Stock Options and Divorce
Stock options can be offered to employees as an incentive or reward for a job well done. They are typically offered up front as a future benefit after working at a company for a set amount of time and can be purchased at an option price that was previously set. Every company will have a different policy and set of requirements. Some require vesting. In North Carolina, in most circumstances, the court will consider a stock option as a form of deferred compensation. The label is important because it opens up the possibility of stock options to equitable distribution. If they are acquired or received during the course of marriage and before separation, they are very likely marital property, even if the option cannot be exercised until after a judgment of divorce. Likewise, they can be divisible if acquired as a result of employment during the marriage, but not received until after separation.
One difficulty lies in the method used to obtain a value for the option. Courts in North Carolina have held consistently that there is no single best approach when evaluating a stock option, only that a court should come to a value reasonably approximated based on competent evidence and sound methodology. What is clear is that on review, as long as a trial court relies on good evidence and methods and gives reasons for their findings, there must be no error. Common methods typically account for the stock prices on day of separation/vesting/liquidation, exercise/option price, interest rates, volatility of a stock, and other market factors. The Court is unfortunately often not savvy in financials, and expert witnesses are used to testify on a method.
Another difficulty lies in distribution. Already acquired stocks can simply be divided in-kind; if one party owns 100 shares and the distribution being equal, shares are split 50-50. Options are not so easily distributed. They require funds to exercise the option, taxed on purchase, and market fluctuations are complex issues that are not so easily resolved in court proceedings. Instead, Courts may award one spouse the full option, and make up the difference in value with awarding the other spouse other property. Sometimes the Court will order a distributive award, awarding the full benefit but ordering a money award for the other spouse representing their share of the property. There are formulas and factors in reaching what makes up the divisible share. There also exist other methods for distributing stock options. The issue is complex, and an experienced family law specialist would prove invaluable when it comes to strategies for equitable distribution.