Due to precautions related to COVID-19, we have expanded our options for remote consultations. Please contact our office to discuss whether a full phone consultation or video conference is appropriate for your situation.

Due to precautions related to COVID-19, we have expanded our options for remote consultations. Please contact our office to discuss whether a full phone consultation or video conference is appropriate for your situation.

Experienced Legal Counsel When You Need It Most

Accounting for stock options in a divorce

On Behalf of | Dec 12, 2022 | Divorce

Texas is a community property state, which means that you’re entitled to half of all marital assets in a divorce settlement unless you and your estranged spouse agree otherwise. Marital assets may include a family home, funds in a bank account or a car. If you or your spouse has an executive compensation plan, it will likely need to be included as part of a final settlement.

An overview of executive compensation

In recent years, it has become increasingly common for companies to offer stock options to their employees. An option gives an individual the right to buy stock at a predetermined price at some future date. In most cases, stock options vest a year or more after they are given to an employee. An employee who is given a restricted stock option usually forfeits the right to exercise if they decide to leave the company or is terminated.

How to value stock options

Let’s say that your employer’s stock was trading at $10 a share on the day that you were hired. A year later, your options vested when the company’s stock was trading at $20 a share. If you decide to exercise the option at that point, your net profit would be $10 a share. Typically, options come in bundles of 100 shares, which means that your net profit would be $1,000.

However, you would also pay taxes on that amount of up to 40% depending on your tax bracket. If you were in the 40% bracket, you would have roughly $600 after taxes. Other plan fees or costs incurred may also need to be accounted for when determining how to divide this asset properly during a divorce proceeding.

Obtaining a favorable divorce outcome generally relies on your ability to obtain information pertaining to your household’s finances. Tax returns, bank statements and employment records may indicate the presence of stock options or other assets that you may be entitled to a share of. These records may also help you prove that assets should be labeled as sole property or that they are otherwise exempt from state property division rules.

Archives