As with other assets in a divorce, stock options are generally divided based on the consideration of how and when they were acquired. The specifics of a person’s stock options may vary, and, at the time of the divorce, the spouse may or may not be able to exercise the option to buy. This often depends on whether to right to exercise the options has vested or not. How stock options are handled in a divorce may also be affected by whether the options were given as compensation for past, current, or future efforts.
In most cases, Illinois law treats stock options as marital property during a divorce—regardless of vesting status—if they were acquired subsequent to the marriage but before the divorce. When determining how stock options should be divided, the court will generally take into account how the stock options were acquired and the time it will take for the options to be exercisable.
Dividing Stock Options
To divide stock options equitably and in accordance with Illinois law, the value of the options must be determined. For stock options in a publicly traded company, it is often easier for the court to rely on the valuation method used by the employer who granted the options to establish the options’ estimated value. If the stock options cannot be exercised in a reasonable period of time following the divorce, the court may award the non-employee spouse additional marital assets to offset the value of the options to which he or she would have otherwise received. This allows the asset division process to be completed by the time the divorce finalizes.
In other cases, however, the court may award the non-employee spouse an interest in the stock options when the employee spouse exercises the options. Doing so would allow the non-employee spouse to benefit from increases in the value of the company’s stock between the time that the divorce finalized and when the options are exercised. Illinois law expressly permits the court to award future interests in marital stock options to ensure an equitable division of the marital property. If the non-employee spouse is awarded a future interest in the options, the court could also order the options to be held in a trust or another protected fund for that party’s benefit.
When stock options are exercised and distributed, there also tax implications that must be taken into account. The resulting tax liabilities should also be considered by the parties and the court in the development of a property division order.
Contact an Experienced Family Law Attorney
If you are considering divorce and would like to know more about how the process could affect your stock options or other high-value assets, contact an experienced St. Charles divorce attorney at Bochte, Kuzniar & Navigato, P.C. today. Call 630-377-7770 for a free consultation with a member of our team.