How to value stock options in divorce

The story has become quite familiar: A brilliant, hardworking young professional joins an energetic start-up working on an idea with incredible promise. The company — long on potential, but short on cash — compensates its employees in part by offering the chance of a huge payoff when its stock is eventually worth something.

In return for the lean years early on, the employee hopes one day to be made wealthy. However, if that brilliant, hardworking young professional gets divorced, the stock options and restricted stock will have to be divided with a soon-to-be-ex-spouse. How does that work? Well, of all the assets that must be divided when a couple divorces, stock options and restricted stock are some of the most difficult to address. Stock options give an employee the right to buy company stock at a set price, at a future date.

The idea is that the set price will be much lower than the future trading price, so that the employee can then turn around and sell their cheaply-bought stock at great profit. Stock options and restricted stocks have become increasingly popular components of corporate compensation packages. Stock options and restricted stock do not appear on tax returns, W-2 forms, or other financial documentation you have access to, unless and until the options are exercised and the restricted stock has vested.

Assess the value of the options or restricted stock. Determining the current share value for publicly traded companies can be as quick as a Google search.

However, it can be quite difficult to determine the current value of stock options and restricted stock for a privately held company. While there is certainly an expectation of increasing value over time, nobody knows how much they will actually turn out to be worth until the options are exercised and the stock is sold.

Different states treat this differently. In others they are, but their current value depends on several factors including how far in the future they vest. Of course, the employee spouse turns my offer down. Again, my offer is always rejected. Ultimately, the point is made.

Stock Options in Divorce - irexapezoren.web.fc2.com

Particularly in volatile market conditions, or in a new business with a promising but uncertain future, it is all but impossible to pin down the precise value of stock options. Make sure you get a fair share. Once you have a good estimate of the value of the assets, your divorce financial advisor will work through all the angles involved in determining what constitutes a fair division, and your attorney will work to make sure your settlement includes it.

Taxes on profits from exercising stock options or selling restricted stock can be significant, and should factor in to the evaluation of what these assets are worth. On the other hand, when nonqualified stock options are exercised, the difference between the market price and the strike price will be taxed at the higher rates applicable to ordinary income. If those shares are then sold, any gain or loss will be taxed as short-term, if held for less than one year and long-term if held for more than one year.

Have a plan for exercising the options.

Financial professionals often recommend exercising options as soon as possible, to avoid any loss in value. Fair division of stock options and restricted stock in divorces requires expert professional help. In fact, even your expert professional help might require expert professional help! Jeffrey Landers is a member of the DailyWorth Connect program.

Read more about the program here. Tagged In Divorce , Investing. Jeffrey has also written: How Some Men Will Try To Get Out Of Dividing Assets In Divorce , Do You Need a Forensic Accountant on Your Divorce Team and Paying For College When Parents Are Divorced.

Click here to cancel reply. You are using an outdated browser. Please upgrade your browser to improve your experience.

Dividing "Stock Options" In Divorce - Guides - Avvo

By Jeffrey Landers May 27, Contributed by Jeffrey Landers Opinions expressed by DailyWorth Contributors are their own. Everything You Never Learned About Money, In Your Inbox Every Morning. You May Also Like.

How to Get Divorced — and Protect Your Finances. What My Divorce Cost Me. Top Exercise Apps Cheaper Than Spin Class. How to Get Organized.

Email will not be published required. Most Popular Are You and Your Sweetheart Financially Compatible?

Top Resources The Best Budgeting Apps and Spending Trackers for iOS and Android The Best Ways to Make Extra Money by Freelancing, Telecommuting, or Starting A Side Job Everything You Need to Know About Your k , IRA and Brokerage Accounts. DailyWorth is an affiliate of Worth Financial Management LLC WorthFM.

Worth Financial Management LLC WorthFM is a registered investment advisor with the U. Securities and Exchange Commission "SEC".

Please read our Privacy and Security Policies. Join the DailyWorth Community Everything you never learned about money is just an email away.