Executives and other highly compensated professionals may receive stock options as part of their benefit packages. Oftentimes, an employer will give stock options as an incentive for an employee or prospective employee to join or stay with a company or to meet certain performance goals.
As their name implies, stock options are the right of a person to purchase a certain number of shares in the company’s stock on or after a certain date and at an already established price. When they are given as an employment benefit, the option will be to buy stock in the employer’s company.
Value of stock options depends on hard-to-predict circumstances
If a person exercises them at the right time, stock options can be very valuable.
For example, if a person has the option to buy 1000 shares of stock at $10 a share, but the stock is currently worth $20 a share, then a person can buy $20,000 worth of the stock for $10,000 and instantly earns a 100% profit of another $10,000 before taxes.
The drawback is that there is no guarantee that stock prices will actually increase enough to make a stock option valuable. The options are worth nothing if the value of the stock declines.
In short, at the time of a person’s complex divorce, it can be hard to know exactly how much stock options are going to be worth in the future.
Because of this, stock options can create divorce issues
In some cases, a couple may disagree over whether stock options are marital property at all.
What does the law say? In Maryland, all assets acquired during the marriage by either spouse are considered marital, except:
- Assets inherited by one spouse
- Assets gifted to one spouse and not the other
- Assets the parties agree are not marital
- Assets directly traceable to any of these sources
Additionally, assets brought into a marriage are not marital. If one spouse brought stock options into a marriage, those options would be considered non-marital. However, if the owner exercised the options by using marital funds during the marriage, that would create a marital asset.
Moreover, even if there is no question that the options should be divided, putting the right value on them will likely require the assistance of an expert as well as a skilled family law professional with experience handling complex cases.