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How are stock options or restricted stock handled during a divorce?

Arriving at an equitable division of property is a challenge in any divorce, but when you or your spouse have stock options as a part of your compensation and benefits package, it can be particularly difficult. While stock options are, as the name suggests, merely the option to buy a company’s stock at an agreed-upon price (called the “strike price”), they can become very valuable if the value of the company grows in time. As such stock options should be considered among your assets. Likewise, restricted stock awards (often referred to as “Restricted Stock Units” or “RSU’s”) may not be vested yet but have a stated or stock price dependent value in the future.

Are the stock options marital or separate property?

Generally, Ohio regards all assets acquired or owned at when you divorce to be marital property unless one of the spouses can prove that the property is their separate property. If those assets include stock options or restricted stock awards, the court will attempt to divide them equitably along with the rest of your property regardless of whether they are vested or unvested. Once the award is made, the options are marital property. One spouse may receive a share of these stock options or restricted stock awards as a part of their divorce agreement, allowing them to benefit from any value that the stock may accrue. They may also enable their spouse to keep stock options and accept other valuable assets in exchange.

Typically, when the stock options or unvested restricted stock awards are divided, they are not actually transferred from one spouse to the other.  Rather, they are held in constructive trust by one spouse for the benefit of the other.

Determining the value of your stock options can be a challenge.

Determining how much stock options will be worth in the future can be a challenge. It is possible that the stock owner will never have the opportunity to exercise their stock options, or that the stock may be significantly more valuable in the future. One way to determine their worth is to compare the exercise price to the current stock price.

However, the current market price is not the sole indicator of the value of the stock option. Financial experts may need to weigh in to determine:

  • How marketable the stock is
  • How much the purchase of the stock will be taxed
  • Impact of future sale of company on the stock options

The limitations placed on restricted stock awards can make their value even more difficult to determine because ownership of the stock depends on factors like reaching the end of a vesting period, employee performance and company performance.

Because property division is extraordinarily complex when stock options are involved, it is essential to hire an attorney that has experience with financially complex divorces. They can consult with experts to ensure that stock options are considered and accurately valued so you receive your fair share of marital property.