Is my spouse entitled to part of my stock options, restricted stock, and other equity grants upon our divorce?
Probably. It is important that you consult a divorce attorney experienced with the treatment of stock options and other types of equity grants under the state law that will apply to your property settlement and any child-support agreement. While there are some general trends, the treatment is far from similar in all states.
In general, the outcome depends on four factors:
- whether you live in a "community property" state
- whether your company's plan permits stock options to be transferred in a divorce
- whether your options are vested
- when you received the option grant (i.e. before, during, or after your marriage and the separation)
Judges in family law have substantial discretion in structuring divorce decrees. Most states include the value of at least vested options in the property settlement. Many states even consider the value of unvested options that were granted during the marriage, and a few also consider future grants in determining or modifying any child-support payments.
For example, changes to the divorce laws of Illinois in 2016 clarify that stock options and restricted stock acquired during marriage are presumed to be marital property. Exceptions do apply, e.g. if the employee can prove that the grant was acquired through a gift, a legacy, or an exchange of property before the marriage, or that it was excluded by a premarital agreement or a postnuptial agreement. (For more on the revised divorce law in Illinois, see a commentary from Illinois Matrimonial & Family Law.)
Most divorce law cases, legislation, and IRS rulings have focused on stock options because until recently the stock option was by far the most popular and widespread type of equity grant. For other types of stock grants, such as restricted stock, similar factors, issues, and reasoning probably apply. Stock options differ because of the complexities in the valuation and division of both vested and unvested options. With restricted stock, these issues arise only with unvested shares, as the shares that have already vested are treated like any other shares of stock in the marital estate.
Alert: If you are the nonemployee-spouse, be sure you tell your attorney that your spouse has stock compensation and is eligible for ongoing grants. During the discovery and depositions in the divorce proceedings, your legal counsel should request details and documents on the company's stock plans and require grants to be included in the statement of net worth or financial disclosure statement given to the court.