Stock Options, Restricted Stock and Community Property in Divorce

Your separate property receives special protection when it comes to dividing property during a Woodlands Divorce. As a result of that protection, it is important to correctly identify every piece of property you own as separate property or community property. Two types of property that have specific rules for determining how much of it is separate property compared with community property are employer provided stock options or employer provided restricted stock.

How do you determine which portion is separate property and which portion is community property in your Woodlands Divorce?

The Texas Family Code gives us the formula to use to answer this question. It provides:

if the option or stock was granted to the spouse during the marriage but requires continued employment beyond the date of divorce 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 period from the date of divorce 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 on January 31, 2014;

2) The restricted stock remains restricted until January 31, 2017;

3) Your divorce date (not the date your case is filed but the actual final date of divorce) is September 1,2014.

Using the statutory formula we arrive at the following result:

1) The numerator is 883 which is the number of days from September 1, 2014 until January 31, 2017;

2) The denominator is 1,096 which is the number of days from January 31, 2014 through January 31, 2017;

3) Your separate property interest in the restricted stock is 81% (883/1096). 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.

Next time we will look at how to handle stock options or restricted stock that were granted before the date of the marriage but required employment during the marriage to exercise the option or remove the restriction.