The Impact of Divorce on Executive Compensation Packages and Stock Options

Couples with substantial incomes or high-valued assets often have a long journey ahead of them when it comes to divorce. These circumstances can make the division of assets much longer, due to the challenges associated with fair valuation and equitable division. That’s why it’s important to work with a high-net-worth divorce lawyer in Birmingham if you or your spouse receive an executive compensation package. This type of compensation is far more complicated than a straightforward hourly pay or salary, and you’ll need an attorney able to advocate for your best interests.

That’s where we can help. The team at Kirk Drennan Law is focused on helping you get what you need out of your divorce. Call us at 205-953-1424 to set up a time to talk to our team.

An Overview of Executive Compensation

Executive compensation packages aim to provide high-level executives with numerous forms of compensation for their contributions to the company. While these packages may include a base salary, that’s often a relatively small part of the total package. Other items often included in compensation packages include restricted stock units, stock options, competitive retirement plans, and other performance-based awards. Together, these items are worth millions of dollars. The way they are structured, the reason they are paid, and other factors all determine whether or not they are marital property and if they are subject to division.

Valuation of Stock Options—Challenges and Considerations

One of the main complications in executive compensation packages is stock options. Stock options allow an executive to buy stocks at a pre-determined price. Stock options may be vested or unvested. Vested stock options allow the purchaser to buy the stocks at the preset price and then either hold the stock or sell it. Unvested stock options do not become vested and are inaccessible until a certain point in time. This type of compensation rewards loyalty and longevity at a company, so an executive may need to work at the company for a set amount of time before their stock options vest.

Because of this, valuing stock options can be a challenge. There are several ways to go about a fair valuation. First, the spouses may simply agree on the value of the stock and go from there. However, with this much money hanging in the balance, this is unlikely. The Black-Scholes model looks at the stock’s volatility, market price, grant price, time until expiration, and risk-free rate to determine its value. The intrinsic value model puts the stock through a basic formula to determine its current financial value.

To make it even more complex, not all stock options are marital assets. If stock options are given to an executive to get them to stay with the company, those options may be based on future work—work that will be done outside the course of the marriage. In that case, these stock options may not be marital assets. But if they are awards for previous years of service, they may be marital assets.

How Executive Compensation Packages May Affect Negotiations

Negotiating a fair division of assets, child support agreement, and spousal support agreement can take time in a high net-worth divorce. One of the benefits of hiring a Birmingham attorney with experience in high asset divorces is that they know where to look. Tracking down different forms of compensation requires an in-depth understanding of executive compensation packages, which is key to getting what you want from your divorce.

For many couples, it’s easiest to simply offset executive benefits with other assets. A spouse may be entitled to a portion of the executive spouse’s stock options, but they may agree to receive that monetary amount in the form of another asset, allowing the spouse to keep their stock options. This is helpful when transferring the stocks is either not possible or not beneficial for one party.

Explore Your Legal Options with Kirk Drennan Law

In these types of divorces, there are millions of dollars at stake. Your future hinges on how well you navigate negotiations, so make the right choice of attorney from the beginning. Call us now to set up a consultation and find out how we can help you with your Birmingham divorce. Just call us at 205-953-1424 or get in touch online to take the first step.