definitely complicate the division of assets, largely because they are given for a number of reasons and fluctuate widely in value. If you or your ex-partner have stock options and you’re not sure how they’ll be handled in your divorce, it’s important to talk about your options with an experienced attorney.

Divorce is complicated, but with the right attorney on your side, you can get through this time with minimal stress. Set up a consultation with Kirk Drennan Law today by calling us at 205-803-3500 now.

Why Someone Receives Stock Options

To start, you have to look at why the business awarded stock options to the employee or partner. This is actually an important part of figuring out whether or not the stocks themselves are to be divided during the divorce.

In some cases, the company gives an employee stock options to build their loyalty and encourage them to stay with the company longer. When this occurs, it’s often viewed as compensation for future work. Sometimes, companies give stock options to employees as a bonus for their loyalty and work. In this situation, the stocks are viewed as compensation for past work.

A third possibility involves giving stock options to employees to make up for below-average pay. This is relatively common for startups that cannot afford to pay employees or partners what they are actually worth. In this case, the stocks are compensation for current work.

How Stock Options Work in Alabama

Alabama is an equitable division state. That is, assets are divided in a way that is fair, but not necessarily a 50/50 split. In equitable division states, stock options that can be exercised up to the end of the marriage are often considered marital property. Those that are not exercisable during that timeframe are typically considered separate property.

The type of compensation it is also factors in. If the stock options are compensation for past or present work—work that occurred during the course of the marriage—it is likely that they will be considered marital property. If the stock options are compensation for future work, they may be viewed as separate property, as long as the work that is done to earn this compensation happens after the end of the marriage.

Valuation of Stocks

Not only do you have to figure out whether or not the stock options are marital property, you also have to figure out what they’re worth if they do end up being divisible during the divorce. Some courts use the intrinsic value method, which involves subtracting the buy price of the stock from the current stock price and multiplying that number by the amount of shares given to the individual.

In other cases, a more analytical approach may be recommended. For example, the Black-Scholes model involves building a theoretical model of the stocks’ value based on a wide variety of factors.

It Comes Down to the Specifics of Your Case

As is the case with many property division issues in a divorce, the actual answer to this question boils down to the specifics of your case. When you have to consider why the stocks were given and the stock options’ vesting schedule, you have a fairly complicated situation that must be discussed with an attorney.

In these situations, it’s often helpful to talk to an attorney with extensive experience in high-asset divorces. Complicated assets, such as stock options, are relatively common in these types of divorces. Choosing an attorney without experience in this area can end up being a very expensive mistake, particularly if the stock options in question end up being worth millions of dollars down the road.

One of the difficult aspects of figuring out the division of stock options is figuring out why they were awarded to the employee. If there’s no clear paper trail detailing the reason for the stock options, it may come down to the company’s word and the employee’s word.

When this happens, you can expect the employee to say whatever will let them keep their stock options in the divorce. Your attorney may be able to get a more accurate answer by consulting the company’s handbook, employee compensation protocols, or other relevant information.

Protect Your Best Interests with Kirk Drennan Law

At Kirk Drennan Law, we know how overwhelming divorce can be. That’s why we fight tirelessly to defend our clients’ best interests and help them get fair treatment during the process. Take the first step in your case now by contacting us online or giving us a call at 205-803-3500.