In recent years, employers have increasingly compensated executives and employees with stock options. This means that divorce and family law attorneys need to understand how to accurately value and transfer stock options as marital property in a divorce.
California law states that all assets acquired during the marriage are considered community property; this includes any “earned” stock options. Typically, any stock options granted to the employee spouse before the couple married or after the couple separated are considered the employee spouse’s separate property, and not subject to division in the divorce.
Stock options that can’t be sold to a third party or don’t have any real value (for example, stock options in a private company or unvested options) can be difficult to value and divide. California courts use variations of a formula called a “time rule” to determine the stock option’s value. A court may first want to determine why the options were granted to the employee (e.g., in order to attract the employee to the job, as a reward for past performance, or as an incentive to continue working for the company) as this will impact which rule is more appropriate.
Generally speaking, 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, if a specific number of options vested one month after separation, then a significant portion of those shares would be considered community property subject to equal division (50/50). However, if the options vested several years after the date of separation, then a much smaller percentage would be considered community property.
Valuing and dividing employee stock options in a California divorce requires an experienced divorce and family law attorney.If you have questions about the division of stock options,contact Thorsteinson Law Group . Los Angeles Divorce and Family Law Attorney. Orange County Divorce and Family Law Attorney.