Unexercised Stock Options and Marital Dissolution
10 Pages Posted: 7 Feb 2007
This article examines the issue how and when a court can assign interests of a spouse in unvested stock options during a marital dissolution proceeding. Most jurisdictions have treated unvested stock options as marital property, but because the options have not vested as of the time of the divorce division must occur on an if and when received basis. This creates peculiar problems for attorneys and the courts since the options may not ever vest, if for example the optioned spouse dies, is terminated from employment before vesting, or the value of the stock declines below the strike price at the time of vesting. Courts and negotiating parties can try to make arrangements to deal with the various possibilities as to events which occur after the divorce. A few courts have treated options as a form of income for purposes of alimony or child support, which has some logic since many optioned employees see the potential future sale of stock after vesting as potential future income. Legal restrictions on options can also create problems. Dealing with tax considerations is also discussed. The author makes some suggestions as to how to advise divorce clients regarding options and warns about potential malpractice problems in handling a dissolution case involving unvested stock options.
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