It should come as no surprise that stock rights earned during the marriage will be subject to division upon divorce. Here are some basic principles related to your dissolution proceeding you should consider.
The Marital Property Landscape: What Needs Splitting?
California law recognizes multiple forms of shared marital property. Generally, Separate Property includes assets that you or your spouse owned independently before your marriage or obtained via gift or inheritance during the marriage. Community Property is typically everything else that you acquired while you were married, and Community Property is typically divided equally. Stocks and other investment holdings are no exceptions to the rule.
Stock Rights
Predicting what will happen to stock rights after divorce can be a bit tricky due to how they work. For example, you might be granted a stock right before obtaining a marriage license yet it does not vest, or you decline to exercise it, until after your marriage.
One good trick is to think of it as one would when calculating capital gains taxes. Just as the IRS takes careful account of when you actually received income, divorce law relies on dates to determine whether your assets fall into the community or separate camps.
It’s not uncommon for courts to render judgments that hold stock rights to be partially community and partially separate property, or include unvested stock rights or stock options that lack fair market value. San Diego judges might also consider factors such as why a party received their options in the first place.
The Methodology: How to Divide Stocks in a Divorce
Which of your exercisable stock options will you need to split 50/50? The Nelson and Hug formulas, named after the case opinions that inspired them, are the most widely used time rules for dividing such shares. Be aware, however, that they’re not the only equations courts can use to determine what fraction of your stocks you need to split. The granting date and vesting date of certain stock rights may also determine which are community or not. Typically, stock rights that were granted and vested during the marriage are community property. Stock rights granted during the marriage that do not vest until after marriage could be part community and part separate property.
Cutting the Cord
Once you’ve calculated which shares or options to split, dividing the shares may not be that simple. Many companies have specific rules related to the transfer of stock rights. Those restrictions, if any, will need to be reviewed on a case-by-case basis.
Get Life Moving Along
Despite the complications of California’s marital property designations, dividing stock rights during divorce is more complicated than it may seem. Working with a knowledgeable legal adviser is the most straightforward way to simplify the process.
At Neumann Family Law, APC, we specialize in serving high-net-worth individuals in search of superior, smarter family law experiences. Our dedication to zealously protecting separate property and decades of experience make a difference. We’re the right choice for wealth-conscious Southern Californians going through separations. Let us engineer a property separation that serves as a foundation for a more rewarding future. Contact us today at (619) 363-5906.
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