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How do my stock options affect divorce and spousal support?

On Behalf of | Oct 3, 2023 | DIVORCE - High-Asset Divorce

High-asset divorces, as the name suggests, encompass the legal separation of couples with substantial financial holdings. Among the plethora of assets involved, stock options play a crucial role in these high-stakes proceedings.

A valuable yet complex asset

Stock options are a unique asset class frequently found in high-asset divorces. They represent the right to purchase company stock at a predetermined price, often lower than the current market value. These options can be a significant source of wealth, particularly for individuals in executive or leadership positions within a company.

Valuation and division

Factors that affect the valuation of stock options include their classification as marital or separate property and the stock option type.

The vesting schedule and exercisability of the options may also matter. Some options may not be immediately exercisable. This may require the employee to meet certain conditions, such as continued employment or achieving performance goals.

Stock options are typically valued using one or a combination of the following methods:

  • Black-Scholes model
  • Intrinsic value
  • Marketability discounts

Experts such as financial analysts or forensic accountants are often hired to value stock options accurately.

Spousal support and stock options

Stock options can be considered income for calculating spousal support if exercised or provide a regular income source. This can increase the paying spouse’s income and potentially affect the support amount.

If stock options are not exercised but are considered an asset, the court may impute income to the spouse who holds them. Imputing income means estimating their potential future earnings from the options, which can still impact support calculations.

Note that every divorce case is unique, and the impact of stock options on spousal support will depend on the specific circumstances. Factors like the duration of the marriage, the financial needs of each spouse and the overall division of assets will play a role.

Protect your rights and interests

The valuation of stock options can be contentious in a high-asset divorce, especially if one party argues for a higher value while the other seeks a lower one. While the courts aim for equitable marital asset distribution, an accurate valuation is crucial to achieving a fair settlement. Individuals involved in such divorces should seek legal and financial guidance to protect their rights and interests.