Pre-Marriage Stock Options and Separate Property Divorce Rules

Last time we looked at how to determine which portion of a stock option grant is separate property when the stock option is granted during the marriage. There is a different law and formula for determining the separate property treatment of a stock option that was granted before the date of marriage but required employment during the marriage. As with all property, it is important to correctly identify which portion of a stock option is separate property because of the special protections it receives when assets are divided in your Woodlands Divorce.

When it comes to a stock option or restricted stock granted before marriage the Texas Family Code gives us the formula to determine how much of the property is separate property. It provides:

if the option or stock was granted to the spouse before marriage but required continued employment during marriage before the grant could be exercised or the restriction removed, the spouse’s separate property interest is equal to the fraction of the option or restricted stock in which:

(A) the numerator is the sum of:
       (i) the period from the date the option or stock was granted until the date of marriage; and
      (ii) if the option or stock also required continued employment following the date of dissolution of the marriage before the grant could be exercised or the restriction removed, the period from the date of dissolution of the marriage until the date the grant could be exercised or the restriction removed; and

(B) the denominator is the period from the date the option or stock was granted until the date the grant could be exercised or the restriction removed;

So let’s take a look at how this would unfold with a specific set of facts:

1) You received a block of restricted stock that is restricted for 1,095 days;

2) You get married 400 days after the restricted stock is granted;

3) Your divorce date (not the date your case is filed but the actual final date of divorce) is 50 days before the restricted stock becomes unrestricted.

Using the statutory formula we arrive at the following result:

1) The numerator is 400 + 50;

2) The denominator is 1,095;

3) Your separate property interest in the restricted stock is 41% (450/1095). The remaining portion is community property.

Restricted stock and stock options present unique challenges in a Woodlands Divorce case beyond simply determining the separate property and community property portions of the restricted stock or stock option. One of the biggest challenges is effectively dividing the stock or option in a way that works for everyone since there could be any number of restrictions that prevent simply liquidating the asset and dividing the proceeds. The flexibility to handle special assets like restricted stock and stock options is another advantage of choosing a Collaborative Divorce process for your Woodlands Divorce case. In a Collaborative Divorce both of you keep control over how to resolve the issue. If you go the litigation route and leave it up to a judge or mediator you are giving them control and who knows what they are going to tell you to do.

 

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