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Share Stock Options Divorce Law
Do I get a portion of my spouse’s stock options in a divorce?
Yes, if a spouse earned stock options during the marriage, most courts will award at least a portion of the options, or the value of the options, to the other spouse in the event of a divorce.
Stock options are frequently granted as a form of compensation — or in lieu of additional compensation — by many businesses. Particularly in highly entrepreneurial firms, the potential riches that stock options can sometimes provide are the most important part of an overall pay package. It is estimated that at least 10 million American employees held stock options in 2000, up 10 fold from the number holding options in 1992.
As courts are still playing “catch-up” and figuring out how to deal with stock options in a divorce, in many states there are no set laws or clear “rules of thumb” for judges and courts to apply, as options are in many ways different from other forms of property. For example, most stock options cannot be exercised immediately on issue. They typically “vest” over a period of 3 to 5 years, or longer, and continued employment with the same company is nearly always a condition for vesting. How does that play in a divorce?
Assume the wife was granted options for 1,000 shares of her employer’s stock, vesting over 5 years, on January 1st and while the value of the options went way up, the couple separated on December 31st of the same year. In order for the options to be exercised in full she would have to work at the same firm for 4 more years, and the firm, knowing that she held valuable options, might pay her below market rates. In that case would it be appropriate to award options for 500 shares to her husband (a full 50-50 split), or only options for 100 shares (50% of the 200 shares that vested during the marriage) something in between? These are issues courts have to grapple with.
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