If you are going through a divorce, you likely know by now that all marital assets, as well as debts, must be divided. While things like the family’s house and bank accounts often form the focus of this division process, stock options must also be divided, yet are frequently overlooked. Some parties forget to include details about these stock options on their accounts, while other times parties fail to disclose details about these options because they hope that other parties will not discover them. If you own stock options, know that they can be divided in several ways in a divorce.
What are Stocks Options?
Stock options give a worker to right to purchase company stock at a fixed price in the future. Ideally, this price will be much lower than the future trading price which means the worker will later be able to sell the stock and make a substantial profit.
The concept of restricted stocks, however, refers to company shares that are granted at no cost to workers. These stocks are not transferable until certain conditions are satisfied. For example, a restricted stock might state that a worker must be at a company for 10 years before the stock can be traded. While stock options and restricted stocks often do not result in a substantial gain for the owner, more people are learning about them and they are playing an increased role in the division of marital assets.
How to Handle Stocks Options in a Divorce
There are several important steps that you should follow when handling stock options and restricted stocks during the division of marital assets, which include:
- Determine that the stock exists. Not knowing about stock options can greatly jeopardize the division of marital property. These stocks do not appear on most financial documentation, which makes them much easier to hide.
- Assess the value of the stocks. Deciding on the value of stock options and restricted stock is challenging. If the company is currently being publicly traded, you can often quickly compare the price of the stock options when they were awarded versus the company’s current trading price.
- Obtain your fair share. What is a fair share of stock options and restricted stock can be a challenging question, but your attorney can make sure that you have the strongest case possible.
- Create a plan to exercise the options. After learning about the stocks and assessing their value, you should make a concrete plan for “cashing in” these stocks, otherwise, there is a risk that these stocks might end up losing value.
- Consider tax ramifications. If you find out that your spouse is unable to transfer ownership of the stocks, they must “cash in” the stocks and transfer them to you. In these situations, stocks will be taxed at your former spouse’s tax rate. Otherwise, the stocks will be taxed as ordinary income the year that you “cash in” the options.
Contact a Knowledgeable Family Law Attorney
The division of property is not easy. There are also several other challenging aspects of divorce. If you need assistance during this difficult time, do not hesitate to contact Vayman & Teitelbaum, PC. We have helped many other people successfully navigate the divorce process and can make sure that you obtain the results that you deserve.