Can Stock Options Be Distributed in a New Jersey Divorce?

Stock options can be a valuable asset, but their complex nature and conditions can complicate the process of division in a divorce. If you or your spouse has stock options, it is important that you understand if and how they can be distributed in a divorce. Read on and contact an experienced Morristown property distribution attorney for more information today.

What Are Stock Options?

Stock options are a form of compensation that give an employee the right to buy company stock at a set price later on. They are often used as a bonus or incentive. The option must “vest” before the employee can use it, meaning they have to work at the company for a certain time or achieve certain goals first. If the stock price goes up, the employee can buy shares at the lower set price and sell them for a profit.

Can Stock Options Be Distributed in an NJ Divorce?

Yes, stock options are subject to equitable distribution in a New Jersey divorce, given they qualify as marital property. Whether or not stock options are considered jointly owned depends on when the options were granted, when they vest, and why they were granted.

In New Jersey, any asset acquired by either spouse during a marriage, up to the date a divorce complaint is filed, is generally considered marital property. If stock options are granted to one spouse during the marriage and are intended as compensation for work performed during that period, they will typically be subject to division.

However, options granted before the marriage or those intended to compensate for work performed after the date of the divorce complaint may be considered partially or entirely separate property. The court will consider the company’s intent in granting the options to determine the percentage that is marital property and therefore subject to distribution between the spouses.

How Can Stock Options Be Divided?

When dividing stock options in a divorce, New Jersey courts typically use one of three methods:

1. If the options are vested, they could be exercised and divided as part of the divorce settlement and distributed between the spouses.
2. The employee spouse could retain ownership of the unvested options, and their value would be divided only when they are exercised. The non-employee spouse receives their court-determined percentage of the net proceeds once they are exercised.
3. The employee spouse could retain ownership of all the options in exchange for other assets of equal value. The non-employee spouse’s share of the options can be calculated as of the date of the divorce and bought out using other marital assets, like cash or equity in shared real estate.
4. If the employer’s plan permits it, the court may order the immediate transfer of the non-employee spouse’s vested share of the options directly into their name. However, many plans prohibit or restrict these types of transfers.

Stock options are complex assets when it comes to divorce, and dividing them involves thorough valuation and distribution methods. To navigate this process and protect your financial interests, consult an experienced divorce attorney today.