Opções de ações divórcio nj

Opções de ações, divórcio e o uso do Callahan Trust em NJ.
Embora frequentemente pensemos na remuneração do emprego como pagamento, salário ou talvez um salário e bônus ou comissão, cada vez mais residentes e empresas de Nova Jersey oferecem uma remuneração em termos de salário mais opções de ações ou outro tipo de compensação diferida. As opções de ações ou outras compensações diferidas, como o nome sugere, significam que a compensação não está disponível imediatamente, mas estará disponível após um período de tempo especificado. A divisão desses ativos no divórcio pode ser difícil. Continue lendo para obter informações sobre como os ativos podem ser tratados em um divórcio e ligue para os Escritórios de Advocacia de Peter Van Aulen para discutir como essas regras podem se aplicar aos fatos e circunstâncias específicas do seu caso.
Opções de ações como propriedade conjugal.
Em termos de divórcio, a compensação diferida ou opções de ações que são ganhas antes do divórcio é tratada como um bem conjugal e está sujeita a distribuição equitativa no divórcio.
Se a compensação diferida tiver sido adquirida, ou seja, o período de tempo especificado e a remuneração já estiver disponível, o ativo será tratado com relativa facilidade. Os tribunais normalmente determinam o valor da compensação e exigem 1) que ela seja retirada (ou, no caso de opções de ações, as opções sejam exercidas), ou 2) o tribunal pode determinar o valor da compensação e outorgá-la ao cônjuge empregado e ter ativos equivalentes concedidos ao outro cônjuge.
Se a compensação diferida ainda não tiver sido adquirida, é aí que as coisas ficam complicadas; como ainda não foi adquirido, ainda não há um ativo tangível para distribuir. Como o casal está se divorciando durante o período de tempo especificado em que a indenização é diferida, o cônjuge não empregado pode não ter o direito de ter o valor total da indenização dividido no divórcio, mas sim a parte da indenização que foi obtida durante o pagamento da indenização. casamento.
No caso de compensação diferida não aplicada, uma vez que o ativo não pode ser transferido diretamente para o cônjuge não empregado, o empregado pode manter o ativo em um trust construtivo, chamado Callahan Trust, para o outro cônjuge. No caso de opções de ações, o cônjuge empregado deve exercer a opção de comprar ações em nome do cônjuge não empregado. Um Callahan Trust é assim chamado por causa do caso de 1976 em Nova Jersey que determinou como opções de ações que ainda não foram adquiridas devem ser tratadas em um divórcio.
Alternativamente, como com a compensação adquirida, o tribunal pode determinar o valor da compensação e adjudicá-lo exclusivamente ao cônjuge empregado e atribuir ativos equivalentes ao cônjuge não empregado para compensar esse prêmio. No caso de opções de ações, isso pode não ser uma boa opção, uma vez que as opções de ações podem não ter uma alternativa equivalente.
A distribuição eqüitativa das opções de ações e outras compensações diferidas devem ser cuidadosamente tratadas para garantir justiça. Se você está considerando um divórcio, por favor, ligue para Peter Van Aulen, um advogado de divórcio NJ em (201) 845-7400 para uma consulta gratuita abrangente em escritório.

Em um divórcio de Nova Jersey, o que acontece com minhas opções de ações do meu empregador?
Como já discuti em vários blogs, os bens conjugais estão sujeitos a distribuição equitativa. O tribunal procurará ver quais bens foram adquiridos durante o casamento, além dos bens adquiridos antes do casamento, mas que aumentaram significativamente de valor durante o casamento. No entanto, os clientes ainda me perguntam o que são considerados ativos de qualquer maneira? Quando você normalmente pensa em um & ldquo; ativo & rdquo ;, a propriedade física tangível vem à mente. No entanto, o que dizer de coisas como interesses de propriedade em empresas? Eles contam como ativos sujeitos a distribuição equitativa também? O caso de divórcio entre Callahan e Callahan, em Nova Jersey, abordou essa questão em 1976 e foi a lei do nosso estado ao longo de minha carreira como advogada de divórcios em Nova Jersey. Vamos explorar.
Em Callahan, as partes se divorciaram em 13 de novembro de 1975. A sentença final de divorciado foi inicialmente registrada em favor do marido acusado com base na legalidade da crueldade. No entanto, uma vez que o requerente apresentou uma petição ao tribunal, a sentença foi alterada para prever um duplo julgamento do divórcio. Além disso, a mulher queixosa pediu ao tribunal que distribuísse a propriedade que o seu ex-marido possuía e que não foi levada à atenção do tribunal quando a distribuição equitativa foi decidida pela primeira vez.
O réu era executivo de uma corporação internacional e tinha opções de ações na empresa. No momento em que as partes se divorciaram, o réu possuía as seguintes opções, que adquiriu durante todo o seu casamento com o demandante: 1.500 ações a 23 dólares por ação, com vencimento em fevereiro de 1975; 500 ações a US $ 34 por ação, com vencimento em maio de 1979; 500 ações a US $ 29 por ação, com vencimento em fevereiro de 1981; e 1.500 ações a US $ 32 por ação, com vencimento em fevereiro de 1981. O réu primeiro exerceu sua opção em 21 de fevereiro de 1975, quando o preço era 33 & frac34 ;. Ele exerceu a opção está cheia com um empréstimo de US $ 34.500 do banco Chase.
Ao ouvir que o autor queria que suas opções de ações fossem consideradas propriedade conjugal para fins de distribuição equitativa, o réu declarou ao tribunal que elas não estavam, de fato, sujeitas à distribuição. O réu alegou que possuir opções de ações em uma empresa era equivalente a possuir o direito de adquirir um ativo no futuro. Este ponto foi significativo para seu argumento porque ele afirmou que as opções não eram de fato ativos e, portanto, não propriedade. Além disso, o réu argumentou que, de acordo com a política da empresa, as opções não eram transferíveis além da vontade.
Quando a questão foi levada ao tribunal, o tribunal olhou para Blitt vs. Blitt, 139 N. J. Super. 213 (Ch. Div. 1976) para orientação. O tribunal argumentou que os ativos em Blitt eram muito semelhantes aos que estavam em questão. Ambos constituíram uma forma de compensação recebida pelo cônjuge durante o casamento. Adicionalmente, em ambas as situações os ativos estavam atrelados aos respectivos planos que impunham restrições sobre o aproveitamento dos ativos. O réu no caso argumentou que suas opções de ações eram diferentes de outros ativos, porque seria uma despesa para ele exercer a opção. No entanto, o tribunal discordou e afirmou que o fato de que uma despesa era necessária não era crucial para a decisão. Portanto, o tribunal decidiu que as opções estavam de fato sujeitas a distribuição equitativa.
Uma vez que o tribunal determinou que as opções de ações eram distribuíveis, enfrentou um desafio ainda maior; como distribuí-los. O tribunal decidiu trazer a idéia de uma confiança construtiva; um legado comumente usado em testamentos e leis de confiança. Ele citou um caso da Suprema Corte de Nova Jersey declarando quando uma confiança construtiva poderia ser utilizada & mdash; “Pode haver uma confiança construtiva onde a retenção da propriedade ou o interesse benéfico constituiria uma vantagem inconcebível para o detentor do título legal, mesmo que sua aquisição não fosse injusta. Quando a propriedade tiver sido adquirida em tais circunstâncias que o detentor do título legal não possa, em sã consciência, reter o interesse beneficiário, a equidade o responsabiliza como fiduciário ”.
Depois de decidir implementar a confiança construtiva, o tribunal concedeu ao demandante uma propriedade de 25% de cada opção remanescente com o réu para atuar como o fiduciário. Ao nomear o réu como curador da confiança construtiva, o tribunal evitaria atividade fraudulenta por parte do réu em relação ao demandante.
Em muitos casos em que lidei como advogado de divórcio de Nova Jersey, trabalhei com a família do meu cliente e testifiquei advogados, contadores e especialistas de Wall Street para entender melhor sua situação indevida.
Se você ou um ente querido estiver considerando um divórcio em Nova Jersey com ativos como as opções de ações descritas acima, convido-o a entrar em contato com meu escritório para discutir a situação em detalhes.

Opções de ações divórcio nj
Como o mercado de ações continua a subir, os advogados de divórcio estão envolvidos em mais e mais casos envolvendo opções de ações. A concessão de opções de ações a funcionários-chave é agora comum em empresas de alta tecnologia e está se tornando popular em muitos outros setores como parte de uma estratégia geral de compensação de ações. As grandes empresas de capital aberto, como a Pepsico, a Starbucks, a Travelers Group, o Bank of America, a Merck e a Gap, agora oferecem opções de ações para quase todos os seus funcionários. Muitas empresas de capital fechado de alta tecnologia também estão se juntando às fileiras (1).
Tradicionalmente, os planos de opções de ações têm sido usados ​​como uma forma de as empresas recompensarem a alta gerência e os funcionários "chave" e vincularem (algemarem de ouro) seus interesses àqueles da empresa e de outros acionistas. Mais e mais empresas, no entanto, agora consideram todos os seus funcionários como "chave". Como resultado, tem havido um aumento na popularidade dos planos de opções de ações de base ampla, particularmente desde o final dos anos 80. Mais de um terço das grandes empresas dos Estados Unidos agora têm planos de opções de ações abrangentes cobrindo todos ou a maioria de seus funcionários - mais que o dobro da taxa existente em 1993. Em uma pesquisa de 1997 de 1.100 empresas públicas conduzida pela Share Data, Inc. e a American Electronics Association, verificou-se que 53% dos entrevistados oferecem opções a todos os funcionários. Em empresas com 500 a 999 funcionários, o estudo constatou que 51% oferecem opções a todos os empregados, em comparação com 30% no inquérito da Share Data de 1994 e 31% no inquérito de 1991 da Share Data. Quarenta e três por cento das empresas com 2.000 a 4.999 funcionários oferecem opções para todos, em comparação com 10% em 1994. Quarenta e cinco por cento das empresas com 5.000 ou mais funcionários oferecem opções para todos, em comparação com 10% em 1994.
Uma vez que esta tendência não mostra sinais aparentes de desaceleração, os advogados matrimoniais devem estar preparados para tratar dos problemas que surgem daí. Este artigo explicará a natureza básica das opções de ações para funcionários, como elas são avaliadas, tributadas e, por fim, distribuídas incidentes ao divórcio.
Não há dúvida de que "stock options" são ativos sujeitos à distribuição eqüitativa. (2) No entanto, simplesmente dizer que eles são ativos não é suficiente para orientar o litigante matrimonial. Devemos primeiro entender a natureza básica e a definição de uma opção de ações. Basicamente, uma "opção de compra de ações" é "o direito de comprar um número específico de ações por um preço especificado em horários específicos, geralmente concedido a funcionários principais e de administração. (3) O preço pelo qual a opção é oferecida é chamado de preço de "outorga" e geralmente é o preço de mercado no momento em que as opções são concedidas (4).
Geralmente, as opções de ações são um incentivo para estimular os esforços dos funcionários-chave e para fortalecer o desejo dos funcionários de permanecer no emprego da corporação. Tais incentivos não se aplicam a funcionários aposentados. (5) Os planos de opção de compra de ações podem ser uma maneira flexível de as empresas compartilharem a propriedade com os funcionários, recompensá-las pelo desempenho e atrair e reter uma equipe motivada. Para empresas menores voltadas para o crescimento, as opções são uma ótima maneira de preservar o caixa e, ao mesmo tempo, permitir que os funcionários tenham um crescimento futuro. Eles também fazem sentido para as empresas públicas cujos planos de benefícios são bem estabelecidos, mas que querem incluir os funcionários na propriedade. (Nota: Ao emitir opções de ações, uma empresa pode diluir o valor das ações existentes.)
Se uma opção de compra de ações é concedida por dinheiro, por serviços passados, como um incentivo para serviços futuros, ou por nenhuma consideração, um detentor de opção deve exercer a opção dentro de seus termos ou ele está sujeito à perda de seu direito a (6) Em um contrato de opção, "o tempo é essencial". (7) Geralmente, as disposições de vencimento e os contratos de opção de compra de ações são rigorosamente aplicados. Os tribunais rejeitam a inevitável quebra de contrato e confisco que os empregados, ex-empregados e outros detentores de ações pressionam quando deixam de exercer oportunamente suas opções. Embora isso raramente se torne um problema em litígios de divórcio, é algo para se manter. mente, a fim de evitar perdas econômicas severas para qualquer uma das partes ou uma potencial reclamação por erro médico.
Geralmente, as opções de ações vêm em duas categorias básicas:
opções de ações de incentivo (comumente chamadas de ISO's) que são opções qualificadas ou estatutárias e opções de ações não qualificadas (que são comumente referidas como NQSO's).
Simplificando, a diferença entre um ISO e um NQSO torna sua conformidade com os requisitos específicos do Internal Revenue Code no momento da concessão, o que acaba afetando a forma como a opção é tributada (9).
As opções de ações de incentivo são concedidas aos indivíduos por motivos relacionados ao seu emprego. Como resultado, eles só podem ser concedidos a funcionários. Eles também devem ser aprovados pelos acionistas da corporação e concedidos pelo valor justo de mercado.
O NQSO, por outro lado, pode ser concedido a empregados e contratados independentes, e seus beneficiários.
Um funcionário não realizará qualquer rendimento tributável mediante a concessão ou exercício de um OIS. Concomitantemente, a corporação não tem direito a uma dedução sobre o exercício da opção. Se o empregado vender as ações dentro de dois anos após a outorga da opção e no prazo de um ano após o exercício da opção, o lucro ordinário será realizado em valor igual ao menor entre 1) o excesso do valor justo de mercado das ações. a data de exercício sobre o preço da opção, ou 2) o excesso do valor realizado na alienação sobre o preço da opção. Se o indivíduo detiver as ações por dois anos após a concessão do OIS e um ano após o exercício do OIS, a diferença entre o preço de venda e o preço da opção será tributada como um ganho de capital ou uma perda. Se a ação for vendida após o período de dois anos / um ano, esse ganho também será um item alternativo de preferência mínima tributária sujeito à alíquota de 26/28%.
Em relação a um NQSO, o detentor "empregado" de uma opção não estatutária deve reconhecer o rendimento no momento em que a opção é concedida se a opção tiver um "valor justo de mercado prontamente determinável" no momento da concessão. (10) Se a opção for não é transferível e não tem um "valor justo de mercado prontamente determinável", nenhuma renda resultará para o indivíduo na outorga da opção. Quando a opção de ações não qualificadas é exercida, o indivíduo é tributado às alíquotas de imposto sobre a diferença entre o valor justo de mercado da ação e o preço de exercício da opção. Quando o indivíduo vende as ações, um ganho ou perda de capital será incorrido sobre a diferença entre o valor recebido pela ação e sua base tributária. Normalmente, a base fiscal é igual ao valor justo de mercado no momento do exercício da opção. O ganho de capital seria de longo prazo ou de curto prazo, dependendo da duração do período de tempo em que as ações foram realizadas após o exercício.
Se a opção for "ativamente negociada em um mercado estabelecido" o código considera a opção de ter um "valor justo de mercado prontamente determinável". (11) Se não houver "valor justo de mercado prontamente determinável" no momento da concessão, O participante reconhece a renda no momento da opção:
tornar-se "substancialmente adquirido" ou deixar de estar sujeito a um "risco substancial de caducidade" (12).
Qualquer lucro é um ganho de capital de curto prazo, tributável a taxas de renda ordinárias. (13) O código estabelece quatro condições necessárias para que uma opção que não seja "ativamente negociada em um mercado estabelecido" satisfaça a norma "valor justo de mercado prontamente determinável":
a opção é transferível pelo oponente a opção é exercível imediatamente na íntegra quando concedida não pode haver nenhuma condição ou restrição sobre a opção que teria um efeito significativo em seu valor justo de mercado, e o valor de mercado do privilégio de opção é prontamente determinável. (14)
Todas as quatro condições devem ser atendidas. Uma vez que estas condições são raramente satisfeitas, a maioria das opções não estatutárias de acções não qualificadas não negociadas num mercado estabelecido não tem um valor prontamente determinável (15).
Há outro fator a considerar que pode se aplicar tanto a opções de ações incentivadas quanto não qualificadas. Algumas empresas oferecem opções com um recurso de recarga. Uma opção de recarga permite concessões automáticas de opções adicionais sempre que um empregado exerce opções anteriormente concedidas (16).
Se a ação recebida no exercício da opção for propriedade restrita, a tributação será diferida até que as restrições expirem. Freqüentemente os funcionários recebem estoque restrito por serviços. O estoque não é transferível livremente e está sujeito a um risco de perda com base no desempenho do indivíduo ou no emprego continuado por um período de tempo. De acordo com a Seção 83 (b) do Código da Receita Federal, um indivíduo pode optar por reconhecer o valor justo de mercado das ações, ignorando as restrições, como receita no momento da outorga; se uma eleição da Seção 83 (b) é feita, o período de detenção para fins de ganhos de capital começa no momento da eleição, caso contrário, o período de detenção começa a ocorrer na conclusão da restrição.
Com base no exposto, pode ser apropriado tributar as opções de ações de executivos para fins de distribuição equitativa. Isso ocorre porque as opções de ações executivas têm uma data de vencimento fixa e, portanto, devem ser exercidas e vendidas. O imposto resultante é inevitável e, portanto, deve ser considerado.
Existem vários métodos para chegar a um valor presente para opções de ações. Os dois mais populares são o "valor intrínseco" e o método "Black-Scholes". (17) Em 1995, a profissão contábil reconheceu formalmente que as opções de ações executivas têm valor além de seu valor intrínseco. Além disso, o Black-Scholes Option Pricing Model foi reconhecido como um método apropriado para calcular o valor das opções de ações executivas pela profissão contábil. (18) Curiosamente, o Financial Accounting Standards Board (FASB) declarou especificamente que "o estoque de um funcionário a opção tem valor quando é concedida, independentemente de, em última análise, (a) o empregado exercer a opção e comprar ações com valor superior ao que o empregado paga ou (b) se a opção expirar sem valor no final do período de opção. )
No método do valor intrínseco, o valor da opção de ações é igual à diferença entre o preço de exercício da opção e o valor justo de mercado da ação. Por exemplo, se você tivesse a opção de comprar ações "x" por US $ 5 e as ações estivessem atualmente sendo negociadas por US $ 27 por ação, o valor intrínseco da opção seria US $ 22 (US $ 27 - US $ 5). No entanto, o método do valor intrínseco não considera o valor para o detentor do direito de comprar a ação em algum momento no futuro a um preço predeterminado. Também não considera a volatilidade do estoque subjacente, bem como as vantagens e desvantagens do mesmo. Além disso, não considera as vantagens e desvantagens do titular da opção não receber os dividendos da ação, bem como o custo de oportunidade de comprar a ação e renunciar à perda de juros sobre os fundos de aquisição.
Um método que considera os itens acima referenciados é o Método Black-Scholes. A distinção mais importante entre o Método Black-Scholes e o método do valor intrínseco é o componente da volatilidade. Sem considerar a volatilidade no cálculo, as opções de duas empresas muito diferentes poderiam ter o mesmo valor. Por exemplo, supondo que o preço da opção e o valor justo de mercado sejam os mesmos, as opções de uma empresa de serviços públicos de crescimento mais lento como a PSE & G poderiam ter o mesmo valor da opção de uma empresa de computadores de crescimento mais rápido, como a Microsoft. O Método Black-Scholes diferenciará esses dois tipos de empresas. O método intrínseco não.
A fórmula de Black-Scholes (mostrada abaixo) é complexa e contém muitos componentes variáveis.
A explicação dessas designações de letras para as variáveis ​​na fórmula de Black-Scholes são:
C = prêmio de chamada teórica.
S = preço atual da ação.
t = tempo até a expiração da opção.
K = preço da ação da opção.
r = taxa de juros sem risco.
N = distribuição normal padrão cumulativa.
e = função exponencial.
o = desvio padrão dos retornos das ações.
ln = logaritmo natural.
A primeira parte do cálculo determina o benefício esperado da compra imediata do estoque. A segunda parte do cálculo determina o benefício do valor presente de pagar o preço de exercício no futuro. A diferença é o valor justo de mercado da opção.
No entanto, um problema subjacente ao Método Black-Scholes é que ele faz suposições sobre a volatilidade das ações, taxas futuras de dividendos e juros perdidos. Uma alteração nessas premissas subjacentes pode afetar o valor da opção calculada de acordo com esse método.
A tabela a seguir fornece um resumo de como uma alteração em uma dessas premissas afetará o valor das opções de ações calculadas pelo Método Black-Scholes:
Um equívoco comum na avaliação de opções de longo prazo é que um valor de opção é melhor representado por seu valor intrínseco. (20) Na verdade, com base nos vários fatores Black-Scholes, opções de ações que estão "fora do dinheiro", ou seja, , o preço de exercício excede o valor de mercado atual, são negociados com vários valores do dólar. Por exemplo, uma opção de ações da Dell Computer com um preço de exercício de US $ 50,00 e um valor de mercado de US $ 37,3125 em 24 de maio de 1999 foram negociados por US $ 8,75. Isso ocorre mesmo quando a opção era de quase US $ 13,00 quando a opção era avaliada. (21) A disparidade no valor deve-se ao otimismo dos investidores de que as ações da Dell aumentariam e valeriam mais de US $ 58,75 antes do vencimento da opção. opção.
Geralmente, os métodos para distribuir opções de ações geralmente se enquadram em duas categorias:
Distribuição Diferida no Exercício das Opções (Confiança Construtiva); Apresentar avaliação com compensação em relação a outros ativos.
(Quando uma parte argumenta que uma parte das opções de ações não é matrimonial, então surge uma questão sobre qual parte das opções de ações, distribuídas pelo método 1 ou 2 acima, deve ser concedida ao cônjuge não empregado. abordadas com mais detalhes na próxima seção deste artigo.)
O método de distribuição diferido é provavelmente a maneira mais comum em que as opções são distribuídas e foi utilizado em um dos primeiros casos de Nova Jersey que tratam de opções de ações incidentes ao divórcio, a saber: Callahan v. Callahan. Nesse caso, o tribunal julgou que as opções de ações adquiridas por um marido durante o casamento estavam sujeitas a distribuição equitativa, não obstante o fato de que as opções terminariam se o marido deixasse a empresa dentro de um certo período de tempo e o fato de que eles estavam sujeitos a vários regulamentos da SEC. O tribunal expressou uma confiança construtiva no marido em favor da esposa por uma parte das opções de ações de sua propriedade, a fim de melhor afetar a distribuição de propriedade entre as partes sem criar responsabilidades financeiras e comerciais indevidas. Deve-se notar que todas as opções foram concedidas durante o curso do casamento. No entanto, embora não especificamente indicado, parece que algumas ou todas as opções não foram totalmente adquiridas, uma vez que estavam sujeitas a alienação em determinadas circunstâncias. Pode ter sido por isso que a esposa recebeu apenas 25% das opções quando amadureceu. "(22) (Veja a seção abaixo sobre a determinação das ações distributivas).
O segundo modo de distribuição é o Método Presente de Avaliação. Nesse método, as opções de ações devem ser avaliadas com o cônjuge não-empregado recebendo sua parte da parte conjugal em dinheiro ou equivalente em dinheiro. Tal método deve usar descontos para mortalidade, juros, inflação e quaisquer impostos aplicáveis. A desvantagem desse "método off-set" é que ele pode se tornar injusto no caso de o cônjuge empregado ser incapaz de exercer as opções ou, na data em que se tornam exercíveis, eles são "sem valor" (ou seja, o custo de a opção excede o valor justo de mercado.)
Uma revisão da autoridade de fora do estado indica que os tribunais matrimoniais diferem quanto ao método de distribuição de opções de compra de ações, dependendo da natureza das opções em si, sejam elas adquiridas ou não, transferíveis ou vendáveis. Se as opções puderem ser transferidas para o cônjuge não empregado, esse é o método preferido de distribuição, uma vez que efetua uma quebra clara entre as partes; não há necessidade de mais comunicação entre as partes e não há necessidade de usar metodologias de avaliação. No entanto, a transferência de opções de ações raramente é permitida pelos planos de opções de ações para funcionários. Alguns tribunais elaboraram outros métodos, incluindo, mas não se limitando a, permitir que as partes sejam inquilinos em comum, ou permitir que o cônjuge não empregado ordene ao cônjuge empregado exercer sua respectiva parte das opções, mediante o fornecimento de capital. para fazer isso. Isso é semelhante à solução de confiança construtiva concebida no caso de Callahan, discutido anteriormente. Os tribunais de primeira instância têm ampla discricionariedade ao elaborar uma abordagem para se adequar aos fatos do caso individual. (Advertência: todos esses métodos ainda presumem que não há exclusão de opções com base no argumento de que eles não foram investidos ou que não foram ganhos durante o casamento).
Como ponto de referência, observe que, ao distribuir opções em espécie, deve-se considerar que nenhuma das partes viola as regras de informações privilegiadas. Por exemplo, pode ser uma violação se o cônjuge participante informar ao cônjuge não participante que ele pretende exercer suas opções no futuro próximo. Outra preocupação com a distribuição de opções em espécie é que elas podem se extinguir se o emprego do indivíduo na empresa for encerrado, voluntária ou involuntariamente.
O que acontece quando o cônjuge empregado argumenta que algumas das opções são perdidas ou de outra forma "não adquiridas durante o casamento" e, portanto, não podem ser distribuídas ao outro cônjuge?
Os tribunais de Nova Jersey deixaram claro que é necessário equilibrar a necessidade de determinação incorporada na data da regra de queixa (ou seja, a data limite para determinar quais ativos estão sujeitos à distribuição) com a necessidade de flexibilidade inerente à distribuição equitativa ao abordar opções de ações incidentes ao divórcio. (23) Considerando que os tribunais de muitos outros estados empregaram a “fórmula da regra do tempo” (24) para determinar qual parte das opções de ações deve ser distribuída (veja abaixo), as bases de uma forma mais geral. Basicamente, bens ou bens adquiridos após o término do casamento, mas como recompensa ou resultado de esforços despendidos durante o casamento, normalmente serão incluídos no estado civil e, portanto, sujeitos a distribuição eqüitativa (25). Jersey reconhece que os bens adquiridos pelo trabalho remunerado durante o casamento ou como recompensa por tal trabalho são distribuíveis, enquanto os bens adquiridos após a dissolução devido exclusivamente aos esforços pós-reclamação do assalariado constituem a propriedade separada do cônjuge empregado (26).
O caso seminal no Estado de Nova Jersey com relação à distribuição de opções de ações é o caso da Suprema Corte de Pascale. (27) Nesse caso, as partes se casaram em 19 de junho de 1977. Uma queixa de divórcio foi apresentada em 28 de outubro. 1990. A esposa começou seu emprego na Liposome Company em 14 de abril de 1987, quando foi imediatamente concedida a opção de comprar 5 mil ações da empresa. Na data do julgamento, a mulher possuía 20.069 opções de ações concedidas entre 14 de abril de 1987 e 15 de novembro de 1991. 7.300 das opções de compra de ações foram concedidas após a apresentação da queixa de divórcio (28).
Havia dois blocos de opções de ações em disputa (ou seja, 4.000 e 1.800), ambas concedidas em 7 de novembro de 1990. Elas foram concedidas aproximadamente dez dias depois que a esposa pediu o divórcio. (Não houve nenhuma indicação sobre se as opções foram adquiridas no todo ou em parte, no entanto, presume-se que essas opções foram "não utilizadas".) Sua posição era de que essas opções não estavam sujeitas a distribuição porque os 1.800 foram emitidos em reconhecimento desempenho passado e as 4.000 opções foram concedidas em reconhecimento a uma promoção de trabalho que impôs uma maior responsabilidade sobre ela no futuro. (29) A esposa confiou nas cartas de transmissão de sua empresa para apoiar seus argumentos. O tribunal julgou que nenhum dos dois blocos de opções outorgados em 7 de novembro de 1990 poderia ser excluído da distribuição equitativa e deveria ser dividido igualmente.
Contudo, a Divisão de Apelação concluiu que um dos dois conjuntos de opções concedidos em 7 de novembro de 1990 deveria ter sido incluído no estado civil, enquanto o outro deveria ter sido excluído. (30) A Divisão de Apelação baseou essa decisão em sua interpretação do Constatou que o bloco de 4.000 opções outorgadas em reconhecimento a uma promoção na responsabilidade pelo trabalho e um aumento no salário era "mais apropriadamente ... projetado para aumentar os esforços futuros de emprego" e não deveria ter sido incluído no estado civil. ) No entanto, quanto ao bloco de 1.800 opções, a Divisão de Apelações concluiu que essas opções foram outorgadas em reconhecimento ao desempenho do emprego anterior. (32) Portanto, essas opções eram apropriadamente includíveis na propriedade conjugal, apesar da data da regra de reclamação. )
Ao reverter o Tribunal de Apelação, a Suprema Corte de Pascale concentrou-se no N. J.S. A. 2A: 34-23 e os princípios orientadores enunciados em Painter v. Painter, de que "a propriedade claramente se qualifica para distribuição quando é atribuível ao esforço de esforço de qualquer dos cônjuges durante o casamento". (34) A Suprema Corte em Pascale É claro que o foco nesses casos se torna se a natureza do ativo é aquela que é o resultado de esforços feitos "durante o casamento" pelo cônjuge em conjunto, tornando-o sujeito a distribuição equitativa. Para refutar tal presunção, a parte que deseja a exclusão do ativo deve arcar com "o ônus de estabelecer tal imunidade [de distribuição equitativa] quanto a qualquer ativo em particular" (35).
O tribunal de Pascale concluiu que "as opções de ações concedidas após o casamento ser rescindido, mas obtidas como resultado de esforços despendidos durante o casamento, devem estar sujeitas a distribuição equitativa. A iniquidade que resultaria da inflexibilidade à data da regra de queixa é óbvia". (36) Note-se que não foram feitas distinções quanto às opções adquiridas ou não investidas. Portanto, parece que a Suprema Corte concordou com os objetivos a serem alcançados pela Divisão de Apelação, mas não concordou com suas conclusões com base no registro abaixo. A Suprema Corte atribuiu maior peso à "descoberta verossímil" feita pelo tribunal após ouvir muitos dias de depoimento de que a promoção surgiu como resultado do excelente serviço que a esposa prestou à empresa durante o casamento.
Consulta, o que a Suprema Corte de Nova Jersey teria feito se determinasse que um bloco de opções fosse concedido para uma mescla de esforços pré e pós-casamento? E se não houver uma indicação clara de por que as opções são concedidas? E se as opções forem perdidas e precisarem de um esforço de trabalho futuro para serem totalmente adquiridas? Essas circunstâncias geralmente existem e são onde as coisas ficam obscuras. Nova Jersey não adotou um método claro e preciso para determinar qual parte das opções que ainda não foram totalmente obtidas deve ser distribuída. A abordagem de New Jersey fornece uma análise muito mais subjetiva (e espaço para advocacy) do que em outros estados que utilizam várias abordagens estereotipadas, incluindo um fator de cobertura ou regra de tempo, geralmente levando em conta os cronogramas de aquisição de direitos.
Assim como Nova Jersey, a maioria dos estados deste país considera as opções de ações não investidas como propriedades sujeitas à distribuição em processos de dissolução conjugal (37). Essa foi a recente decisão do tribunal de apelações na Pensilvânia no caso MacAleer (38). O Tribunal de Recurso da Pensilvânia abordou a questão de saber se as opções de ações concedidas a um cônjuge durante o casamento, mas não exercíveis até depois da data da separação, constituem uma propriedade conjugal a ser dividida durante o divórcio. O raciocínio desse tribunal é paralelo, em grande parte, à maioria dos outros estados que defendem que as opções de ações não investidas são bens conjugais. Analogando suas decisões anteriores determinando que as pensões não-cobertas estavam sujeitas a distribuição, o tribunal observou que os benefícios resultantes do emprego durante o casamento são conjugais, uma vez que esses benefícios são recebidos em lugar de uma compensação mais alta que teria sido utilizada durante o casamento para adquirir outros bens ou elevar o padrão de vida conjugal. (39) Apenas um punhado de estados sustentou especificamente o contrário. Esses estados são Indiana, Colorado, Illinois, Carolina do Norte, Ohio e Oklahoma. (40) Carolina do Norte e Indiana não dividem opções de ações não investidas com base na definição estatutária do estado de "propriedade". (41) Oklahoma não considera não investido opções de ações para ser propriedade conjugal com base na fundação de direito comum do regime estatutário do estado. Esses estados concedem as opções de ações não investidas ao cônjuge empregado como uma propriedade separada que não deve ser considerada para distribuição equitativa. Essas decisões são diferenciadas pelo fato de serem fortemente influenciadas por estatutos que definem propriedade nessas jurisdições. No entanto, os demais estados que trataram do assunto, consideram que as opções de ações não investidas são propriedade conjugal e geralmente seguem o mesmo procedimento para determinar quanto, se houver, das opções constituem propriedade conjugal.
Muitas jurisdições, como New Jersey, vêem a primeira consideração como uma determinação de se as opções foram concedidas para serviços passados, presentes ou futuros. However, most courts have learned that employee stock options are not usually granted for any one reason, and could be compensation for past, present and future services. As a result, these courts sought some structure to determining the distributable share.
Most out-of-state courts which have addressed distribution of unvested stock options use a "coverture factor" or "time rule fraction" to determine how much, if any, of the unvested stock options constitute marital property. The most prevalent time rule fraction has evolved from that which was used by the California Court of Appeals in Hug.(43) The trial court in Hug found that the number of options that were community property were a product of a fraction; the numerator was the period in months between the commencement of the spouse's employment by the employer and the date of separation of the parties, and the denominator was the period in months between commencement of employment and the date when the first option is exercisable, multiplied by the number of shares that can be purchased on the date that the option is first exercisable. The remaining options were found to be the separate property of the husband.(44)
The husband in Hug agreed that the options were subject to division according to the time rule; however, he contended that the trial court used an erroneous formula(45). He argued that the proper time rule should begin as of the date of granting the option, not the date of commencement of employment, since the options were not granted as an incentive to become employed(46). He argued further that each annual option was a separate and distinct option which is compensation for services rendered during that year, and as it was to accrue after the date of separation, it was totally his separate property.(47) The court examined the various reasons why corporations confer stock options to employees, and found that no single characterization could be given to employee stock options. Whether they can be characterized as compensation for past, present, or future services, or all three, depends upon the circumstances involved in the grant of the employee stock option.(48). By including the two years of employment prior to the granting of the options in question, the trial court implicitly found that period of service contributed to earning the option rights at issue.(49) The appellate court found that this was supported by ample evidence in the record.(50)
Various versions of coverture factors have evolved as courts addressed different factual circumstances. The recent Wendt case out of Connecticut entails a voluminous decision in which the court surveys the states which addressed the issue of division of unvested stock options, and notes the competing arguments and the most common numerators and denominators in diverse forms of the coverture factors.(51) A brief summary of the Wendt court's decision as to stock options is helpful to understanding the approach of many courts to the issue of unvested stock options.
According to the December 31, 1996 unaudited financial statement prepared by KPMG Peat Marwick, LLP, the husband owned 175,000 shares of General Electric Vested Stock Options and Appreciation Rights in the following amounts: 100,000 units granted November 20, 1992 with a $40 per share exercise price, 70,000 units granted September 10, 1993 with an exercise price of $48.3125 and 5,000 units granted June 24, 1994 with an exercise price of $46.25. The unaudited financial statements used the "intrinsic value" method, with a December 31, 1996 New York Stock Exchange price of G. E. common stock at $98 7/8 per share. On May 12, 1997, G. E. common stock split two for one and, thus, the number of options doubled to conform to the stock split. As of the date of separation, December 1, 1995, G. E. was trading at $72 per share. As of October 7, 1997, G. E. was trading at $72 per share in its split status or $144 per share at the pre-May 12, 1997 stock split number of stock options. Based on the facts found, the court divided the 175,000 vested stock options and appreciation rights based on the date of separation, December 1, 1995. In rejecting a Black-Scholes approach in favor of the "intrinsic value" method, the trial court valued the vested options as follows: 175,000 stock options at $3,200,000 for the November 20, 1992 grant; $1,658,125 for the September 10, 1993 grant and $128,750 for the June 24, 1994 grant for a total 'intrinsic value" of $4,986,875. The court noted that this amount was before taxes. The court additionally noted that the options had no cash value until exercised at which point there would be tax due at short term capital gains tax rates, i. e., ordinary income tax rates. The court assumed maximum rates for the IRS, Medicare and Connecticut tax and calculated the net after tax of the intrinsic value to be $2,804,219. The court distributed one-half of that sum to the wife. The court found that the doubling of the G. E. stock after the date of separation was not due to the efforts of the wife, but that "she should share in the general increase in the investment community."(52)
The Wendt court then proceeded to address the 420,000 unvested stock options differently. The court had already concluded that only a portion of these unvested stock options was marital property. The court had also concluded that the unvested stock options were granted for future services. Therefore, a coverture factor was required. The coverture factor was determined by a fraction as follows:
Number of Months from the Date of Grant to the Date of Vesting and are not Subject to Divestment.
Number of Shares to be Vested at that Date of Vesting.
Since there were eight separate dates of vesting, eight separate coverture factors had to be calculated. For example, the coverture factor utilized for the 70,000 units granted on September 10, 1993 which vested on September 10, 1998 was as follows:
60 = 44.5% x 70,000 units = 31,150 units to be divided.
The court then took the price of the G. E. common stock on the date of separation (i. e. $72 per share) to calculate the intrinsic value and thereby determine the dollar amount owed to the wife for the marital portion of the unvested options. This was represented as follows:
-48.3125 (exercise price)
$23.6875 intrinsic value per share x 31,150 units = $737,866.
The "$737,866" represents the pre-tax dollar value of the marital portion of the unvested shares as determined by the coverture factor.
The court had basically rejected the wife's expert's valuation methodologies (which included "Black-Scholes") and opted to use the "intrinsic value" to obtain the appropriate value. Specifically, the court rejected the wife's expert's use of the Black-Scholes model which actually resulted in a value 10% lower than the "intrinsic value" ultimately used by the court.(54) The court then determined the wife's share of the intrinsic value of the unvested stock options (i. e., $1,626,273). The court noted that this amount was before taxes. The court proceeded to assume current maximum rates for the IRS, Medicare and Connecticut and found that the net after tax value of the gross intrinsic value would be $914,486. The court then proceeded to award the wife half of this sum. The court ordered the husband to pay the sum in cash and not in any portion of the options.
A similar approach was taken in the case of In re Marriage of Short.(55) In this case, the court held that the inclusion of the unvested stock options in the pool of distributable assets depended on whether the options were granted to compensate the employee for past, present or future employment. The court held that unvested options awarded for past and present services were marital property regardless of the continuing restriction on transfer or vesting. Unvested options granted for future services were deemed to be acquired periodically in the future as the options vest and are subject to a time rule division to allocate the shares between marital (community) and non-marital (separate) property. A different time rule than in the Hug case was used to differentiate between vested options that are clearly separate property for which no time rule would be applied, and those which include both a community effort and separate effort.
Just recently, New York joined the substantial majority of states holding that "restricted stock and stock option benefit plans provided by a spouse's employer constitute marital property for the purposes of equitable distribution, where the plans come into being during the marriage but are contingent on the spouse's continued employment with the company after the divorce."(56) New York's highest court, in a seven-judge panel, unanimously joined the majority of jurisdictions that use a time rule to divide such contingent resources. The DeJesus court laid out the following four-step procedure to guide courts in dividing such options:
Trace shares to past and future services; Determine the portion related to compensation for past services to the extent that the marriage coincides with the period of the titled spouse's employment, up until the time of the grant. This would be the marital portion; Determine the portion granted as an incentive for future services; the marital share of that portion will be determined by a time rule; and Calculate the portion found to be marital by adding: that portion that is compensated for past services; and that portion of the future services deemed to be marital after application of the time rule. The sum result will then be divided between the parties using the equitable distribution criteria.
This was the method utilized in Colorado in the case of In re Marriage of Miller. The DeJesus court was persuaded that the Miller type analysis best accommodated the twin tensions between portions of stock plans acquired during the marriage versus those acquired outside of the marriage, and stock plans which are designed to compensate for past services versus those designed to compensate for future services.(57)
However, notwithstanding the complexity of these methods, the danger of rigidity and resulting unfairness from a blind application of a formulaic approach still exists. Such issue was addressed by an Oregon Court which stated that "No one rule will produce a just and proper result in all cases and no one rule will be responsive to many different reasons why stock options are granted."(58) This was, more than likely, the reason that New Jersey's Supreme Court ruled as it did in Pascale.
There is little doubt that stock options constitute a form of compensation earned by the employed spouse during the marriage.(59)
In February of 1999, an Ohio appeals court agreed with Susan Murray, the former spouse of Procter & Gamble Company executive Graeme Murray, that unexercised stock options should be used in calculating the value of child support for the couple's 16-year-old son. This decision was the first by an Appellate Court to say that parents cannot shelter income from their children - intentionally or unintentionally, by postponing the exercise of stock options until the kids are grown.(60) Note that options granted in consideration of present services may also be deemed a form of deferred compensation. (See In Re Marriage of Short, 125 Wash.2d 865, 890 P.2d 12,16 (1995).
A Wisconsin Court of Appeals pointed out that a stock option is not a mere gratuity but is an economic resource comparable to pensions and other employee benefits.(61) The Appellate Court of Colorado held that for purposes of determining child support, income includes proceeds received by father from actual exercise of father's stock options.(62)
The Supreme Court of Colorado held, in the Miller case already referenced above, that "under the Internal Revenue Code, the optionee of a non-statutory employee stock option must recognize income at the time the option is granted if the option has a "readily ascertainable value" at the time of the grant(63). If the option does not have a readily ascertainable value at the time of the grant, the optionee recognizes income at the time the option becomes "substantially vested" or no longer subject to a "substantial risk of forfeiture," which generally does not occur until the option is exercised.(64)
The Miller Supreme Court found that unlike pension benefits, employee stock options may well be considered compensation for future services as well as for past and for present services.(65)
It is clear that there is a growing trend among the courts of this nation to distribute unvested or non-exercisable stock options that were granted during the marriage. The key factor in such distribution is a determination as to the purpose for which the options were granted, i. e., whether the options were granted for past or future performance. Where an option is granted for a mixed purpose and/or requires continued employment past the termination date of the marriage (as determined by local law), many states are employing a time-rule fraction which may be modified by the trial court based upon the particular facts and circumstances of the case. Matrimonial practitioners must be aware of the various forms of time-rule fractions that can be used and the factors that can modify the fraction. Such factors include, but certainly are not limited to the following:
when the option was granted; whether the option was granted for past or future performance (if "past" how far back); whether or not the option was granted in lieu of other compensation; whether or not the option was a qualified incentive stock option or non-qualified stock option; when the options will expire; the tax effect of the grant of the option; the tax effect of exercising the option; whether or not the option has a "readily ascertainable fair market value;" whether or not the option is transferable; whether or not the option is restricted property; the extent to which the option is subject to risk of forfeiture; and any other factors that the parties or court may deem fair and equitable to consider.
Since the majority of employee stock options are non-transferable and cannot be secured as with qualified pensions under federal laws such as ERISA, matrimonial attorneys should specifically tailor their language when drafting agreements concerning such assets. These agreements should include:
a list of all options granted and an explicit description of which options are marital and which are not; if a Deferred Distribution Method is employed, a restoration of whether and under what terms the non-owner can compel the owner to sell options after they are vested; provision for payment of the "strike price" by the non-employed spouse and taxes resulting from the exercise of options; a description of how and when distribution is to be made to the non-owner spouse and precise notification and document exchange provisions.(66)
The matrimonial attorney involved in a case concerning stock options, especially when representing the non-employed spouse, should be sure to obtain the following information and documents:
a copy of the stock option plan; copies of any correspondence or internal memorandum which were issued by the company at the time of the grant of any stock options; a schedule of granted options during the employees period with the company; the date of each option granted; the number of options granted at each date; the exercise price of options granted at each date; the expiration date of each set of options granted; the date of vesting for each set of options granted; the date and number of options exercised; all short term or long term employee incentive plans covering the employed spouse; all Employment Agreements between the employed spouse and his or her employer; all company plans, handbooks and option award letters related to stock options granted; copies of the firm's 10K and 8K for the entire period that the employed spouse is with the company; dates of promotions and positions held by the employee; a brief job description of each position; the salary history of the employee indicating all forms of compensation; the grant date of exercised options and copies of any corporate minutes or proxy statements referencing the award of options.
The information listed herein provides the core information from which option values can be calculated and agreements intelligently reached concerning their distribution.(67)
As we enter the 21st Century, it is clear that matrimonial attorneys will need to become as knowledgeable as possible regarding this unue kind of asset. Hopefully, this article has given some insight into the complexities involved when dealing with Employee Stock Options and Divorce.
1. See Employee Stock Options Fact Sheet, (visited on June 10, 1999).
2. See Kruger v. Kruger, 73 N. J. 464, 469 (1977) distinguished by Weir v. Weir, 173 N. J. Super. 130 (Ch. Div. 1980) (the defendant's pension plan payment had not matured as it was not being distributed); Mey v. Mey, 149 N. J. Super. 188, 196 (App. Div. 1977); Callahan v. Callahan, 142 N. J. Super. 325, 328 (Ch. Div. 1976) distinguished by In the Matter of Pearl, 40 B. R. 860 (Bankr. D. N.J. 1984) (court imposed a constructive trust to avoid unjust enrichment of the defendants)
3. BLACK'S LAW DICTIONARY (5th ed. 1979).
4. See Treas. Reg. Я1.421-7(a)(1) (1978); I. R.C. Я1234(a) (1998) (general discussion of stock options).
5. See Bernard v. IMI Sys., Inc., 131 N. J. 91, 107 (1992).
6. See Gillman v. Bally Mfg. Corp., 286 N. J. Super. 523 (App. Div. 1996).
7. See 1 A CORBIN ON CONTRACT, Я273 (1963 & Supp. 1994), cited in Gilman v. Balley Mfg. Corp., supra at 528.
9. See I. R.C. Я422A (b) (1998).
10. See Treas. Reg. Я1.83-1(a), 1.83-7(8) (1978); 26 C. F.R. Я1.83-7 (1978).
11. Treas. Reg. Я1.83-7 (b)(1) (1978).
12. I. R.C. Я83(a) (1994); Treas. Reg. Я1.83-1 (1978).
13. See I. R.C. Я1234(b)(1) (1998).
14. Treas. Reg. ЯЯ1.83-7(b)(2), 1.83-7 (b)(3) (1978).
15. See 1997 U. S. Master Tax Code, (CCH) Я1923.
16. sfas No. 123 Accounting for Stock-Based Compensation.
17. This valuation methodology developed by Myron Scholes, who received the Nobel Prize in Economics in 1997, has been accepted in the financial community as one method for pricing options.
18. See Statement of Financial Accounting Standards No. 123, ∂75, Financial Accounting Standards Board, October 1995. See also article entitled "Employee Stock Options Valuation Issues" by Les Barenbaum, Ph. D. Dr. Barenbaum is a Vice President at Financial Research, Inc., a Kroll-Linquist Avey company, and a professor of finance at LaSalle University.
19 Statement of Financial Accounting Standards No. 123, ∂78, Financial Accounting Standards Board, October 1995. See also Dr. Barenbaum's article.
20. See Dr. Barenbaum's article.
21. See Dr. Barenbaum's article.
22. Note that the court granted the wife only a 25% ownership of each remaining option with the husband acting as trustee. He was required to exercise her share of the options only at her direction, but the wife was required to supply the husband with the funds necessary to make the purchase. The husband, however, was required to pledge the stock at the wife's request should she wish to utilize it to finance her purchase. Once exercised, the husband was to hold the stock in trust for the wife. Following the exercise of the option, the wife could require the husband to transfer the stock held in trust to her or sell it on the market and turn over the proceeds. There were various restrictions imposed concerning transfers in accordance with SEC "insider trading" rules and potential tax liability.
23. See Reinbold v. Reinbold, 311 N. J. Super. 460 (App. Div. 1998).
24. The "time-rule formula" has been adopted in a number of jurisdictions to divide stock options when the rights under the option agreement were acquired during the marriage. See In re Marriage of Hug, 154 Cal. App. 3d 780, 201 Cal. Rptr. 676 (1984); Green v. Green, 64 Md. App. 122, 494 A.2d 721 (1985); Smith v. Smith, 682 S. W.3d 834 (Mo. App. 1984); Garcia v. Mayer, 122 N. M. 57, 920 P.2d 522 (1996) (observing that the majority of jurisdictions treat unvested stock options as marital property); In re Marriage of Powell, 147 Or. App. 17, 934 P.2d 612 (1997); Stachofsky v. Stachofsky, 90 Wash. App. 135, 951 P.2d 346 (1998); but see Hann v. Hann, 655 N. E.2d 566 (Ind. App. 1995). Under this approach, the risk that the employed spouse may lose the right to exercise the options will be shared by the parties. See In re Marriage of Smith, supra.
25. See id. at 469.
26. See id. at 469.
27. See Pascale v. Pascale, 140 N. J. 583 (1995) distinguished by Elkin v. Sabo, 310 N. J. Super. 462 (App. Div. 1998) (distinguished on the issue of whether child support payments should be reduced).
28. However, consider out of state authority which would reduce the amount of unvested stock options subject to distribution based on a coverture fraction.
29. See Pascale v. Pascale, supra, note 21, at 607.
30. See Pascale v. Pascale, 274 N. J. Super. 429, 437-40 (App. Div. 1994).
32. See id. at 440.
33. See Kikkert v. Kikkert, 177 N. J. Super. 471 (App. Div. 1981), aff'd o. b. 88 N. J. 4 (1981); Pascale v. Pascale, supra, note 24, at 440.
35. Landwehr v. Landwehr, 111 N. J. 491, 504 (1988) (quoting Painter v. Painter, 65 N. J. 196, 214(1974)), cited in Pascale v. Pascale, supra, note 21, at 609.
37. See Garcia v. Mayer, 122 N. M. 57 (Ct. App.1996), cited in Wendt v. Wendt, 1998 WL 161165, at *118 (Conn. Super. 1998)
38. MacAleer v. MacAleer, 725 A.2d 829 (Pa. Super. 1999).
39. See Berrington v. Berrington, 409 P. A. Super 355, 598 A.2d 31, 34-35 (1991), affirmed 534 Pa. 393, 633 A.2d 589 (1993).
40. See Hann v. Hann, 655 N. E.2d 566 (Ind. Ct. App. 1995); In re Marriage of Huston, No. 96CA2228, 1998 WL 99187 (Colo. App. March 5, 1998); In re Marriage of Isaacs, 260 Ill. App. 3d 423, 632 N. E.2d 228 (Ill. App. Ct. 1994); Hall v. Hall, 88 N. C. App. 297, 363 S. E.2d 189 (N. C. Ct. App. 1987); Demo v. Demo, 101 Ohio App. 3d 383, 655 N. E.2d 791 (Ohio Ct. App. 1995); Ettinger v. Ettinger, 637 P.2d 63 (Okla. 1981). However, note that only North Carolina, Indiana and Oklahoma clearly hold that unvested stock options are not subject to distribution. In In re Marriage of Huston seems to have been reversed by Colorado Supreme Court in the case of In re Marriage of Miller. The Illinois Appellate Court in the case of In re Marriage of Moody, the trial court could retain jurisdiction to allocate the profits realized from an exercise of the options when the options were exercised after the divorce. Lastly, the Ohio court in Demo v. Demo excluded the options awarded for premarital effort.
41. See Hann v. Hann, 655 N. E.2d 566 (Ind. Ct. App. 1995) (distinguished by Wendt v. Wendt, supra pp. 8-10); Hall v. Hall, 88 N. C. App. 297 (1987) (distinguished by Wendt v. Wendt, supra, pp. 8-10); Boger v. Boger, 103 N. C. App. 340 (1991); Ettinger v. Ettinger, 637 P.2d 63 (Okla. 1981) (distinguished by Wendt v. Wendt, supra, pp. 8-10).
42. See In re Marriage of Miller, 915 P.2d 1314 (Colo. 1996).
43. In re Marriage of Hug, 154 Cal. App. 3d 780 (Cal. Ct. App. 1984).
48. "Treatises which describe employee stock options in the context of general corporations law strongly suggest that contractual rights to such benefits vary so widely as to preclude the accuracy of any but the most general characterization of them. Thus, there is no compelling reason to require that employee stock options must always be classified as compensation for past, present, or future services. Rather, since the purposes underlying stock options differ, reference tot he facts of each particular case must be made to reveal the features and implications of a particular employee stock option." Id. at 679.
51. See Wendt v. Wendt, 1998 WL 161165 (Conn. Super. 1998).
52. Wendt v. Wendt, 1997 W. L. 752374, at *7 (Conn. Super. 1997).
55. See In re Marriage of Short, 890 P.2d 12, 16-17 (1995).
56. DeJesus v. DeJesus, 90 N. Y.2d 643 (1997).
58. In re Powell, 147 Or. App. 17 (1997) distinguished by In re Matter of Marriage of Gohlman, 151 Or. App. 93 (Or. App. 1997) (court held that the increased value of the wife's stock did not warrant modification or termination of support payments and wife was allowed to hold the stock for investment purposes).
59. See Callahan v. Callahan, 142 N. J. Super. 325, 328 (Ch. Div. 1976).
60. See Margaret A. Jacobs, Stock Options Spur New Battles in Many Child Support Cases, WALL ST. J., Mar. 17, 1999, at B1.
61. See Chen v. Chen, 416 N. W.2d 661, 663 (Wis. Ct. App. 1987).
62. See In re Marriage Campbell, 905 P.2d 19 (Colo. Ct. App. 1995).
63. Treas. Reg. Я1.83-7 (1978); see 2A Benefits Coordinator Par. 31, 146.
64. See I. R.C. Я83(a) (1994); Treas. Reg. Я1.83-1,-7 (1978). See also 2A Benefits Coordinator Par. 31, 146; In re Marriage of Miller, supra, note 33, at 1314.
65. In re Marriage of Miller, supra, note 33, at 1318.

The Equitable Distribution of Stock Options.
Employee stock options are considered marital assets that are subject to equitable distribution. These include both vested and unvested stock options. Even stock options awarded shortly after the divorce complaint was filed are considered subject to equitable distribution if they were awarded as a result of efforts expended during the marriage. On the other hand, if the options were awarded shortly after the marriage ended but are incentives for future performance (i. e. to keep the employee spouse at the company) then they are not eligible for equitable distribution.
The issue as to whether stock options obtained after the divorce complaint was filed were awarded for past performance or for future performance is often an issue in divorce cases. Usually the documents granting the options do not spell out the reason(s) for the award, which must then be inferred from the nature of the employment and the other facts of the case.
The speculative nature of a stock option’s value makes it one of the most difficult assets to value at the time of the divorce. This is because it is impossible to predict the exact future value of the stock at the time the option will be exercised, which may be years later; in fact, there is no guarantee that the option will be worth anything at all at the time that it becomes exercisable.
There are two methods for equitably distributing stock options. The first, and by far less common, method is the Present Value Method which utilizes a mathematical formula to try to calculate the present value of the stock options. The most widely accepted present value formula is the Black-Scholes formula which combines a variety of factors, such as the exercise price of the stock, the share price on the valuation date, the length of time until maturity, interest rates and a standard deviation formula to account for the volatility of the share price.
The Present Value Method allows the parties to divide the value of the stock option(s) at the time of the divorce, with the non-employee spouse receiving monetary compensation (or an equivalent offset of assets) for his/her share of the other party’s stock options. The benefit of using the Present Value Method is the finality of the distribution of the stock options at the time of the divorce. The downside is the cost of having the options valued as well as the speculative nature of the Present Value Method as it applies to stock options. In fact, some state courts have held that the speculative nature of stock options makes them unsuitable for present value calculations.
The more common approach to dividing stock options is the Deferred Distribution Method. Using this method, the parties’ Marital Settlement Agreement or the Final Judgment of Divorce contains language which imposes a “Constructive Trust” over the non-employee spouse’s share of the stock options. The Constructive Trust requires the employee spouse to hold the options for the benefit of the non-employee spouse. The employee spouse holds on to the options until they vest, are exercisable (if unvested and/or non-exercisable at the time of the divorce) and non-employee spouse directs the employee spouse to exercise them. It is important that there be language in the Agreement requiring the employee spouse to notify the non-employee spouse prior to the options lapsing. Once the options are exercised, the employee spouse sells the stock and gives the sale proceeds to the non-employee spouse after the payment of taxes at the employee spouse’s tax rate.

Restricted Stock Options and Stock Units? What Are They and Why Can They Be So Significant in Your New Jersey Divorce?
In many New Jersey divorce cases, one or both parties have restricted stock options or restricted stock units.
O que eles são? Must they be shared in a divorce? If so, how should they be valued?
The answers to those questions can have a very significant effect on your New Jersey divorce.
For this reason, it is absolutely essential that, whether you are seeking distribution of those assets or are looking to preserve and protect them in a divorce, your New Jersey divorce lawyer have a complete working knowledge of these issues and be able to assist you in formulating the best possible result.
Restricted stock options and restricted stock units are additional forms of compensation which are often given to certain employees at publicly-held companies. They are “restricted” because the employee is prevented from exercising the options or selling the stock until a future date.
In addition, only a percentage of those options and stock vest each year and, if the employee leaves the company before all of the options or stock units have vested, the employee forfeits any unvested portion.
Consider the following scenario:
In 2013, the husband is hired to head a Division of a large publicly-held company.
On March 15, 2014, because of the husband’s excellent job performance in 2013, the company awards him restricted stock options which gives him the right to purchase 5,000 shares of company stock at $20 per share each year for three consecutive (3) years, beginning on March 15, 2015. The company stock is then trading at $25 per share. However, if the husband leaves the company before all of the stock options have vested, he will forfeit any unvested portion of the options.
The husband files a Complaint for Divorce in New Jersey on January 2, 2015.
On March 15, 2015, the husband is awarded 9,000 restricted stock units in the company, because of his excellent performance in 2014. One-third of those RSU’s will vest each year, beginning on March 15, 2016. Again, however, if the husband leaves the company before March 15, 2018 (before all of the RSU’s have vested), he will forfeit any portion of the RSU’s which have not vested.
Unless the wife’s lawyer advises her otherwise, the wife will likely think that neither the options nor the stock are marital assets in which she is entitled to share in the New Jersey divorce, because:
–None of the options awarded to the husband in 2014 had yet vested; e.
–The restricted stock units were awarded to the husband after the filing of the Divorce Complaint, they are not marital assets in which she is entitled to share in the New Jersey divorce.
Neither of those things is correct.
–The 2014 award, not the vesting of that award, created a marital asset–albeit one that may or may not vest and whose value is as yet uncertain.
–The 2015 award was made in recognition of the husband’s 2014 job performance—prior to the filing of the Divorce Complaint.
Unless the husband’s lawyer advises him of the proper way to handle the distribution of the restricted stock options and stock, the husband may find himself shouldering all of tax burden resulting from the exercise of the options and the sale of the stock.
Moreover, the husband should be advised of his option to seek to retain those assets–which he may want to do because of his belief that the price of the stock will increase. If that is the husband’s choice, the options and stock must be properly valued.
Choosing the right law firm in a New Jersey divorce case makes all the difference.
Salvaggio Law Group LLC handles only a limited number of cases at one time. Because of this, we can give you the attention you deserve. If you want to talk, please call us at (973) 455-1220 or fill out the Contact Form on our website.
David F. Salvaggio, Esq. – Founder & Senior Attorney.

Employee Stock Options and Divorce.
Learn how to determine the value of a stock before you decide whether or not to purchase it or take advantage of your employers stock option incentive. Expert accountant explains how the stock system works and formulas used to predict its future.
Updated: February 25, 2015.
As the stock market continues to rise, divorce attorneys are involved in more and more cases involving stock options. The grant of stock options to key employees is now common in high technology companies and is becoming popular in many other industries as part of an overall equity compensation strategy. Larger, publicly traded companies such as Pepsico, Starbucks, Travelers Group, Bank of America, Merck and the Gap now give stock options to almost all of their employees. Many non-high tech closely held companies are joining the ranks as well.
Traditionally, stock option plans have been used as a way for companies to reward top management and "key" employees and link (golden handcuff) their interests with those of the company and other shareholders. More and more companies, however, now consider all of their employees as "key." As a result, there has been an increase in the popularity of broad-based stock option plans, particularly since the late 1980s. More than a third of large United States companies now have broad-based stock option plans covering all or a majority of their employees--more than double the rate that existed in 1993. In a 1997 survey of 1,100 public companies conducted by Share Data, Inc. and the American Electronics Association, it was found that 53% of respondents provide options to all employees. In companies having 500 to 999 employees, the study found that 51% offer options to all employees, as compared to 30% in Share Data's 1994 survey and 31% in Share DataÕs 1991 survey. Forty-three percent of companies with 2,000 to 4,999 employees offer options to all, as compared to 10% in 1994. Forty-five percent of companies with 5,000 or more employees offer options to all, compared to 10% in 1994.
Since this trend shows no apparent sign of slowing down, matrimonial attorneys must be ready to address the unue issues that arise therefrom. This article will explain the basic nature of employee stock options, how they are valued, taxed and ultimately distributed incident to divorce.
What is an Employee Stock Option?
There is no question that "stock options" are assets subject to equitable distribution. However, simply to say that they are assets is not enough to guide the matrimonial litigator. We must first understand the basic nature and definition of a stock option. Basically, a "stock option" is "the right to purchase a specified number of shares of stock for a specified price at specified times, usually granted to management and key employees. The price at which the option is provided is called the "grant" price and is usually the market price at the time the options are granted.
Generally, stock options are an incentive to stimulate the efforts of key employees and to strengthen the desire of employees to remain in the employment of the corporation. Such incentives do not apply to retired employees. Stock option plans can be a flexible way for companies to share ownership with employees, reward them for performance, and attract and retain a motivated staff. For growth-oriented smaller companies, options are a great way to preserve cash while allowing employees a piece of future growth. They also make sense for public firms whose benefit plans are well established, but who want to include employees in ownership. (Note: By issuing stock options, a company potentially dilutes the value of existing shares.)
Whether a stock option is granted for money, for past services, as an incentive for future services, or for no consideration at all, an option holder must exercise the option within its terms or he is subject to the loss of his/her right to do so. In an option contract "time is of the essence." Generally, expiration provisions and stock option agreements are strictly enforced. The courts reject the inevitable breach of contract and forfeiture claims that employees, former employees and other stock option holders press when they fail to timely exercise their options. Although this rarely becomes an issue in divorce litigation, it is something to keep in mind in order to avoid severe economic loss to either party or a potential malpractice claim.
Are there different kinds of stock options, and how are they taxed?
Generally, stock options come in two basic categories: (1) incentive stock options (commonly referred to as ISOs) which are qualified or statutory options and (2) non-qualified stock options (which are commonly referred to as NQSOs). Simply put, the difference between an ISO and a NQSO turns on its compliance with specific Internal Revenue Code requirements at the time of grant which ultimately effects how the option is taxed.
Incentive stock options are granted to individuals for reasons connected to their employment. As a result they may only be granted to employees. They must also be approved by the shareholders of the corporation and granted at fair market value.
NQSOs, on the other hand, may be granted to both employees and independent contractors, and their beneficiaries.
An employee will not realize any taxable income upon the grant or exercise of an ISO. Concomitantly the corporation is not entitled to a deduction upon the exercise of the option. If the employee sells the stock within two years after the option is granted and within one year after the option is exercised, ordinary income will be realized in an amount equal to the lesser of 1) the excess of the fair market value of the shares at the date of exercise over the option price, or 2) the excess of the amount realized on the disposition over the option price. If the individual holds the shares for two years after the grant of the ISO and one year after exercise of the ISO, the difference between the sale price and the option price will be taxed as a capital gain or a loss. If the stock is sold after the two-year/one-year period, that gain will also be an alternative minimum tax preference item subject to the26/28 percent tax rate.
Regarding a NQSO, the holder "employee" of a non-statutory option must recognize income at the time the option is granted if the option has a "readily ascertainable fair market value" at the time of grant. If the option is not transferable and does not have a "readily ascertainable fair market value," no income will result to the individual upon the granting of the option. When the non-qualified stock option is exercised, the individual is taxed at ordinary income rates on the difference between the fair market value of the stock and the exercise price of the option. When the individual sells the stock, a capital gain or loss will be incurred on the difference between the amount received for the stock and its tax basis. Typically the tax basis is equal to the fair market value at the time of the exercise of the option. The capital gain would be either long term or short term depending on the length of the time the shares were held after exercise.
If the option is "actively traded on an established market" the code considers the option to have a "readily ascertainable fair market value." If there is no "readily ascertainable fair market value" at the time of the grant, the optionee recognizes income at the time of the option either: (1) becoming "substantially vested" or (2) is no longer subject to a "substantial risk of forfeiture". Any profit is a short term capital gain, taxable at ordinary income rates. The code establishes four conditions necessary for an option that is not "actively traded on an established market" to meet the "readily ascertainable fair market value" standard: (1) the option is transferable by the optionee (2) the option is exercisable immediately in full when granted (3) there can be no condition or restriction on the option that would have a significant effect on its fair market value, and (4) the market value of the option privilege is readily ascertainable. All four conditions must be met. Since these conditions are seldom satisfied, most non-qualified, non-statutory stock options not traded on an established market, do not have a readily ascertainable value.
There is another factor to consider that can apply to both incentive and non-qualified stock options. Some companies are offering options with a reload feature. A reload option provides for automatic grants of additional options whenever an employee exercises previously granted options.
If the stock that is received upon the exercise of the option is restricted property, the taxation is deferred until the restrictions lapse. Frequently employees receive restricted stock for services. The stock is not freely transferable and is subject to a risk of forfeiture based on the individualÕs performance or continued employment for a period of time. Pursuant to Internal Revenue Code Section 83(b), an individual can elect to recognize the fair market value of the shares, ignoring the restrictions, as income at the time of the award; if a Section 83(b) election is made, the holding period for capital gains purposes commences at the time of the election, otherwise the holding period begins to run at the conclusion of the restriction.
Based upon the foregoing, it may be appropriate to tax effect executive stock options for purposes of equitable distribution. This is because executive stock options have a fixed expiration date and therefore must be exercised and sold. The resulting tax is inevitable and therefore should be considered.
How are Stock Options Valued?
There are various methods to arrive at a present value for stock options. The two most popular are the "intrinsic value" and the "Black-Scholes" method. In 1995 the accounting profession formally recognized that executive stock options have value beyond their intrinsic value. In addition, the Black-Scholes Option Pricing Model was recognized as an appropriate method to calculate the value of executive stock options by the accounting profession. Interestingly, the Financial Accounting Standards Board (FASB) specifically stated that, "an employee's stock option has value when it is granted regardless of whether, ultimately (a) the employee exercises the option and purchases stock worth more than the employee pays for it or (b) if the option expires worthless at the end of the option period.
In the intrinsic value method, the value of the stock option is equal to the difference between the option exercise price and the fair market value of the stock. For example, if you had an option to purchase stock "x" for $5, and the stock was currently trading for $27 per share, the intrinsic value of the option would be $22 ($27 - $5 = $22). However, the intrinsic value method does not consider the value to the holder of having the right to buy the stock at some point into the future at a predetermined price. It also does not consider the volatility of the underlying stock as well as the incumbent advantages and disadvantages of same. Moreover, it does not consider the advantages and disadvantages of the option holder not receiving the stock's dividends as well as the opportunity cost of purchasing the stock and forgoing the lost interest on the acquisition funds.
One method that considers the above-referenced items is the Black-Scholes Method. You can see the Black-Scholes formula by clicking here.
The explanations of the letter designations for the other variables in the Black-Scholes formula are:
C = SN (ln(S/K) C = theoretical call premium N = cumulative standard normal distribution e = exponential function log = natural logarithm.
The first part of the calculation determines the expected benefit of purchasing the stock outright. The second part of the calculation determines the present value benefit of paying the exercise price in the future. The difference is the fair market value of the option.
However, an underlying problem with the Black-Scholes Method is that it makes assumptions concerning the volatility of the stock, future dividend rates, and lost interest. A change in these underlying assumptions can affect the value of the option calculated pursuant to this method.
The following table provides a summary of how a change in one of these assumptions will affect the value of the stock options calculated under the Black-Scholes Method.
Increase in Variable.
Decrease in Variable.
Comércio livre de risco.
A common misconception in the valuation of long term options is that an option value is best represented by its intrinsic value. In fact, based on the various Black-Scholes factors, stock options which are "out of the money," i. e., the strike price exceeds the current fair market value, are actually traded with various dollar values. For example, a Dell Computer stock option with a strike price of $50.00 and a market value of $37.3125 as of May 24, 1999 traded for $8.75. This is so even though the option was almost $13.00 out of the money when the option was valued. The disparity in the value is due to investor optimism that the Dell shares would rise and be worth more than $58.75 before the expiration of the option.
How Are Stock Options Distributed In Matrimonial Matters?
Generally, the methods to distribute stock options usually fall into two categories:
Deferred Distribution Upon Exercise of Options (Constructive Trust); Present Valuation with off-set against other assets.
(Where one party argues that a portion of the stock options are non-marital, then an issue arises as to what portion of the stock options whether distributed through method 1 or 2 above, should be granted to the non-employee spouse. This is dealt with in more detail under the next section of this article.)
Deferred Distribution Method.
The Deferred Distribution Method is likely the most common manner in which options are distributed and was utilized in one of the earliest New Jersey cases dealing with stock options incident to divorce, to wit: Callahan v. Callahan. In that case, the trial court ruled that stock options acquired by a husband during the course of the marriage were subject to equitable distribution notwithstanding the fact that the options would terminate if the husband left the company within a certain period of time and the fact that they were subject to various SEC regulations. The court impressed a constructive trust on the husband in favor of the wife for a portion of the stock options owned by him in order to best effect the distribution of property between the parties without creating undue financial and business liabilities. It should be noted that all of the options were granted during the course of the marriage. However, although not specifically stated, it appears that some or all of the options were not fully vested since they were subject to divestiture under certain circumstances. This may have been why the wife was awarded only 25% of the options when they matured." (See section below regarding determining distributive shares.)
The second mode of distribution is the Present Valuation Method. In this method, the stock options must be valued with the non-employed spouse receiving her share of the marital portion in cash or cash equivalent. Such a method should use discounts for mortality, interest, inflation and any applicable taxes. The downside of this "off-set method" is that it may become inequitable in the event that the employee spouse is either unable to exercise the options or, on the date they become exercisable, they are "worthless" (i. e., the cost of the option exceeds the fair market value.)
A review of out-of-state authority indicates that matrimonial courts differ on the method of distribution of stock options depending upon the nature of the options themselves, whether they are vested or unvested, transferable or salable. If the options are able to be transferred to the non-employee spouse, that is the preferred method of distribution, since it effects a clean break between the parties; there is no need for further communication between the parties and there is no need to use valuation methodologies. However, transfer of stock options is rarely permitted by employee stock option plans. Some courts have devised other methods, including but not limited to allowing the parties to be tenants-in-common, or allowing the non-employee spouse to order the employee spouse to exercise his or her respective portion of the options, upon furnishing the capital to do so. This is similar to the constructive trust solution devised in the Callahan case previously discussed. Trial courts are accorded broad discretion in fashioning an approach to fit the facts of the individual case. (Caveat: all of these methods still assume that there is no exclusion of options based upon the argument that they are unvested or were otherwise not earned during the marriage.)
As a practice point, please note that when distributing options in kind, consideration should be given that neither party violates any insider trading rules. For example, it may be a violation if the participating spouse advises the non-participating spouse that he or she intends to exercise his options in the near future. Another concern about the distribution of options in kind is that they can lapse if the individual's employment with the company is terminated, either voluntarily or involuntarily.
Determining the non-employed spouse's distributive share.
What happens when the employed spouse argues that some of the options are unvested or were otherwise "not acquired during the marriage" and therefore not distributable to the other spouse?
New Jersey courts have made it clear that it is necessary to balance the need for definitiveness embodied in the date of complaint rule (i. e., the cutoff date for determining which assets are subject to distribution) with the need for flexibility inherent in equitable distribution when addressing stock options incident to divorce. Whereas courts of many other states have employed the "time-rule formula" approach to determine what portion of stock options should be subject to distribution (see below), New Jersey courts have laid the groundwork in a more general fashion. Basically, assets or property acquired after the termination of the marriage, but as a reward for or result of efforts expended during the marriage, normally will be includable in the marital estate and thus, subject to equitable distribution. The law in New Jersey recognizes that assets acquired by gainful labor during the marriage or as a reward for such labor are distributable while assets acquired after dissolution due solely to the earner's post-complaint efforts constitutes the employed spouse's separate property.
The seminal case in the State of New Jersey regarding the distribution of stock options is the Supreme Court case of Pascale. In that case, the parties were married on June 19, 1977. A complaint for divorce was filed on October 28, 1990. The wife began her employment with the Liposome Company on April 14, 1987 at which time she was immediately granted the option to purchase 5,000 shares of stock in said company. As of the date of trial, the wife owned 20,069 stock options awarded between April 14, 1987 and November 15, 1991. 7,300 of the stock options were granted after the complaint for divorce was filed.
There were two blocks of stock options in dispute (i. e., 4,000 and 1,800), both granted on November 7, 1990. These were granted approximately ten days after the wife filed for divorce. (There was no indication of whether the options were vested in whole or in part, however, it is assumed that these options were "unvested".) Her position was that these options were not subject to distribution because the 1,800 were issued in recognition of past performance and the 4,000 options were awarded in recognition of a job promotion that imposed increased responsibility on her in the future. The wife relied on the transmittal letters from her company to support her arguments. The trial court found that neither of the two blocks of options granted on November 7, 1990 could be excluded from equitable distribution and were to be divided equally.
However, the Appellate Division found that one of the two sets of options awarded on November 7, 1990 should have been included in the marital estate while the other should have been excluded. The Appellate Division based that decision on its interpretation of the facts, finding that the block of 4,000 options granted in recognition of a promotion in job responsibility and an increase in salary was "more appropriately . designed to enhance future employment efforts" and should not have been included in the marital estate. However, as to the block of 1,800 options, the Appellate Division found that these options were granted in recognition of past employment performance. Therefore, these options were properly includable in the marital estate notwithstanding the date of complaint rule.
In reversing the Appellate Court, the Supreme Court in Pascale concentrated on N. J.S. A. 2A:34-23 and the guiding principles enunciated in Painter v. Painter, that "property clearly qualifies for distribution when it is attributable to the expenditure of effort by either spouse during the marriage." The Supreme Court in Pascale made it clear that the focus in these cases becomes whether the nature of the asset is one that is the result of efforts put forth "during the marriage" by the spouse jointly, making it subject to equitable distribution. To refute such a presumption, the party seeking exclusion of the asset must bear "the burden of establishing such immunity [from equitable distribution] as to any particular asset."
The Pascale court concluded that "stock options awarded after the marriage is terminated but obtained as a result of efforts expended during the marriage should be subject to equitable distribution. The inequity that would result from applying inflexibility to the date of complaint rule is obvious." Note that no distinctions were made as to vested or unvested options. Therefore, it appears that the Supreme Court agreed with the goals sought to be achieved by the Appellate Division, but did not agree with their conclusions based on the record below. The Supreme Court gave greater weight to the "credible finding" made by the trial court after listening to many days of testimony that the promotion came about as a result of the excellent service that the wife had provided to the company during the marriage.
Query, what would the NJ Supreme Court have done if it determined that a block of options were awarded for a mix of pre and post marital efforts? What if there is no clear indication as to why the options are granted? What if the options are unvested and require future work effort to fully vest? These circumstances often exist and are where things get murky. New Jersey has not adopted a clear and precise method to determine what portion of options which have yet to be fully earned should be distributed. New Jersey's approach provides for a much more subjective analysis (and room for advocacy) than in other states which utilize various formulaic approaches including a coverture factor or time-rule usually taking into account vesting schedules.
Like New Jersey, the majority of states in this country do consider unvested stock options to be property subject to distribution in marital dissolution proceedings. Such was the recent ruling of the appellate court in Pennsylvania in the case of MacAleer. The Pennsylvania Appellate Court addressed the issue of whether stock options granted to a spouse during the marriage, but not exercisable until after the date of separation, constitutes marital property to be divided during the divorce. That court's reasoning parallels, to a large degree, the majority of the other states which hold that unvested stock options are marital property. Analogizing their prior decisions determining that unvested pensions were subject to distribution, the court noted that benefits resulting from employment during marriage are marital, since these benefits are received in lieu of higher compensation which would have been utilized during the marriage to acquire other assets or to raise the marital standard of living. Only a handful of states have specifically held otherwise. These states are Indiana, Colorado, Illinois, North Carolina, Ohio and Oklahoma. North Carolina and Indiana do not divide unvested stock options on the basis of the state's statutory definition of "property." Oklahoma does not consider unvested stock options to be marital property based on the common law foundation of the stateÕs statutory scheme. These states award the unvested stock options to the employee spouse as separate property not to be considered for equitable distribution. These decisions are distinguished upon the fact that they are heavily influenced by statutes which define property in those jurisdictions. However, the remaining states which have addressed the issue, do find unvested stock options to be marital property and generally follow the same procedure for determining how much, if any, of the options constitute marital property.
Many jurisdictions, like New Jersey, view the first consideration to be a determination of whether the options were granted for past, present or future services. However, most courts have learned that employee stock options are not usually granted for any one reason, and could be compensation for past, present and future services. As a result, these courts sought some structure to determining the distributable share.
Remember: The options that are clearly given to the employee spouse as compensation or incentive for future services are wholly non-marital property. The options clearly granted exclusively for past or present services are fully marital property. There is no need for the court to utilize a coverture factor or time rule fraction for either category in order to determine the marital interest since they are wholly marital or non-marital property as the case may be. The problems arise when the reasons are unclear, where the options are unvested or include an indiscernable mix of pre and post marital efforts.
"Coverture Factor" or "Time-Rule Fractions"
Most out-of-state courts which have addressed distribution of unvested stock options use a "coverture factor" or "time rule fraction" to determine how much, if any, of the unvested stock options constitute marital property. The most prevalent time rule fraction has evolved from that which was used by the California Court of Appeals in Hug. The trial court in Hug found that the number of options that were community property were a product of a fraction; the numerator was the period in months between the commencement of the spouse's employment by the employer and the date of separation of the parties, and the denominator was the period in months between commencement of employment and the date when the first option is exercisable, multiplied by the number of shares that can be purchased on the date that the option is first exercisable. The remaining options were found to be the separate property of the husband.
The husband in Hug agreed that the options were subject to division according to the time rule; however, he contended that the trial court used an erroneous formula. He argued that the proper time rule should begin as of the date of granting the option, not the date of commencement of employment, since the options were not granted as an incentive to become employed. He argued further that each annual option was a separate and distinct option which is compensation for services rendered during that year, and as it was to accrue after the date of separation, it was totally his separate property. The court examined the various reasons why corporations confer stock options to employees, and found that no single characterization could be given to employee stock options. Whether they can be characterized as compensation for past, present, or future services, or all three, depends upon the circumstances involved in the grant of the employee stock option. By including the two years of employment prior to the granting of the options in question, the trial court implicitly found that period of service contributed to earning the option rights at issue. The appellate court found that this was supported by ample evidence in the record.
Various versions of coverture factors have evolved as courts addressed different factual circumstances. The recent Wendt case out of Connecticut entails a voluminous decision in which the court surveys the states which addressed the issue of division of unvested stock options, and notes the competing arguments and the most common numerators and denominators in diverse forms of the coverture factors. A brief summary of the Wendt court's decision as to stock options is helpful to understanding the approach of many courts to the issue of unvested stock options.
According to the December 31, 1996 unaudited financial statement prepared by KPMG Peat Marwick, LLP, the husband owned 175,000 shares of General Electric Vested Stock Options and Appreciation Rights in the following amounts: 100,000 units granted November 20, 1992 with a $40 per share exercise price, 70,000 units granted September 10, 1993 with an exercise price of $48.3125 and 5,000 units granted June 24, 1994 with an exercise price of $46.25. The unaudited financial statements used the "intrinsic value" method, with a December 31, 1996 New York Stock Exchange price of G. E. common stock at $98 7/8 per share. On May 12, 1997, G. E. common stock split two for one and, thus, the number of options doubled to conform to the stock split. As of the date of separation, December 1, 1995, G. E. was trading at $72 per share. As of October 7, 1997, G. E. was trading at $72 per share in its split status or $144 per share at the pre-May 12, 1997 stock split number of stock options. Based on the facts found, the court divided the 175,000 vested stock options and appreciation rights based on the date of separation, December 1, 1995. In rejecting a Black-Scholes approach in favor of the "intrinsic value" method, the trial court valued the vested options as follows: 175,000 stock options at $3,200,000 for the November 20, 1992 grant; $1,658,125 for the September 10, 1993 grant and $128,750 for the June 24, 1994 grant for a total Ôintrinsic value" of $4,986,875. The court noted that this amount was before taxes. The court additionally noted that the options had no cash value until exercised at which point there would be tax due at short term capital gains tax rates, i. e., ordinary income tax rates. The court assumed maximum rates for the IRS, Medicare and Connecticut tax and calculated the net after tax of the intrinsic value to be $2,804,219. The court distributed one-half of that sum to the wife. The court found that the doubling of the G. E. stock after the date of separation was not due to the efforts of the wife, but that "she should share in the general increase in the investment community."
The Wendt court then proceeded to address the 420,000 unvested stock options differently. The court had already concluded that only a portion of these unvested stock options was marital property. The court had also concluded that the unvested stock options were granted for future services. Therefore, a coverture factor was required. The coverture factor was determined by a fraction as follows:
Number of Months from the Date of Grant to December 1, 1995.
Number of Months from the Date of Grant to the Date of Vesting and are not Subject to Divestment.
Number of Shares to be Vested at that Date of Vesting.
Since there were eight separate dates of vesting, eight separate coverture factors had to be calculated. For example, the coverture factor utilized for the 70,000 units granted on September 10, 1993 which vested on September 10, 1998 was as follows:
27.7 / 60 = 44.5% x 70,000 units = 31,150 units to be divided.
The court then took the price of the G. E. common stock on the date of separation (i. e. $72 per share) to calculate the intrinsic value and thereby determine the dollar amount owed to the wife for the marital portion of the unvested options. This was represented as follows:
$72.0000 -48.3125 (exercise price) = $23.6875 intrinsic value per share x 31,150 units = $737,866.
The "$737,866" represents the pre-tax dollar value of the marital portion of the unvested shares as determined by the coverture factor.
After all eight coverture factors were performed, the total dollar values of the marital portion of the unvested stock options was $1,626,273. The court then explored the various risk factors associated with the unvested stock options. It is helpful to review the various scenarios explored by the Connecticut court concerning what could happen to effect the unvested stock options.
The court had basically rejected the wife's expert's valuation methodologies (which included "Black-Scholes") and opted to use the "intrinsic value" to obtain the appropriate value. Specifically, the court rejected the wife's expert's use of the Black-Scholes model which actually resulted in a value 10% lower than the "intrinsic value" ultimately used by the court. The court then determined the wife's share of the intrinsic value of the unvested stock options (i. e., $1,626,273). The court noted that this amount was before taxes. The court proceeded to assume current maximum rates for the IRS, Medicare and Connecticut and found that the net after tax value of the gross intrinsic value would be $914,486. The court then proceeded to award the wife half of this sum. The court ordered the husband to pay the sum in cash and not in any portion of the options.
A similar approach was taken in the case of In re Marriage of Short. In this case, the court held that the inclusion of the unvested stock options in the pool of distributable assets depended on whether the options were granted to compensate the employee for past, present or future employment. The court held that unvested options awarded for past and present services were marital property regardless of the continuing restriction on transfer or vesting. Unvested options granted for future services were deemed to be acquired periodically in the future as the options vest and are subject to a time rule division to allocate the shares between marital (community) and non-marital (separate) property. A different time rule than in the Hug case was used to differentiate between vested options that are clearly separate property for which no time rule would be applied, and those which include both a community effort and separate effort.
Just recently, New York joined the substantial majority of states holding that "restricted stock and stock option benefit plans provided by a spouse's employer constitute marital property for the purposes of equitable distribution, where the plans come into being during the marriage but are contingent on the spouse's continued employment with the company after the divorce." New York's highest court, in a seven-judge panel, unanimously joined the majority of jurisdictions that use a time rule to divide such contingent resources. The DeJesus court laid out the following four-step procedure to guide courts in dividing such options:
1. Trace shares to past and future services; Determine the portion related to compensation for past services to the extent that the marriage coincides with the period of the titled spouseÕs employment, up until the time of the grant. This would be the marital portion; Determine the portion granted as an incentive for future services; the marital share of that portion will be determined by a time rule; and Calculate the portion found to be marital by adding: i) that portion that is compensated for past services; and ii) that portion of the future services deemed to be marital after application of the time rule.
The sum result will then be divided between the parties using the equitable distribution criteria.
This was the method utilized in Colorado in the case of In re Marriage of Miller. The DeJesus court was persuaded that the Miller type analysis best accommodated the twin tensions between portions of stock plans acquired during the marriage versus those acquired outside of the marriage, and stock plans which are designed to compensate for past services versus those designed to compensate for future services.
However, notwithstanding the complexity of these methods, the danger of rigidity and resulting unfairness from a blind application of a formulaic approach still exists. Such issue was addressed by an Oregon Court which stated that "No one rule will produce a just and proper result in all cases and no one rule will be responsive to many different reasons why stock options are granted." This was, more than likely, the reason that New JerseyÕs Supreme Court ruled as it did in Pascale.
Can stock options be viewed as income to the employee for support purposes?
There is little doubt that stock options constitute a form of compensation earned by the employed spouse during the marriage.
In February of 1999, an Ohio appeals court agreed with Susan Murray, the former spouse of Procter & Gamble Company executive Graeme Murray, that unexercised stock options should be used in calculating the value of child support for the couple's 16-year-old son. This decision was the first by an Appellate Court to say that parents cannot shelter income from their children Ð intentionally or unintentionally, by postponing the exercise of stock options until the kids are grown. Note that options granted in consideration of present services may also be deemed a form of deferred compensation. (See In Re Marriage of Short, 125 Wash.2d 865, 890 P.2d 12,16 (1995).
A Wisconsin Court of Appeals pointed out that a stock option is not a mere gratuity but is an economic resource comparable to pensions and other employee benefits. The Appellate Court of Colorado held that for purposes of determining child support, income includes proceeds received by father from actual exercise of father's stock options. The Supreme Court of Colorado held, in the Miller case already referenced above, that "under the Internal Revenue Code, the optionee of a non-statutory employee stock option must recognize income at the time the option is granted if the option has a "readily ascertainable value" at the time of the grant. If the option does not have a readily ascertainable value at the time of the grant, the optionee recognizes income at the time the option becomes "substantially vested" or no longer subject to a "substantial risk of forfeiture," which generally does not occur until the option is exercised.
The Miller Supreme Court found that unlike pension benefits, employee stock options may well be considered compensation for future services as well as for past and for present services.
It is clear that there is a growing trend among the courts of this nation to distribute unvested or non-exercisable stock options that were granted during the marriage. The key factor in such distribution is a determination as to the purpose for which the options were granted, i. e., whether the options were granted for past or future performance. Where an option is granted for a mixed purpose and/or requires continued employment past the termination date of the marriage (as determined by local law), many states are employing a time-rule fraction which may be modified by the trial court based upon the particular facts and circumstances of the case. Matrimonial practitioners must be aware of the various forms of time-rule fractions that can be used and the factors that can modify the fraction. Such factors include, but certainly are not limited to the following: (1) when the option was granted; (2) whether the option was granted for past or future performance (if "past" how far back); (3) whether or not the option was granted in lieu of other compensation; (4) whether or not the option was a qualified incentive stock option or non-qualified stock option; (5) when the options will expire; (6) the tax effect of the grant of the option; (7) the tax effect of exercising the option; (8) whether or not the option has a "readily ascertainable fair market value;" (9) whether or not the option is transferable; (10) whether or not the option is restricted property; (11) the extent to which the option is subject to risk of forfeiture; and (12) any other factors that the parties or court may deem fair and equitable to consider.
Since the majority of employee stock options are non-transferable and cannot be secured as with qualified pensions under federal laws such as ERISA, matrimonial attorneys should specifically tailor their language when drafting agreements concerning such assets. These agreements should include: (1) a list of all options granted and an explicit description of which options are marital and which are not; (2) if a Deferred Distribution Method is employed, a resortation of whether and under what terms the non-owner can compel the owner to sell options after they are vested; (3) provision for payment of the "strike price" by the non-employed spouse and taxes resulting from the exercise of options; (4) a description of how and when distribution is to be made to the non-owner spouse and (5) precise notification and document exchange provisions.
The matrimonial attorney involved in a case concerning stock options, especially when representing the non-employed spouse, should be sure to obtain the following information and documents: (1) a copy of the stock option plan; (2) copies of any correspondence or internal memorandum which were issued by the company at the time of the grant of any stock options; (3) a schedule of granted options during the employees period with the company; (4) the date of each option granted; (5) the number of options granted at each date; (5) the exercise price of options granted at each date; (6) the expiration date of each set of options granted; (7) the date of vesting for each set of options granted; (8) the date and number of options exercised; (9) all short term or long term employee incentive plans covering the employed spouse; (10) all Employment Agreements between the employed spouse and his or her employer; (11) all company plans, handbooks and option award letters related to stock options granted; (12) copies of the firm's 10K and 8K for the entire period that the employed spouse is with the company; (13) dates of promotions and positions held by the employee; (14) a brief job description of each position; (15) the salary history of the employee indicating all forms of compensation; (16) the grant date of exercised options and (17) copies of any corporate minutes or proxy statements referencing the award of options. The information listed herein provides the core information from which option values can be calculated and agreements intelligently reached concerning their distribution.
As we enter the 21st Century, it is clear that matrimonial attorneys will need to become as knowledgeable as possible regarding this unue kind of asset. Hopefully, this article has given some insight into the complexities involved when dealing with Employee Stock Options and Divorce.
Charles F. Vuotto, Jr., Esq. is a family law attorney in New Jersey.

US Search Desktop.
Agradecemos seus comentários sobre como melhorar a Pesquisa do Yahoo. Este fórum é para você fazer sugestões de produtos e fornecer feedback atencioso. Estamos sempre tentando melhorar nossos produtos e podemos usar o feedback mais popular para fazer uma mudança positiva!
Se você precisar de assistência de qualquer tipo, visite nosso fórum de suporte à comunidade ou encontre ajuda individualizada em nosso site de ajuda. Este fórum não é monitorado por nenhum problema relacionado a suporte.
O fórum de comentários do produto do Yahoo agora exige um ID e uma senha válidos do Yahoo para participar.
Agora você precisa fazer login usando sua conta de e-mail do Yahoo para nos fornecer feedback e enviar votos e comentários para as ideias existentes. Se você não tiver um ID do Yahoo ou a senha do seu ID do Yahoo, inscreva-se para obter uma nova conta.
Se você tiver um ID e uma senha válidos do Yahoo, siga estas etapas se quiser remover suas postagens, comentários, votos e / ou perfil do fórum de comentários do produto do Yahoo.
Vote em uma ideia existente () ou publique uma nova ideia…
Idéias quentes Idéias superiores Novas ideias Categoria Status Meu feedback.
Xnxx vedios.
Trazer de volta o layout antigo com pesquisa de imagens.
sim: a única possibilidade (eu acho) enviar todas as informações para (alienvault.
Desinformação na ordem DVD.
Eu pedi DVD / Blueray "AL. A confidencial" tudo que eu consegui foi Blue ray & amp; um contato # para obter o DVD que não funcionou. Eu encomendo minha semana com Marilyn ____DVD / blue ray & amp; Eu peguei os dois - tolamente, assumi que o mesmo se aplicaria a L. A. ___ETC não. Eu não tenho uma máquina de raio azul ----- Eu não quero uma máquina de raio azul Eu não quero filmes blueray. Como obtenho minha cópia de DVD de L. A. Confidential?
yahoo, pare de bloquear email.
Passados ​​vários meses agora, o Yahoo tem bloqueado um servidor que pára nosso e-mail.
O Yahoo foi contatado pelo dono do servidor e o Yahoo alegou que ele não bloquearia o servidor, mas ainda está sendo bloqueado. CEASE & amp; DESISTIR.
Não consigo usar os idiomas ingleses no e-mail do Yahoo.
Por favor, me dê a sugestão sobre isso.
Motor de busca no Yahoo Finance.
Um conteúdo que está no Yahoo Finance não aparece nos resultados de pesquisa do Yahoo ao pesquisar por título / título da matéria.
Existe uma razão para isso, ou uma maneira de reindexar?
consertar o que está quebrado.
Eu não deveria ter que concordar com coisas que eu não concordo com a fim de dizer o que eu acho - eu não tive nenhum problema resolvido desde que comecei a usar o Yahoo - fui forçado a jogar meu antigo mensageiro, trocar senhas, obter novas messenger, disse para usar o meu número de telefone para alertar as pessoas que era o meu código de segurança, receber mensagens diárias sobre o bloqueio de yahoo tentativas de uso (por mim) para quem sabe por que como ele não faz e agora eu obter a nova política aparecer em cada turno - as empresas costumam pagar muito caro pela demografia que os usuários fornecem para você, sem custo, pois não sabem o que você está fazendo - está lá, mas não está bem escrito - e ninguém pode responder a menos que concordem com a política. Já é ruim o suficiente você empilhar o baralho, mas depois não fornece nenhuma opção de lidar com ele - o velho era bom o suficiente - todas essas mudanças para o pod de maré comendo mofos não corta - vou relutantemente estar ativamente olhando - estou cansado do mudanças em cada turno e mesmo aqueles que não funcionam direito, eu posso apreciar o seu negócio, mas o Ameri O homem de negócios pode vender-nos ao licitante mais alto por muito tempo - desejo-lhe boa sorte com sua nova safra de guppies - tente fazer algo realmente construtivo para aqueles a quem você serve - a cauda está abanando o cachorro novamente - isso é como um replay de Washington d c
Eu não deveria ter que concordar com coisas que eu não concordo com a fim de dizer o que eu acho - eu não tive nenhum problema resolvido desde que comecei a usar o Yahoo - fui forçado a jogar meu antigo mensageiro, trocar senhas, obter novas messenger, disse para usar o meu número de telefone para alertar as pessoas que era o meu código de segurança, receber mensagens diárias sobre o bloqueio de yahoo tentativas de uso (por mim) para quem sabe por que isso acontece e agora eu recebo a nova política em cada turno - as empresas costumam pagar muito pela demografia que os usuários fornecem para você ... mais.

What You Need to Know About Dividing Stock Options in Divorce.
One of the more difficult items to divide in divorce is a stock option. An option is a specific type of employment benefit in which the employer company gives the employee an option to buy company stock in the future at a discounted or stated fixed price. So rather than simply offering the employee stock as a benefit, they are given the ability to purchase stock at an attractive price at some point in the future. Understandably, valuing and dividing stock options incident to divorce can prove quite challenging.
As an initial matter, it is important not to ignore the fact that a spouse has stock options. Just because this an option isn’t exercisable until the future, it is still often a source of tremendous wealth. If your spouse has stock options you certainly want to take the time to explore if any portion of the options are marital property and subject to division. If you do not know whether or not your spouse has options, be sure to obtain complete discovery showing all of his or her employment benefits.
Options have been a source of astronomical wealth for many people – consider for a Silicon Valley employee who was granted options in a software startup twenty years ago. Although they weren’t handsomely compensated at the time, many of these software engineers were granted options, and as the employer company’s wealth skyrocketed the options rewarded them with a serious payout.
Although the vast majority of North Carolina divorces will not involve Silicon Valley stock options, there are many local startups that may have offered stock options as an employment benefit. Getting full disclosure from your former spouse about each employment benefit is immensely important.
Marital v. Separate Property.
If a spouse has unexercised stock options, the first step will be to determine which options, if any, are considered marital. One might assume that any options granted during the marriage are considered marital. However this assumption is not entirely correct. Options are often granted as a reward for past work and as incentive for future work. Granting options is a way for a company to ensure that an employee will stay, even if the company doesn’t have the funds to properly compensate the employee right away.
The concept that the option might have been granted in some capacity as a reward for past work can complicate the analysis of labeling options as marital or separate. Contemplate a situation where a spouse was granted an option after separation. If the option was in some part compensation for work completed during the marriage, at least a portion of the option would be considered marital. Similarly, if an option was granted shortly after marriage, for work done before the marriage, a portion of that option would be considered separate, and not subject to distribution.
In classifying stock options as marital or separate, first it must be determined what the option was granted for. If it was granted for services rendered during the marriage, it is marital. This can often be hard to determine, so be sure that you gain access to the employee handbook, employment contract, and all other documents that give insight into whether the option was granted for past work or for future work.
Vested v. Unvested Options.
In addition to determining whether the options are separate property or marital property, you will need to consider whether the options are vested or not. The vesting period refers to the amount of time an employee has to wait before he is able to exercise an option. For instance, an option may have been granted to an employee in 2005, but may not be exercised until 2015. That option will be considered “unvested” until 2015.
As you can imagine, a vesting schedule will complicate the division of stock options incident to divorce even further. Consider the above example where the option was issued in 2005 but not vested until 2015. Add the fact that the spouses were married in 2003 and separate in 2012? Can the unvested stock options be classified as marital property?
Sim. In North Carolina both vested and non-vested stock options are subject to distribution. So, if a spouse has unvested options those options must still be classified as marital or separate, valued, and divided. In the above example, a portion of the unvested stock options would be subject to distribution.
Valuing the Option.
Once it has been determined that the options are marital, a value will have to be attached to them. This too, is a complicated process, and there are several methods that can be used.
The most common method used in North Carolina is known as the “Intrinsic Value Method.” The calculation used under this method subtracts the option strike price from the value of the current stock price, and then multiplies this by the number of options the spouse owns. This option is ideal when dealing with publicly traded stock. There are some detriments to this method, however. Because of the simplicity of the formula, there is no consideration given to the marketability of the shares, the fact that the value could drop before they could be exercised, and the risk that the options would never vest to name a few.
The Black-Scholes model is another approach to placing a value on a stock option. Unlike the Intrinsic Value Method, this model is complicated and typically requires a professional, such as a forensic accountant. This model produces a theoretical estimate of the value based on derivative investment instruments. It considers numerous additional factors, such as the historical price of the stock, the strike price, and the vesting schedule.
Although not a common method to value a stock option, a North Carolina court has held the “coverture fraction,” typically used to value qualifying retirement plans, may be used to value stock options. This formula divides the length of time a spouse was simultaneously married and contributing to the earning of the stock options by the total length of employment during which the options were earned.
A final approach to valuing stock options is to simply reach an agreement. The spouses can simply agree that the value of the marital portion of the options is a certain amount. This method obviously does not require the hiring of a forensic accountant, but it can be risky. If you agree that the marital portion of the assets is worth $50,000, but then later find out that this value is actually way less than the options are truly worth, there is nothing you can do to get your hands on the true value you were owed.
Dividing the Option.
After you have determined that the options are marital, whether or not they have vested, and you have come up with a value to assign to the marital portion, the work is still not over. At this point the way in which the value of the option will actually be distributed to the non-employee spouse will have to be addressed.
The easiest and most common method to divide stock options is to have the employee spouse who owns the option offset the agreed upon value of the option with another asset. For instance, if the option is valued at $100,000, the non-employee spouse is entitled to $50,000. Rather than actually attempting to split the option and potentially trigger adverse tax consequences, the non-employee spouse can agree to take the $50,000 she is owed by accepting another asset. She may prefer to get an the additional $50,000 in a lump sum cash transfer, or take title to a vehicle, jewelry, retirement account or other asset worth a comparable amount.
Sometimes the offset method above doesn’t work, however. Consider a situation where the employee spouse simply does not have an additional $50,000 in cash (or asset of comparable value) to transfer to his former spouse.
The deferred distribution model is a way to work around the aforementioned scenario. This model allows either the court, or the spouses, to decide on a formula that will prescribe how the non-employee spouse will be paid once the employee spouse has exercised the option. This distribution model eliminates the need to agree to a current value and allows for the valuation to be determined once the option is exercised – it is a “wait and see” approach. Essentially, the employee spouse will pay a prorated portion of the benefit to his former spouse once he receives the benefit.
If the deferred distribution model is the chosen method of distributing the value of the options, the non-employee spouse will want to make sure that the agreement prescribing this method of distribution contains language that protects the non-employee spouse. The following provisions are just a few of the many that should be included:
Notice must be given to the non-employee spouse if his employment terminates. Notice must be given to the non-employee spouse if the employee-spouse exercises any options. Notice should be given to the non-employment spouse if the employer re-prices the options or grants replacement options. Notice should be to the non-employment spouse if the employer accelerates the maturity date (vesting schedule) of the options.
Finally, the employee spouse should hold the options in a constructive trust that specifies the process that should be followed when there are newly vested options.
As you may have noticed, actually dividing the ownership, or transferring the option itself to a former spouse is not mentioned as a potential distribution method. This is because the vast majority of employee stock option plans explicitly prohibit the assignment or transfer of rights in the options. Companies usually offer stock options as a benefit to incentive the employee to stay with the company longer, if the employee were able to transfer his right to the options to someone else, this benefit would be lost.
Stock options that have value will result in the incurring of income taxes as soon as the value is realized. The tax implications will vary depending on what type of option is at issue, how the option is exercised and how much the option is worth. To further complicate the tax issues associated with the division of stock options, tax law is a moving target and may change in the future and the tax burden cannot be transferred to the non-employee spouse, so the employee spouse must be sure to anticipate any potential tax issues in advance.
The tax penalty that will occur when transferring stock options is a function of whether the options are “statutory stock options” (otherwise known as qualified stock options) or “non-statutory stock options” (otherwise known as non-qualified stock options).
The transfer of the latter type of option will result in the income being taxed at the usual rate upon the option being exercised. The employee spouse would be taxed when he or she exercised the option, and the non-employee spouse would be taxed once the shares were sold. These options can be transferred tax-free incident to divorce, and taxes will not be assessed until the option is exercised. Once these options are exercised they will be subject to withholding at the supplemental withholding rate and FICA taxes will be deducted.
Statutory stock options are treated differently, however. When statutory stock options are sold, the resulting consequence is capital gain treatment from the profits acquired when sold. When statutory stock options are transferred, however, they lose their status as statutory stock options and become non-statutory options. Statutory stock options have more favorable tax treatment, so it is advised that the receiving spouse consider ways to obtain the options without executing jeopardizing the favorable tax treatment of qualifying options. It is worth noting, however, that a different result occurs when instead of transferring qualifying stock options, the employee transfers the stock that is acquired once the qualifying option is exercised.
One option is to agree to a monetary value that the options will be worth once exercisable, and simply receive that amount as a lump sum from the other spouse. Another option is to include a provision in the separation agreement or court order expressing that the employee-spouse who owns the options will hold them on behalf of the other spouse. The spouse who is owed the options will have the authority to ask the other spouse to exercise the option at any time per his or her wishes. Because there will be a tax consequence when the options are exercised, the spouses should agree that the receiving spouse only takes the amount left after the tax penalty has been assessed. This transaction would not jeopardize the favorable tax status of qualifying stock.
Obviously, transferring stock options can create quite a headache from a tax standpoint. It is advisable to consult with an attorney or CPA before transferring any stock options so both spouses are fully aware of any tax consequences in advance.