If you are going through a divorce, you probably are concerned about your financial future. You also probably want to ensure that all money between you and your spouse are divided fairly and equally. This includes stocks you and your spouse may have invested in during your marriage.
Are You Entitled to Your Spouses Stock?
There are a number of things that must be considered, including whether the stock options are community property or sole and separate property. This depends on when the options were granted and the purpose of the grant. Options that were granted during the marriage are community property. However, there are a number of things to consider if the options were granted before the end of the community but not vested. These may or may not have not have a community component depending on whether they represent compensation for past labor or are an incentive for future labor yet to be performed. If unvested options terminate when you separate from employment, they are likely the latter.
Arizona case law provides formulas for determining the percentage of community interest in the options under each scenario. Stock plans rarely allow options to be transferred to a third party, so it is unlikely you can give your spouse one-half of the options.
How Can I Compensate my Spouse for their Interests?
To compensate your spouse for their interest in these stock options, you can do the following:
- Exercise the vested options and pay your spouse his/her share
- Buy out your spouse’s interest in the options
- Allow your spouse to direct the sale of their one-half of the community options when they choose to do so in the future.
Under any scenario, do not forget to consider the taxes that may result from a gain on the exercise of the option. It is always important to weigh both outcomes of any decision regarding selling and buying stock options before doing so.
Contact us at Hallier Lawrence for more information on how to divide stock and other complex assets during a divorce.