Stock options that are granted subject to employment can present a challenge when dividing assets in a divorce. This can occur because the options may not have vested yet or the employment upon which the options were based may have occurred before the marriage as well as during the marriage. This article will provide an overview of the logic relating to analyzing the value of the stocks and to whom that value should accrue. However, this is a complex area of the law, and we recommend that you consult with attorneys who are familiar with the valuation and division of stock options. At the Law Office of David Knecht, at 707-451-4502, we have extensive experience in divorce in California and can help you with complex questions relating to valuation and division of assets in a California divorce.
Is the stock option community property or separate property?
Establishing whether a stock option is community or separate property is important. Many facts can play into this analysis such as the date the options were issued, whether they have vested, and the requirements that were met or will be met to justify the stock award.
What is the date of separation?
The date of separation is important in assessing stock options. The date of separation is defined as the date that a complete and final break in the marriage relationship has occurred, evidence by both the following: 1) the spouse has expressed to the other spouse his or her intent to end the marriage, and 2) the conduct of the spouse is consistent with his or her intent to end the marriage. https://codes.findlaw.com/ca/family-code/fam-sect-70.html
Are the stock options vested or unvested?
A vested option can be exercised by an employee. An unvested option can be exercised at some point in the future usually based on certain requirements (such as remaining employed). An option that has vested during the marriage is more clear cut, but that doesn’t mean that an option that hasn’t vested before the date of separation has no value to the nonemployee spouse. California courts have held that even though unvested options may have no marketable value at the time of divorce, they can still be an asset subject to division in the divorce.
What are the formulas used by courts in these cases?
There are multiple formulas that a court can use, and the court has broad discretion to apply the formula that will achieve the most equitable result. Although the formulas vary, the basic idea is that the longer the time between the date of separation and the date the options vest, the smaller the overall percentage of options that will be considered community property. For example, consider a divorce where the options vest just a day after the separation. Now consider a divorce where the options vest years after the separation. In general, equity would suggest that the nonemployee spouse should be entitled to a greater share of the stock options that vest just a day after separation than those that are years away from having market value.
You can a couple cases that are examples of these formulas here: https://scocal.stanford.edu/opinion/re-marriage-brown-27941
https://www.leagle.com/decision/200715366calrptr3d871148.xml
What is the best way to position yourself in a divorce relating to stock options?
Even though nonvested stock options may have no present market value, you may want to retain an interest in the shares and potential profits. This area of family law can be very complex, and possibly the best way to position yourself well relating to stock options is to obtain advice from an experienced divorce attorney who can analyze and comment on your specific situation.
Conclusion
At the Law Office of David Knecht, at 707-451-4502, we have extensive experience in divorce in California and can help you with complex questions relating to valuation and division of assets in a California divorce.
