Managing stock options in a divorce
Photo of Attorneys T. Noel Brooks and Jesse Baez walking outside.
Photo of T. Noel Brooks and Jesse Baez

Managing stock options in a divorce

On Behalf of | Aug 18, 2021 | Family Law

For many executives at Virginia companies, stock options and restricted stock units (RSUs) can form a major part of the annual compensation package. These are forms of compensation that have become increasingly popular over time. At least 15 million Americans have these types of assets. When it comes time to divorce, some may leave them outside of the equation entirely, especially if they are unvested or unexercised. However, executive compensation and stock options can be an important consideration during the asset division process.

Determining a value for stock options

It can be challenging to properly value a stock option or an RSU, because options have not always vested and their value can change over time. Agreeing on a value without selling or vesting the options may leave one party with a windfall. As a result, settlements may include different provisions for how to deal with stock options in a high-asset divorce. In some cases, both parties may agree to value the options at some variant of their present price, discounted to account for potential fluctuation. In other cases, the parties may agree to a future payout at the point that the options are exercised.

Dividing the value of executive compensation

Virginia is an equitable distribution state, so stock options that belong to one spouse are not automatically divided in half. However, a family court or a divorce settlement may determine that a certain portion of one spouse’s executive compensation should be distributed to the other spouse. Others may choose to forgo a claim on these options in exchange for a larger share of other assets.

There are a number of issues to keep in mind when reaching a divorce settlement involving stock options, including taxes. The latter should be kept in mind in order to ensure that the tax burden as well as the benefits of any stock options are fairly distributed.

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