Some divorces can become quite complex, as some Washington couples discover as they go through the process. Usually, the wealthier the couple, the larger the variety of assets they hold, including executive compensation. Becoming familiar with the different assets, their true value and the tax implications involved in splitting them during the division of property is important to reach a fair divorce settlement.
Stock options can be tricky
When one of the spouses is an executive, they might hold stock options that need to be addressed during the divorce negotiations. As compensation for the executive, stock options are often appealing, as they provide the person receiving them the option to buy stock after a vesting period at the price they traded at when the stock option was originally granted. If the stocks perform well during the vesting period, then the person exercising them can gain a nice amount. However, usually stock options cannot be transferred to another person or divided, so during the divorce negotiations, this must be resolved.
Concerns when it comes to stock options
As couples negotiate, they will need to consider a variety of factors when it comes to stock options. These include:
- The tax implications if the stocks are exercised in the year of the divorce
- How the stock is performing if the option has not been exercised to be able to determine its value
- The type of stock option the executive has received which can include restricted stock options that are lost if the person quits or is fired, for example
- Creating a constructive trust with the non-executive spouse as the beneficiary
Stock options can also be used to hide assets as the spouse holding them might claim that they simply forgot the options during negotiations. This is why it is important to prepare well before divorce negotiations to ensure you have all the documents and knowledge needed.