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Montgomery County Stock Options Division Attorney

Dividing Stock Options During a Divorce in Pennsylvania

If you are planning to divorce, asset division is a significant issue. Your future financial health is at stake, and every type of asset must be valued and divided fairly. When it comes to dividing stock options, the process can be even more challenging to resolve.

The Montgomery County family law team at the Law Offices of Sheryl R. Rentz, P.C. can help you assess all your legal options. We have extensive experience handling high-asset, complex divorce cases in Montgomery County. Let us put our skill behind you and your case, so you can get the divorce resolution you are satisfied with. Call us at (610) 645-0100 for a free case evaluation.

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Stock Options: The Basics

Stock options may have been granted to your spouse as a reward for past work, to incentivize future work, or both. Stock options are granted to an employee, giving them the right to purchase company stock in the future at a discounted or fixed rate. The rate at which the stock can be purchased is far lower than the predicted future trading price, allowing an employee to buy the stock at well below market value.

The state of the stock option is very important to how your divorce will divide it. When an employee first receives a stock option, the employee cannot sell or trade it for several years. This is referred to as the “vesting period,” and the stock is treated as “unvested.” When a stock has left this period, it is referred to as “vested,” and the employee can exercise it.

Once the options are exercised, the employee may sell the stock and turn a hefty profit. If your former spouse still has stock options, whether vested or unvested, it may become a significant asset for your partner, and these options must be divided equitably, just as all other assets are following a divorce.

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What Is the Value of a Stock Option?

Valuing stock options can be a very complicated process, requiring assistance from tax and financial experts. Pennsylvania is an “equitable distribution” state, and all assets must be divided fairly between the two partners. However, the value of a specific stock option may be uncertain at the time of a divorce. The division of stock options with an unknown value can be resolved with specific language in the agreement that allows for the asset to be divided once the options are exercised.

Unvested stocks are difficult to assign a value to and cannot be exercised, but if it is considered marital property, you may still have a claim in it. For example, a family law court may require that a stock be divided when it becomes vested, and an employee has a better understanding of its value. A court will likely use the percentage method of calculating unvested stocks, which assigns a specific percentage to the stock based on how much of it is considered a marital asset and for how long.

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When Is a Stock Option a Marital Asset?

Stock options can be treated as marital assets in two ways: one spouse received the stock options during their marriage or one spouse had stock options prior to a marriage, but exercised them during the marriage. In these situations, the stock options or any income gained from exercising them, are subject to equitable distribution.

However, stock options offered for future service and employment are more complicated. Because the stock options have not been earned yet, a court may consider them future assets. If a spouse will not receive these options until after the date of separation, then it can be considered separate property, but it must be proven in court. Otherwise, it is possible for a spouse to argue it is marital property, resulting in it being divided during the divorce.

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How Do You Divide Stock Options in a Divorce?

Dividing this asset is a specialized process. The details must be thoroughly evaluated to divide this type of asset. For example, if the option was to benefit your former marriage partner for work performed during the term of your marriage, it is considered a marital asset. If the stock options were granted before your marriage for work performed both prior to and during the term of your marriage, a portion of the value will be seen as marital property.

The documentation regarding the vesting and granting of stock options must be thoroughly reviewed to determine whether the options were for past, current, future work, or a combination. How the options will be vested is also a consideration, as the options may have been granted during the term of your marriage but will not be exercised until years after your divorce is finalized.

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Steps to Dividing Stock Options in Montgomery County

The process of dividing stock options requires a specific set of steps:

  • Financial Discovery: First, you must determine whether your former marriage partner owns stock options. Your divorce lawyer can request information about stock options, as they do not appear on tax returns or other documents. Identifying hidden assets is a critical point in asset division, as your former partner may not feel inclined to reveal that he or she can come into significant wealth in the future.
  • Valuation: Next, you must place a value on the stock options so they can be fairly divided in the divorce. A value of a stock may vary depending on if it is vested or unvested, but your attorney can work with financial experts to determine a real-world monetary value for the stock. If the value is unknown, your divorce agreement can be written to allow for the profits from the sale of stock to be split at a future date, when the stock options are exercised.
  • Negotiations: A divorce agreement is not as simple as stating the amount you deserve from stock options. There may be benefits to dividing a stock option between you and your ex, allowing you to have a steady source of income in the future, or you may trade your rights to the stock options with your ex in order to gain some other assets, such as real estate, jewelry, or ownership of a family business. These deals should be carefully negotiated by your attorney who can advocate for your best interests.
  • Settlement Agreement: Once you have come to terms on how a stock option should be divided, both sides must agree to and sign a settlement agreement that acknowledges the terms of the divorce.

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Experienced Representation in a High Net Divorce

A divorce can be a complicated process, particularly in high net worth cases. Resolving asset division may include valuing stock options. The legal team at the Law Offices of Sheryl R. Rentz, P.C. will walk you through every aspect of asset division, along with child custody, support, and other matters, focusing on what is most important to you.

Lead Montgomery County family law attorney Sheryl R. Rentz has over 25 years of experience resolving family law matters for her clients. Before practicing law, she was an engineer for AT&T Bell Laboratories for 16 years and has an engineer’s precision when resolving the division of assets in a divorce. She offers a free initial consultation. Call us at (610) 645-0100 to discuss your case further in a free consultation.

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