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Four Critical Facts About Vested vs Unvested Stocks and Your Divorce

 

vested shares during divorce

Want your marital separation to go smoothly? Splitting vested shares during divorce is more complicated than most people think. Failing to master the nuances could stop you from making a clean, healthy break.

Why should you familiarize yourself with the differences between vested and unvested stocks before moving ahead with your split? These four facts will help you make wiser choices about your future.

1. Vested vs. Unvested Stocks in Divorce Law

vested shares during divorceReceiving unvested stock from a company isn’t like getting a bonus paycheck. Unlike with a cash benefit, you don’t immediately enjoy full and unhindered rights over the property. While it’s yours in name, you can’t transfer or sell it until a certain amount of time has passed. What you might not anticipate is that the future profits you derive from exercising options aren’t necessarily immune to family law oversight.

Divvying up unvested stocks isn’t the same as dividing fully vested stock options during divorce. Fully vested stocks during the marriage are more straightforward to split. Because the value of an unvested share depends on when it was granted, vested and possibly exercised, determining who gets what is more complicated.

2. Unexercised Stock Options Can Be Community Property

Unexercised stock does not mean they are not a community asset. Although the proceeds may not be realized until after separation or Judgment, the law’s primary concern is when they were received or granted and if that occurred during the marriage, then the community has an interest in the stock whether vested or not.

Consider what happens when you buy a car while you’re married and then get divorced. As community property, the vehicle’s fate should be decided in the initial split. If you sold the car without letting your spouse or ex know, they’d be entitled to some of the money because they also owned a stake in the asset.

Stock options are the same. Their lack of fair-market value doesn’t mean they have no worth,. The existence of such assets also could play a role in spousal support and child support considerations.

3. There Are Multiple Ways to Slice the Same Pie

vested shares during divorceCourts use different formulas to decide who should receive which portions of stock rights in divorce proceedings. These rubrics are commonly known as time rules because they calculate community property share amounts according to several events, such as your separation date, grant date, vesting date and date of exercise if there is one.

Fortunately, you’re not entirely at the mercy of math. Courts may determine the interest of the community is stock rights, but they also let you choose how to handle the assets. Although the default is a 50-50 split, you can also do things like give up your rights in return for other allowances or properties. Such alternatives might ease the pain of high-asset separations.

4. Restricted Stock Units and Options May Be Valued Differently

Don’t bank on a divorce court using the same time rules with all of your unvested employment benefits. Restricted stock units, which are akin to stock options that lack buy-in costs, appeal to those who want to own equity in their companies without paying upfront. Their lack of strike prices, however, means that they always hold some value unless the company goes under, and this also is considered in your division calculations.

Each case is unique, so there’s no universal rule for calculating property divisions involving corporate equity. What isn’t up for debate is that you need to exercise your rights to benefit from these assets. Options, restricted stock units, and unvested shares don’t produce real income right away, but their potential gains might prove life-changing. The only question is whether you’ll reap the rewards or get left out.

Get Clarity and Confidence With Yelman and Associates

Vested or unvested stocks don’t have to be a point of debilitating anxiety. With the right partner by your side, you can walk into any divorce-related challenge knowing the best possible outcome is achievable. 

At Yelman and Associates, we pride ourselves on our commitment to our clients, To request your complimentary consultation, call us at (619) 343-2627 or complete our online contact form

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