Getting a divorce is a serious procedure.
Indeed, rather than just leaving your spouse, moving out, and moving on with your life, when you divorce, you and your spouse must come to an agreement about various issues in your divorce, including the division of property, assets, and debts.
While this may be a simple and straightforward process for those who haven’t been married for any significant period of time or who do not own very many assets, it can be more complicated for couples with a significant number of assets, including complicated assets like stock options and retirement accounts.
These assets, like others, must be considered and divided when ending a marriage.
At the Law Office of Ben Carrasco PLLC, our experienced divorce and family law attorney can help you navigate your divorce and the rules and options for how to split stocks in a divorce. If you are ending your marriage, please call our law firm today for counsel that you can trust.
Negotiating Your Property Division Settlement
Before delving into what the law says about property division in a Texas divorce–and how a court will approach the issue if they are asked to do so–it’s important to know that you and your spouse have the option to negotiate the outcome of your property division settlement outside of the courtroom.
To be sure, a judge does not need to hear your case and issue a determination on your behalf; instead, through mediation and negotiation–either with the help of a professional or not–you and your spouse can reach an agreement regarding the division of property, including the division of your stock options.
Our law office always recommends taking this approach first; reaching an agreement out of court can save time and money, and often results in a settlement that both parties are happy with.
Texas Law About Property Division in a Divorce
In the event that you and your spouse cannot reach an agreement about the division of stock options or other property in your divorce on your own, you will need to turn to the court and ask a judge to manage this process for you. This requires going to court, presenting evidence to the judge, and then awaiting a judge’s decision. If this is necessary, a judge must issue an order after considering Texas’ laws regarding property division.
In Texas, the law holds that all community property must be divided amongst parties to a divorce in a manner that is “just and right,” as found in Texas Family Code Section 7.001 – General Rule of Property Division. Note that what is “just and right” may not necessarily mean that which is equal, but instead that which is equitable.
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Defining community vs. separate property
Only community property in a divorce is subject to division; separate property may be considered when making a determination regarding the division of community property, but will be kept separate and will not be subject to division.
Community property is all property that is not separate property; separate property is that property owned by a spouse prior to marriage, acquired by the spouse during marriage by way of gift or inheritance, or property acquired for personal injuries sustained during the marriage.
Based on this, stock options could be marital property or separate property; this is an important consideration, as if stock options are determined to be separate property, they will not be subject to division.
Stock Options Divorce – Options for Splitting Your Stock Options in a Divorce
If you own stock options, knowing how they may be divided when you divorce is important.
What are stock options?
Stock options are defined as the right to buy or sell a stock at an agreed upon price or date.
Stock options are a common employment benefit, where the employee has the option (but no obligation to) buy stocks, usually at a fixed or discounted rate. Another benefit is that the employee often has the right to buy stock in the future.
Valuing stock options
Before stock options can be divided, they must be valued. There are a few different methods that can be used to value stock options – you should always retain the counsel of a professional in doing this, as valuing stock options can be very complicated.
One of the most common methods for valuing stock options is called the intrinsic value method. This method works by considering the current stock value price and then subtracting the option strike price, and then multiplying this number by the number of options owned. Another method is the Black-Scholes method, which considers how a company’s stock will likely perform over time.
Dividing stock options
After the stock option has been identified as community property and valued, the next step is considering the different options for dividing stock options. These include:
- Offset the option with another asset. The employee who is owed a value of stock option may accept another asset in place of actually splitting the option. For example, if a spouse is owed $20,000 worth in stock options, they could accept a payment of $20,000 (cash) or another asset valued similarly instead.
- Distribution model. Spouses may agree to a distribution model instead of an offset approach, where the couple waits and sees the value of the stock in the future once the option has been exercised.
- Splitting the option 50/50. Couples can try to split the option 50/50, although this may not be possible if the employment stock option prohibits the transfer of rights in options. There are also numerous tax consequences to this.
Call the Law Office of Ben Carrasco PLLC Today
There is no doubt that dividing stock options in a divorce is a complex undertaking, and one that requires the help of a legal professional to effectively understand.
At the Law Office of Ben Carrasco PLLC, our experienced lawyer can help you to make sense of property division laws and how they apply to your stock options, as well as how to divide your stock options in a way that is fair for both parties. Reach us today to schedule a consultation and get started.