Divorce in Pennsylvania requires the fair division of marital property, and for many couples, this includes employee stock options. Understanding how courts categorize, value, and divide stock options is crucial to protecting your rights during your divorce. Contact an experienced York County, PA property division attorney today for more information.
What Are Stock Options?
Stock options are a form of compensation often granted by companies to employees. They are not actual shares of stock, but rather the right to purchase a specific number of company shares at a predetermined price (the “strike price”) within a set timeframe.
The main benefit of these options is when the stock’s market price rises above the strike price. If the employee exercises the option, they buy the stock cheaply and can sell it for a profit. Options typically include a vesting schedule, meaning the employee must work for the company for a certain period before they can exercise their right to buy the shares. This incentivizes long-term employment and performance.
Are Stock Options Owned by Both Spouses?
In Pennsylvania, whether a stock option is considered marital property or separate property depends on when it was earned and the reason it was granted. Marital property includes all property acquired by either party during the marriage and before the separation.
Generally, stock options are considered marital property if they are granted and vest during the marriage. Even if the options are granted during the marriage but vest after the separation date, a portion may still be considered marital property.
Stock options are considered separate property if they were granted and fully vested before the marriage. They may also be separate property if they were granted after the date of separation or as an incentive for future work, as they were not technically acquired during the marriage. The grant date, vesting schedule, and the dates of marriage and separation are necessary to properly determine whether the stock options are marital or separate property.
How Do PA Courts Divide Stock Options in a Divorce?
Once the court determines the value of the stock options and the portion that is jointly owned by the spouses, they can begin the process of dividing them between the parties. Pennsylvania is an equitable distribution state, meaning marital property is divided fairly but not necessarily equally.
PA courts consider a variety of factors to determine an equitable distribution of marital assets, including the length of the marriage, the financial and non-financial contributions made by either spouse, the age and health of each party, each individual’s earning capacity, and more.
To physically divide the stock options, there are a few different options. If the company allows the stock to be transferred, the employee spouse can give the non-employee spouse the shares awarded to them by the court.
If transfers are impossible or the spouses agree, the employee spouse could retain full ownership of all stock options, and the non-employee spouse could be awarded other assets of equal value to make up the difference. For example, the court could grant the non-employee spouse a larger portion of the value of the marital home.
The actual outcome of property division will depend on the specific circumstances of the situation, so it is crucial that you are adequately represented. Reach out to a skilled attorney for more information today.
