When going through a divorce, there are many things that must be agreed upon. Where children will live and how they will be supported as well as how marital assets will be distributed are just a few of the things that must be decided. Through all these important decisions, couples going through a divorce sometimes overlook deciding how stock options will be treated. Two different cases in Massachusetts address how stock options will be shared.
Part of the issues with sharing stock options during a divorce is that their actual value is largely unknown. Future complications can be avoided by deciding at the time of the divorce settlement how future earnings in regards to stock options will be distributed. Two Massachusetts courts seemingly treat the division of profits related to stock options in two different ways.
The first case was decided in 2001. The court ruled that stock options should be treated as a marital asset and be divided. In the future, the former wife would either be given half of the profits upon the sale of the options or half of the stocks in her ex-husband’s name if he declines to exercise his options.
The second case, in 2009, deals with a slightly different scenario. The wife was awarded alimony that amounted to a third of future gross income earned by her former husband. After the divorce, the ex-husband began a new job that gave him stock options. Several years later, he sold his options for a large profit. The court ultimately ruled that the profits from the sale of the stock option was part of his income, meaning his ex-wife was entitled to a third of the profits.
Stock options may seem relatively inconsequential in relation to decisions regarding child support and custody, for example. However, some financial advisers recommend that the 2009 Massachusetts ruling underscores that it is important to determine the disbursements of future stock options, even if they don’t exist at the time of the divorce. The average person going through a divorce may not be aware of this advice, making the need for experienced guidance important in order to avoid future conflict.
Source: Financial Advisor, Weighing Divorce ‘Options’, Marc Bello, Jan. 7, 2014
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