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How do you address stock options in a Texas divorce?

On Behalf of | Sep 23, 2022 | Divorce

Base pay is only part of the income earned by someone in a highly-compensated profession. Executives, managers and even experienced professionals taking jobs at startups often receive stock options as part of the compensation for their work.

Stock options help incentivize the best performance possible, as great sales and competitive products mean more profit and a higher stock value. Companies can convince their workers to perform to the best of their ability by allowing them to personally profit from their efforts in the future.

Stock options are also frequently away for businesses to keep top recruits at the company for a fixed amount of time. A contract that offers stock options typically requires that the worker remain with the company for a specific number of years and also meet certain performance standards. This form of deferred compensation can have significant financial and emotional value for the professionals who expect to receive it. Sometimes, stock options can become a major hurdle in a pending Texas divorce.

Are stock options divisible?

It may not be possible to directly divide stock options, as the spouse accruing this form of deferred income may not yet have the option of receiving the stock. As with other forms of deferred compensation, the portions accrued during your marriage may potentially be subject to division either in negotiations or litigation.

The amount of stock that one spouse should receive for the time worked during the marriage can factor into the property division proceedings.

How do you value stock options?

In addition to the challenge of figuring out how much of the stock option is marital property and how much may be separate property, you will also need to put a price on the stock that will be part of the property division process. There may not currently be any publicly-traded stock for the company, or the price may reflect its value as a startup and not what the company will be worth after a few more years of successful operations.

It can be a challenge to put an appropriate value on the stock so that you can consider such deferred compensation appropriately in your divorce proceedings. Recognizing the challenges that arise in high-asset marriages headed for divorce can help you prepare for complicated property division proceedings, such as the division of stock options and other deferred compensation.