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2 challenges related to the division of stock options in a divorce

When married couples in North Carolina divorce, they must navigate a potentially very involved property division process. Either through careful negotiation or litigation, spouses need to find a way to separate their finances in an appropriate and equitable manner. Sometimes couples opt to go through mediation, and occasionally, a judge ends up making major property division decisions because a couple cannot reach an amicable resolution.

Those in higher-asset marriages tend to have more challenging and contentious property division proceedings because there is more at risk. Stock options are one of many valuable assets that can make a high-income or high-asset divorce harder to settle. These two issues regarding stock options often influence the ways that couples address these assets during property division.

How much of the stock is marital property?

Stock options are frequently part of a deferred compensation package offered by an employer. Stock options can be a form of incentive or retention pay that helps to motivate people to meet certain performance metrics or stay at the company for a set amount of time. For example, after five years with the company, an individual may receive a certain amount of company stock as a way of rewarding them for their performance with company equity. Couples will have to establish how much of deferred compensation like stock options is part of the marital estate. Someone only three years into a five-year employment contract when they file for divorce shouldn’t typically need to split all five years of accrued value with their spouse.

The value of the stock option

Sometimes, stock options represent a future value that has no current concrete value, as the organization may not yet even offer stock publicly. Even when an organization is already a publicly-traded entity, the value of its stock will likely fluctuate significantly from year to year, making it hard to know what stock options will be worth when someone is actually eligible to receive them. It can be quite difficult for people to set a reasonable price on the future stock that an employee will receive for their work. Those with more assets and higher income often have to think ahead to identify these challenging issues so that they don’t overlook important resources during the property division process.

Establishing a reasonable value and an appropriate way to divide marital assets, like deferred compensation earned during the marriage, may be important for those seeking a fair resolution to their North Carolina divorces. Seeking legal guidance is often a good place to start.