The comprehensive compensation packages provided to executives and other highly-skilled professionals are often relatively complex. Professionals may be eligible for deferred compensation and company stock options.
Stock options allow people who meet certain criteria to purchase stock in the company where they work as a benefit of their employment. Stock options can be one of the most valuable components of an executive employment contract. They can also be a major complicating factor when successful white-collar professionals divorce.
Contrary to what people sometimes believe, stock options that are not yet available to a professional may be subject to division during divorce proceedings. How can people effectively address stock options during property division proceedings?
Determining what is divisible
Stock options are often part of a deferred compensation agreement. The professional likely needs to meet certain performance standards or retain their position with the company for a specific amount of time to be eligible for stock options.
Depending on the conditions included in their contract and the timing of the divorce, only a portion of the stock options may actually be part of the marital estate when they divorce. Whatever they accrued during the marriage is theoretically subject to division even if they are not yet eligible to utilize their stock options for several years. This same rule may apply to other forms of deferred compensation as well.
Establishing a fair market value
In some cases, companies offering stock options are startups. They may not have yet even had an initial public offering (IPO) and are not a publicly-traded organization. In such cases, it can be particularly difficult to determine what stock options might be worth in several years.
Even if the company has stock available for purchase when spouses divorce, the current value of that stock may not realistically reflect what the stock could be worth when the employee has the option of acquiring it. Spouses may need support as they attempt to determine what stock options are worth and then integrate that value into the overall property division negotiation process.
Those anticipating a complex asset division process due to stock options and other valuable resources usually need guidance as early as possible during a divorce. Identifying stock options and other potentially complicating factors can help spouses push for fair property division outcomes.
