When a couple divorces, it is easy to divide physical items. One of the parties simply takes possession of items such as home furnishings, tools, jewelry, and even cars. Other property is more difficult to evaluate and divide. This is the case with employee stock options.
Stock options are granted by a company to an employee, usually managers and executives. Stock options represent the right of the employee, at some point in the future, to purchase company stock if he or she chooses to do so. Sometimes, a company gives an employee stock options to attract the employee to come to work for it; other times, a company offers stock options to try to keep an employee or to compensate him or her for future work. If and when a stock option “vests”, the employee has the right to buy the company’s stock.
A basic understanding of property rights in California is essential to understanding how family courts deal with stock options. You can learn more about these rights here.
In addition to understanding basic property law, it is important to understand what the term “vest” means in relation to stock options. The date a stock option “vests” is the date upon which an employee has the right to buy the stock. This is known as “exercising” the option right.
The first step in determining how to handle stock options in a divorce is deciding who owns the option. Courts have broad discretion on how this is done. However, two different approaches are typically used, both of which are named after the cases that established them. They are known as the Hug formula and the Nelson formula; they are also known as time rules. In essence, the sooner after the date of separation an option vests, the larger the community interest in them.
Which formula is applied, usually depends on the reason the company offered the stock option in the first place. The Hug formula typically applies to options that were given to the employee to attract him to work. The Nelson formula is usually used when the options were offered to keep an employee or to compensate him for future work. While many people assume that options that vest after the date of separation are separate property, this is simply not true when the Nelson time rule is applied.
Valuing stock options properly requires an attorney who understands all the law and who is experienced in making the strongest arguments for her client. To obtain the counsel of just such an attorney, please contact the Law Offices of Judy L. Burger. We have extensive experience in divorce, child custody, and child support matters. Call today to learn more: (415) 293-8314.
Some divorces can be accomplished in what seems like a blink of the eye. Oftentimes, a young couple without children or assets to speak of simply needs to sign a few legal documents to go their separate ways. But as years go by and marriages get longer, divorces get more complicated as children are born and assets are accumulated.
Such was the case with Frank and Jamie McCourt. At the time of their divorce, Frank was the owner of the Los Angeles Dodgers. In determining Jamie’s stake in the family assets, Frank estimated the value of marital assets, including the Dodgers franchise, at roughly $300 million.
Eventually, the divorce was finalized in October of 2011and Jamie was awarded $131 million. Not exactly half, but not too shabby, either.
A mere six monthly later, however, Frank sold the Dodgers franchise for a whopping $2.15 billion. (That’s right, billion with a ‘B’). Jamie promptly took Frank back to court, feeling she had been cheated out of her fair share. Among other things, Jamie alleged that Frank grossly undervalued the business.
Situations like this are not uncommon, particularly when the marital assets include a business. An experienced and pragmatic divorce attorney understands the importance of a fair business valuation conducted by a qualified expert. Be sure your attorney is prepared with the facts so you can get your fair share the first time around.
If you feel like your spouse took you to the cleaners in your divorce, before giving up, consider your options for taking your ex back to court. At the 