The New Marital Property of Employee Stock Options
30 Pages Posted: 8 Nov 2013 Last revised: 12 Nov 2013
Date Written: 2001
One of the most valuable assets in a divorce may be an employee stock option (ESO). An ESO is a contractual right granted to an employee to purchase the stock of her corporate employer during a designated period of time at a predetermined price. It is estimated that between ten and twelve million private sector employees have ESO; most top Fortune 500 companies grant ESOs to their management employees; and the options are prevalent in high tech enterprises. These options represent potentially huge payoffs for employees, as in one example where a wife received one million dollars for her share of her husband's ESOs under a separation agreement, but four months later, a sale of the company increased the value to sixty million. The options though are also potentially worthless as in the case of a dot-com company that goes out of business.
The law, however, has been slow to keep up with this modem form of employee compensation and has struggled to understand this new form of property in the context of dividing and distributing marital property. Only fourteen state supreme courts to date have spoken on any aspect of this complex issue, and of these, only a handful have analyzed the relevant issues in any meaningful way. This article delineates the emerging lines of reasoning in an attempt to direct the legal analysis as consideration of the ESO in dissolution percolates through the courts. It does not attempt to answer all of the key legal questions raised by the exploration of the issue, but instead represents a step toward synthesizing the common strains of analysis and identifying the inconsistencies in order to promote a clearer resolution of the issues.
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