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Valuing stock options in a divorce

On Behalf of | Nov 4, 2020 | Property Division |

If you own stock options as a benefit from your employer, your spouse may receive a portion of these options in a divorce. Valuing stock options, which allow you to buy the stock shares at an established price in the future, can be complex.

Review the factors that influence the valuation and division of your stock options when you end your marriage in California.

Establishing community and separate property

As a community property state, California divides shared assets and debts equally in a divorce. Community property includes anything you acquire from the marriage date to the separation date, including stock options.

Unvested options remain in your employer’s control. You fully own the options once they become vested, even if you leave the company.

California courts have historically considered both unvested and vested options community property, even though you cannot currently sell unvested options.

Dividing options fairly

The court will use one of two formulas to value and divide your stock options. The Hug formula applies if you received options as a reward for past work or as a sign-on bonus to attract you to the position. First, you subtract your separation date from your hire date. Divide that number by the difference between your hire date and the options vesting date. Multiply the result by the number of option shares to get the number of community property shares. The court will divide those in half.

The court uses the Nelson formula if you received the shares to compensate for future performance or as a bonus. Simply use the Hug formula but replace the hire date with the date you received the stock options.

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