When you go through a divorce, there are many things that must be taken into consideration. You must determine how the home and personal assets will be divided. You must create a custody agreement if there are children. And you also may need to value stock options decide how those are going to be divided. Often, this is one of the most difficult and complicated things to do in a divorce. Determining stock options comes down to a variety of factors. One of the most important is determining if the stock options are marital property or separate property. If a spouse has stock options that have not been exercised, and which could be worth a lot of money in the future, it is important to determine if the options are marital property or not.
If the stock options were purchased or given during the marriage, it may seem like they are marital, but this is not always the case. Options may be a reward for past work or an incentive for the future work with a company. So, if the options are for past work from before the marriage, they could be considered separate rather than marital. As a result, it must be determined what the option was granted for. If it was granted for something during the marriage, it is marital.
Looking at vested versus unvested options is an important part to determining whether the options are separate property or marital. The vesting period is going to be how long the spouse has to wait before they can exercise an option. If someone can’t exercise the option until 2025, then the option is unvested until that year. Naturally, this can cause some confusion in determining if it is separate or marital. If the spouses were married in 2013, and the option was granted in 2015, but the couple separates in 2021, do they split the options? In most cases, they do.
To value the option, once it has been determined if they are marital, begins a complicated process. The most common method is the intrinsic value method, which takes the option value of the current stock price, minus the option strike price, and multiplied by the number of options owned. This will determine the value, and will give an idea of how it is going to be split, and how much money each spouse is going to receive.
Another, much more simple, way is to reach an agreement. The spouses can agree on a value of the marital portion of the options for a specific amount. It can be risky, but it is cheaper than hiring an accountant to do it for you. As for dividing the stock options, the easiest way is to just split it 50/50. This may not always be the case depending on the divorce, but it is cheaper and easier. It is also the most fair for everyone.
If you want everything to be completely fair, and you have the money to spend, hire an accountant to handle it for you. They will get the best options for everyone.