Dividing stock options in a divorce is an involved process

Dividing stock options in a divorce is an involved process

| Nov 10, 2020 | Marital Property |

Many executives and professionals who work in the private sector in Rockville and the greater Washington metro area may have stock options as part of their employment benefit package.

A stock option is a type of employment compensation in which an employee, often higher level executive or other professional, is given the right to purchase stock in his or her employer at a future time and a set price.

So long as the value of the company increases, the stock option allows its owner to buy valuable shares of a stock at a discount.

For example, if the agreed price per share was $20 at the time the employer gave the option, but the stock is now worth $30 a share, then an employee makes $10 a share if she purchases.

While this might not seem like much, buying 1,000 shares would mean this employee gets $30,000 worth of stock for $20,000.

Issues may arise regarding stock options during a divorce

Putting an exact value on a stock option is tricky for a number of reasons.

For instance, it is hard to know how much a stock option is worth just because that would mean knowing the value of the stock market in the future, when a person goes to exercise his or her option and convert them into actual shares of stock.

The help of a financial expert is likely going to be necessary during a divorce.

Moreover, while in most cases stock options will be martial property and thus subject to a fair division during a divorce, there may be some questions as to whether a person earned the stock options prior to, during or after his or her marriage.

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