How Can You Best Divide Stock Options During a Divorce?
A stock option is an asset that gives the owner the choice of whether he or she wishes to purchase a specified amount of discounted stock at a specific price point within a specific time period. A big question that often arises during divorce disputes is whether these stock options are marital or separate assets.
Marital property is any property acquired after the date of the marriage and before the date of legal separation or commencement of a divorce action. Thus, stock options are classified just as any other assets are during the divorce process. If the options were earned for services rendered during the marriage and were granted during the marriage, they are marital property. The option is also subject to distribution if it is granted after the date of separation, but was for services rendered during the marriage.
Determining the value of stock options
To be able to divide the stock option equitably, one must know what those stock options are worth. There are several methods used to determine the value of stock options, with one of the most common being the “intrinsic value method.” Using this method, the current value of the stock price is subtracted by the value of the option stock price, and then multiplied by the total number of options.
This is a simple and useful method of valuating stock options for common, ordinary stocks, for which it’s fairly easy to determine the pricing and marketability of the shares.
Like any other asset, the way you divide those stock options is negotiable if you and your spouse are attempting to mediate the marriage. Otherwise, the court will divide the asset just as they would any other marital asset: in accordance with what it believes to be an equitable arrangement given the current financial standing and future earning potential of each party.
For further guidance and advice on dividing stock options during a divorce, meet with an experienced divorce attorney at Jakubowski, Robertson, Maffei, Goldsmith & Tartaglia, LLP.