When you get divorced in Washington and have many assets, it can be challenging to decide how they’ll be split. If you own property or one or more businesses together, it can make the divorce process complex to handle. Knowing how to deal with a spouse who receives executive compensation, such as stock options or restricted stock awards, can make dividing your assets challenging.
Examining assets in a complex divorce can be critical
Ending a marriage when you have significant or diverse assets will take time to sort out. These assets can include the following:
- Real estate
- Bank accounts
- Retirement plans
- Business interests
- Stock options
When each property is divided, a value must be placed on each item. It will also need to be determined if each item of property qualifies as separate or community property. Typically, any property acquired during your marriage is considered community property, whether it was acquired jointly or separately.
The tax consequences of exercising stock options must be considered when getting divorced
Stock options can come in different types, making it challenging to divide them when getting a divorce. The purpose of a stock option is to give an employee the right to purchase shares of stock in a company at a specific price, which will hopefully be lower than the future trading price when they’re exercised. One of the problems in dealing with stock options or restricted stock is that they can’t be exercised for a specific period, which may be as long as five years.
If you or your spouse have stock options and exercises them, they will be taxed as ordinary income in the year they are exercised. This action could create a significantly large tax payment if the value of the stock price has increased dramatically since the stock options were granted. This result shows why considering potential tax consequences when getting divorced is critical.
Examining vesting schedules is essential
Stock options and restricted stock awards and units have vesting periods, which is a period the holder must wait until they vest. Examining any vesting schedules involved in your divorce must be done to ensure the associated assets are split appropriately.
Understanding the nuances of a complex divorce case can make you more informed. These situations often involve stock options, restricted stock awards, real estate and business interests.