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How are stock options divided in divorce?

Whether you have millions in assets or significant debt (or are somewhere in between), determining how to divide up your financial portfolio can be one of the most complicated parts of your divorce. The process can become more complex when you or your spouse have assets that are difficult to appraise and evaluate, such as stock options and restricted stock.

Stock options set a price at which the employee will be able to purchase the company stock at a specified later date. The idea behind this is that the stock price will increase by that future date, so the employee will be able to purchase the stock and then sell it for a significant profit.

Restricted stock entails the granting of company stock to employees at no cost, with the caveat that the employee must fulfill certain conditions (such as working for the company for a set period of time) before they sell the stock.

Valuation is the main challenge with these assets, as their value is largely determined by that of the company. It can be very difficult to determine what the price of a share will be when a stock option or restricted stock vests, especially if the business is new or privately held, or if the market is volatile. State or federal tax laws could cause you to owe significant tax amounts if the valuation and division is not handled correctly. And, if your spouse is not entirely forthcoming, you may be forced to subpoena the company’s human resources department to gain access to the information that you need.

For these and many other reasons, it is generally a good idea to work with an experienced divorce financial planner and other family law professionals on this aspect of your property division. Attempting to split these assets on your own can lead to unintended tax consequences, an uneven allotment and intense frustration on your part. 

Source: Forbes, “Dividing Stock Options And Restricted Stock In Divorce,” Jeff Forbes, March 19, 2014

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