Pieces of art, vacation homes and inherited property: As you might expect, high-asset divorces tend to include some items that are difficult to divide and distribute. Securities are among the most confusing for many people.
Stock options are some of the most complicated security-related assets you are likely to encounter. Here is a brief explanation of how they might work during your divorce.
What are stock options?
The first step towards understanding how the court could divide these assets is understanding what they are. As explained by the IRS, there are multiple categories of stock options. The most common types that cause issues during divorce are:
- Employee stock ownership plans for retirement
- Incentive stock options for executive compensation packages
What are stock options worth?
All types of stock options are basically agreements that give a party the right to own a company’s stock under certain conditions. In an ESOP, an employer would assign shares to your account for you to sell upon retirement. In an ISO, the company would give you the right to buy shares at a specific price. Therefore, their value is tied to the market price of the stock.
Who gets the stock options?
The essential question in terms of divorce is usually whether someone received stock options before or after you got married. There could also be a question of how to transfer assets without unnecessary tax burden.
In the cases of ISOs, you would probably want to confirm whether the options were a signing bonus, a retention bonus or an incentive to perform in the future. Usually, but not always, the company’s human resources department has a record of this. For ESOPs, your main concern may be how to roll the options over into another retirement account, such as an IRA.
If you did not handle the finances in your marriage personally, that could be a good thing — overconfidence often leads to mistakes when dividing assets. It would probably take an expert team and a detailed, methodical approach to get a fair deal.