“Discovery Magazine – La Jolla Edition”
Employee Stock Options Can Present Complicated Issues
By: Schaffer Family Law Group attorney – Cricket Tryon, Esq.
It has become more and more common for employee compensation packages to include a grant of stock options. Presumably, these stock options can represent a significant asset to the employee by giving them the ability to buy low and sell high to realize financial gain.
There are two ways that stock options require special considerations in Family Court proceedings: division of marital assets and determination of income. Both can require complicated legal and financial analysis.
Division of Marital Assets
Whether the stock options are considered to be the employee’s separate property or whether they are considered to be community property subject to division upon divorce will involve determining whether the options were earned during the marriage.
If the options are deemed to be community property subject to division between the spouses, the court has to ascertain the value of those options that have a future vesting date and
determine what, of that value, each spouse is entitled to.
It is important to note that there are multiple formulas that the court can use to determine the divisible portion of the stock options and the portion that is the employee spouse’s
separate property. Which formula is used is entirely to the Judge’s discretion. Not only that, but the result in applying one formula over the other can result in differing outcomes, which
is often determinative as to who receives the greater share of the asset.
For this reason, it is important to be sure that whomever is advocating for you knows and understands the nuances involved in these matters.
Determination of Income
Income derived from stock options granted to an employee is considered as income for purposes of calculating support, just as the employee’s regular earnings would be. The options will
be counted as income to the employee when they are free to be exercised, not necessarily when the employee actually does exercise them.
This can quite substantially affect both child and spousal support orders and is thereby important to be aware of when stock options are at issue.
Cricket Tryon, Esq., is an attorney with the Schaffer Family Law Group, a full-service divorce, mediation, and family law firm known for effective legal representation and compassionate client service. For more information, please visit www.schafferfamilylaw.com.