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Stock options create divorce complexity

North Carolina residents may be curious as to how stock options are treated in a divorce. There's no clear answer. Stock options can be complex and highly technical assets, and courts have allocated them between divorcing spouses in a variety of ways. The ambiguous rules surrounding the division of stock options highlights how complicated property distribution can be, especially for high-net-worth couples.

Stock options allow an employee to purchase future shares of a company at present prices. The employee generally must wait through a vesting period before exercising their ownership of the shares. The difference between the exercised price and the purchase price is the employee's gain. Options can be tricky in divorce because the spouse who owns the options may not have yet exercised them. That creates a dilemma as to how the future gain of the exercised shares should be allocated between spouses, if at all.

Two Massachusetts cases have shed some light on the matter, although in contradictory ways. In one case, the court ruled that the options were assets, and they were split between the husband and wife. In another case, however, the court ruled that the gain from the shares was income. In that case, the wife was awarded in the divorce one-third of her ex-husband's future gross income. Twelve years after the divorce, he was awarded options as compensation for joining a new firm. When he exercised the options, his gross income was almost $1.2 million. The ex-wife was awarded one-third of the gain.

Stock options are just one area of divorce and asset division that can quickly become complicated. A divorce attorney with experience handling complex asset distribution may be able to advise an individual on how his or her options may be treated in divorce. An attorney might also advise a divorcing spouse on what claim he or she may be able to make on his or her ex-spouse's options.

Source: Private Wealth, "Weighing Divorce ‘Options’", Marc D. Bello, January 07, 2014

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