Many businesses choose to reward their employees with stock options in lieu of other forms of compensation. Frequently, these options are not vested when awarded, but rather vest over time. Even when options do vest, they are not automatically exerciseable. Even when they are able to be exercised, they might not have any value.
Are these options includable as assets to be divided in a divorce? This depends on a number of circumstances. First, one must consider why the options are being awarded. Most frequently, they are awarded for past service, sometimes in conjunction with or in lieu of a bonus. Sometimes, however, they are awarded as an incentive for future work. If that is the case, then a party in a divorce may want to try and argue that they should not be included in the marital estate. The stock option plan is the starting place for determining the reason for the award.
Most Courts include those options that have been awarded as assets subject to division in a divorce even if those options are not yet vested. Typically, these options cannot be distributed until they are vested and can be exercised. A party not holding these options can attempt to place a value on them but that is difficult if not impossible to do. As such, Courts usually engage in a deferred distribution method in awarding these assets. Thus, if and when the options do become vested and are exercised for value, the non-owner spouse will then get their share of same.
Options can have significant value and should not be overlooked in a divorce. Opting to understand these assets in the only real “option” that should be considered.