Dividing Stock Options

Many businesses award stock options to their employees either as a reward for past performance or as an incentive to remain with the company. Most companies will grant the options, but will require the options to be held by the employee for several years before they can be exercised.

It is very common that the options will be awarded while you are married and not exercisable until after you separate. In that situation, what will each party take?

Here, the court will have broad discretion to divide up the options. The options are community property to the extent that the work that was done to earn them was performed while you are married. As such, deferred compensation will be community property; incentives for future compensation may have a larger prportion of community property.

Although courts will have very broad discretion to use any method that it sees fit, most will use the "time rule." Under that rule, the community interest will be the product of a fraction, the numerator is the total months between the start of employment and your separation from your spouse, and the denominator is the total months between the start of employment and the date each option becomes exercisable.

That number should be multiplied by the number of shares of stock which could be purchased when the option can be exercised. The rest of the options will be the employee's separate property.