Stock options et divorce californie
Alimony Divorce and Property. In those cases they were a "mere expectancy" that never matured. Are you a new client?
Usually an employee is granted the right to buy stock, now or in the future, at a fixed price. They may be forced to sell that stock back to the company if they leave. What controls whether the options are characterized as community or separate is when they are granted and when they vest.
If they do not vest at all, as where a minimum number of years of service by the employee are required which is not met even where the employee-spouse quits after separation and so blows them up , they are neither separate or community property - instead, they are not viewed as a property interest at all.
In those cases they were a "mere expectancy" that never matured. In cases where an employee must work for the company for a fixed number of years to be eligible, but the spouses or RDP's separate before those years have been served, the options have both community and SP attributes. To the extent that they result from post-separation efforts too, they must be apportioned between CP and SP.
As with how interests in pensions are commonly evaluated, courts tend to follow a "time-rule". The time rule looks like this:. Stock options that are granted after the DOS are usually treated as the separate property of the recipient, even where some of the employee's contributions occurred before.
This is because of the importance of what the employer intended to the analysis. This Blog is intended just to give you some sense of the law over these potentially complex questions. As with everything, different facts can lead to different outcomes and stock options are complicated financial devices. Also, stock option disputes sometimes involve claims of fraud - as where a small closely held company or family business tries to funnel or manipulate how when the options are granted or vest in an effort to favor one spouse over another.
Perhaps the only practical way that a former spouse or partner may learn that stock options exist or when they vest or are exercised is by the self-disclosure of the employee. The law is clear that spouses and domestic partners are required by their fiduciary obligations to make these disclosures. The couple later decides to divorce, and during a discussion about the division of assets, the stock options come up. They want to figure out what to do with the options, but the rules are unclear.
First, they will need to understand some of the foundations of marital property rights in California. Separate property is not part of the martial estate, which means the spouse that owns the separate property, owns it separately from their spouse not jointly and gets to keep it after the divorce.
Separate property is not subject to division in a divorce. In California, separate property includes all property that is acquired by either spouse:. The date of separation is the date that one spouse subjectively decided that the marriage was over and then objectively did something to implement that decision, such as moving out.
Many divorcing couples argue over the exact date of separation, because it may have a major impact on which assets are considered community property and thus subject to equal division or separate property. For example, stock options received before the date of separation are considered community property and subject to equal division, but any options or other property received after that date are considered the separate property of the spouse that receives them.
They now have to determine how this might impact the division. But what about those options that were granted during marriage but had not vested before the date of separation? However, the courts in California disagree with this view, and have held that even though unvested options may not have a present fair market value, they are subject to division in a divorce.
So how does the court determine what portion of the options belong to the non-employee spouse? Two of the main time rule formulas used are the Hug 1 formula and the Nelson 2 formula. Before deciding which formula to use, a court may first want to determine why the options were granted to the employee e.
The Hug formula is used in cases where the options were primarily intended to attract the employee to the job and reward past services. The formula used in Hug is:. The Nelson formula is used where the options were primarily intended as compensation for future performance and as an incentive to stay with the company. The formula used in Nelson is:. There are several other time rule formulas for other types of options, and the courts have wide discretion in deciding which formula if any to use, and how to divide the options.
Generally speaking, the longer the time between the date of separation and the date the options vest, the smaller the overall percentage of options that will be considered community property. However, if the options vested several years after the date of separation, then a much smaller percentage would be considered community property. After application of either time rule, the couple will know how many options each are entitled to.
The next step then would be to figure out how to distribute the options, or their value. Here are a few of the most common solutions:. This area of family law can be quite complex. If you have questions about the division of stock options you should contact an experienced family law attorney for advice.
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