How Can Stock Options Be Divided During a Tennessee Divorce?

Divorce proceedings often involve dividing complex assets, and when one spouse has stock options granted by their employer, the process becomes even more complicated. Understanding how stock options are valued and divided in a divorce is crucial for protecting your financial future. Reach out to a skilled Memphis, Tennessee property division lawyer today for more information.

What Are Stock Options and How Do They Work?

Stock options are a type of compensation offered by employers, often in tech and high-growth companies. A stock option gives the employee the ability to purchase a certain number of company shares at a pre-set price (called the “grant price” or “strike price”) for a defined period.

The value of the stock option comes from the potential difference between the strike price and the future market value. If the market price rises above the strike price, the employee can exercise the option by buying the shares cheaply and then immediately selling them for a profit, or holding onto the shares.

However, options are generally not immediately available. They usually come with a vesting schedule, meaning the employee must remain with the company for a certain length of time or perform certain work before they can exercise the options.

Are Stock Options Marital Property?

In Tennessee, whether stock options constitute marital property and are therefore subject to property division depends mainly on when they were granted and when they vested relative to the marriage.

Generally, property acquired by either spouse during the marriage is considered marital property. Stock options may be treated in the following ways:

• Options granted before marriage: If the stock options were granted to the employee spouse before the marriage, they are considered separate property. However, if those options vested during the marriage, the portion of the options that vested may be subject to property division.
• Options granted during marriage: Stock options granted to an employee spouse at any point during the marriage are often considered jointly owned marital property, regardless of whether they have vested by the time of the divorce. This is because the options are seen as a form of compensation earned during the relationship.
• Options granted as future incentive: A significant exception exists for options granted during the marriage that are clearly intended as compensation or an incentive for work to be performed after the marriage has ended. The court may deem the unvested portion of these options as separate property, essentially treating them as compensation earned after the divorce.

Deciding whether stock options are marital or separate property requires a careful analysis of the documents and the purpose of the options.

How Can Stock Options Be Divided During a TN Divorce?

Once the court determines the percentage of the stock options that the non-employee spouse is entitled to based on the state’s equitable distribution system, there are typically three methods for dividing them:

1. The options can be exercised (if vested) and liquidated, and the net proceeds can be divided according to the court’s decision.
2. The employee spouse can retain ownership of the options, and the non-employee spouse can be granted a right to a percentage of the options when they vest and are exercised in the future.
3. The employee spouse can keep all of the stock options, and the other spouse can be compensated for their share of the value using other marital assets, such as cash, real estate, or retirement accounts.

Classifying and dividing stock options can be complex, so consult an experienced Tennessee divorce attorney to protect your legal rights today.