Divorce: Dividing Stock Options and Restricted Stock

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The property division process in a divorce of individuals with complex asset portfolios will always be a challenge. Some assets can bring about contention, and if you are the spouse who had little insight into the family finances during the marriage, you might be concerned about the fairness of the process – especially when it comes to the untangling of the financial facets of a marriage that lasted many years.

What are some of the challenges?

Some of the most intricate aspects of a high asset divorce include stock options and restricted stock.

  1. Stock options — Companies offer these options to employees, allowing them to purchase company stock in the future at a predetermined price. The advantage is that the trading price at that date will likely be considerably higher, yielding a significant profit on stock bought at a low price.
  2. Restricted stock — Employees receive shares of restricted stock at no cost. However, there will be certain conditions attached that might include a requirement for the employees to remain an employee with the company for a specified period before the stock will be transferable.

Although stock options and restricted stock may not be very valuable at the time of the divorce, the eventual value may be significant and must form part of the property division of assets in a divorce.

Confirm existence

Unfortunately, these are sometimes undisclosed assets during a divorce, and you might need the skills of an experienced divorce attorney to determine whether any such assets exist in yours. Financial documents, including W-2 forms and tax returns do not show stock options and restricted stock until the vesting of the restricted stock or the options is exercised.

If you think your soon-to-be ex may be hiding assets, these will likely be the type for which to look. Your attorney might have to subpoena the human relations department of your spouse’s employer in order to verify if your spouse is privilege to any of these type of assets.

No guarantees

There are no guarantees of returns on these assets as companies issue them on a promised implication of future riches. Calculating the value of a private company’s stock options and restricted stock is a complicated task, as it is unknown what their ultimate value will be. The most appropriate step for you to take may be to allow your attorney to use his or her other resources such a forensic economist or accountant and a tax advisor who can consider different scenarios that can indicate the probable value of the stock options or restricted stock.

Consider tax implications

Your divorce attorney along with the other financial specialists in your support team can work together to determine what your fair share would be, and make sure it is included in your divorce settlement. Another option would be to claim other assets of the same value and leave the stock options or restricted stock to the spouse who owns it. However, if you claim a share of these assets, your advisors can also guide you in planning the exercising of the stock options.

Restricted stock may not be transferable to you, and your ex might have to be sell the shares in order to settle your share. Taxes will come into play, and it may significantly affect the calculation of the value to claim as your share.

Many Colorado couples choose to end their marriages through alternative methods such as collaboration or mediation. However, if that is your choice, you will have to rely on your spouse’s honesty, as other methods of discovery may not be allowed. Fortunately, a seasoned divorce attorney can assess your unique circumstances and suggest the most appropriate manner in which to proceed with your divorce.