A primer on the treatment of stock options after divorce

When going through a divorce, many couples fail to recognize the importance of property division techniques for stock options. Even though you may not think that stock options are relevant for your Arizona divorce, a qualified family attorney can help you decide whether to include stipulations about these financial resources in your divorce settlement. This is true even of those couples who do not have stock options at the time of a divorce, according to legal experts.

The sad fact is that stock options may go unnoticed during divorce settlement talks, perhaps because of their nebulous nature. A stock option is provided to an employee when a company offers their workers opportunities to purchase future company stock at extraordinarily low current prices. These options may be exercised over a long period of time – typically up to 10 years. By then, your divorce could have been long finalized, and one spouse could end up with an unfair amount of money that was not addressed during the property division stage.

Although many couples fail to even address these important financial options, others fail to determine whether the stock options have an existing value. Stocks can certainly be thought of as assets or potential sources of income, according to legal gurus. In Arizona, such financial windfalls must be reported on income tax documents, which makes the money fair game for calculating child support and alimony. One man who resides in a state with similar laws was forced to surrender one-third of his $1.2 million gross pay during the year that he exercised his stock options, thanks to a divorce agreement that allocated a certain percentage of his earnings to his ex-wife in perpetuity.

Although stock options may not have crossed your mind during your divorce proceedings, they may warrant special attention, especially for spouses with executive professions and others likely to receive such an employment benefit. Family attorneys can help determine whether your stock options are considered a marital asset or marital property, allowing both members of the couple to understand more about their legal rights.

Source:  Private Wealth Magazine, “Weighing Divorce ‘Options'” Marc D. Bello, Jan. 07, 2014

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