Nolo's Essential Guide to Divorce - Emily Doskow [114]
Assets You Could Easily Overlook
Certain kinds of property seem to exist at the edges of people's consciousness, as minor parts of financial life. But some of those things have significant value and should be divided along with everything else. These include:
• tickets for sporting or cultural events (especially those involving long-term rights to season tickets)
• frequent flyer miles
• club memberships
• stock options
• patents, copyrights, and other intellectual property, and
• bonuses, overtime, and vacation and sick pay.
Some of these items, such as frequent flyer miles, can be divided between you. (Contact the airline to find out its rules about division; generally you'll just have to provide a copy of your agreement and instructions for the division.) Others generally will go to one spouse with the other taking money or assets of equivalent value.
Stock Options
Stock options are a unique type of asset. They are very common in technology companies, and are becoming more common in other industries. A stock option is an option to purchase stock from your employer at a specified point in the future, at a price that's fixed when you get the option. For example, say that when you're hired, your company gives you the option to buy 1,000 shares of stock at $1.25 per share on your third anniversary at the company. On that date, you can buy up to 1,000 shares at that price. If the stock is worth $2 when you exercise your option, you can buy it for $1.25 and immediately sell it for $2 a share, or hold on to it in hopes it will appreciate even more. If you buy and keep shares and their value goes down, you're stuck with that even if the value goes down lower than what you paid for the shares.
Stock options are vested when you have the right to exercise them. They're difficult to deal with at divorce, because some states treat them as property, and some treat them as income. A spouse might own options that don't vest until years after the divorce, at which time they might be extremely valuable or worth virtually nothing-making valuing them at the time of the divorce difficult. (Some states don't consider them property or income, because they don't have a clear value and because they can be lost if the owning spouse leaves the company.) Complicating things further is the fact that many stock options aren't transferable, so the owner spouse can't simply transfer half of the options to the other spouse, leaving both spouses with the same potential risk or benefit. And transfers (if they're allowed) may create tax consequences, especially for the recipient spouse.
Unless you're positive that your stock options are basically worthless and will stay that way, you should consult a lawyer about how to divide them. Some divorcing couples enter into an agreement that requires the employee spouse to hold a certain number of stock options on behalf of the nonemployee spouse and to follow the nonemployee spouse's instructions about when to exercise the options and sell the stock. (At that point, the sale proceeds might be taxable to the person who sells them, so you'd have to account for that consequence in your agreement.)
Don't try to figure out stock option division yourself. If either you or your spouse has stock options, you definitely should consult a lawyer about how to divide them. For general information about stock options, see www .mystockoptions.com. Click the link for "Life events" for articles and FAQssome free and some available for a fee.
Deferred Compensation
Stock options aren't the only form of compensation that can be difficult to value or distribute in a divorce. Some employees are subject to performance-based deferred compensation, including salespeople who receive commissions a significant time after making sales.
In one case, a financial consultant working at a large investment firm was working toward a $100,000 bonus given at the conclusion of ten years of employment if specific goals were met during those ten years. When he divorced his wife, he was two years away from the