Property division is one of the most complex aspects of a divorce, requiring extensive documentation of assets and consideration of a fair distribution. When spouses receive compensation beyond a traditional salary, the process can become that much more complicated. Stock options can represent substantial future income, so understanding how they are treated and divided in a divorce is crucial in protecting your financial interests. Continue reading for more information and consult with a knowledgeable Dallas County property division lawyer to discuss your options today.
What Are Stock Options?
Stock options are benefits offered by employers to employees that give the holder the right to buy or sell a company’s stock at a set price, called the strike price, before a predetermined expiration date.
When you receive stock options, you are not getting the actual shares yet, but instead receive the opportunity to buy them later. They usually become available over time, meaning they come with a vesting schedule, and you may earn the right to exercise the options over several years.
One benefit of stock options is that the strike price is locked in, and you can buy, hold, or sell the stock at a time that will most benefit you. For example, suppose you are awarded 5,000 stock options with a strike price of $20. If the current market value of the stock is $100, you can buy it for only $20, meaning an 80% discount, and either hold the stock or sell it at market value for a significant profit.
Stock options can have substantial financial value, so understanding how they are treated in divorce is crucial for both the employee and non-employee spouse.
Are Stock Options Considered Marital Property?
Stock options may or may not be considered marital property depending on the specific circumstances. Any assets acquired during the marriage are considered jointly owned; therefore, stock options awarded while the couple is married will likely be subject to property division.
Stock options granted prior to the marriage may be considered separate, but portions that vested during the relationship may be divided. In addition, both spouses may have a claim on any appreciation of value that occurs during the marriage. The status of the options will also depend on whether they were awarded for work done during the marriage or as an incentive for future work that has yet to be completed.
How Are Stock Options Divided in an IA Divorce?
Iowa is an equitable distribution state, meaning that courts divide marital property and debts in a way that is fair but not necessarily equal. Iowa courts evaluate various factors when determining an equitable split of assets, including the length of the marriage, each spouse’s contributions to the marriage, and each spouse’s future earning capacity.
After determining which portion of the stock options is subject to property division, the court will split the value as any other asset, depending on the specific circumstances of each spouse’s financial situation. If the company allows transfers, the employee spouse can transfer the non-employee spouse’s portion of the options to them. The court could also award the non-employee spouse additional assets, like a larger percentage of a home or vehicle’s value, in exchange for allowing the employee spouse to retain all of the stock options.
There are several ways that a court can divide stock options during a divorce. For more information and legal representation, contact an experienced family law attorney today.
