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Stock options and asset division in a California divorce

| May 6, 2021 | Divorce |

High-asset divorces in California typically come with certain types of property that can be difficult to split between spouses during divorce proceedings. Some tricky assets to divide include stock options.

California is a community property state

Before diving deeper into how stock options are divided in a divorce case, an individual should have a basic understanding of how any type of property is distributed in a California marriage dissolution case. California is what is known as a community property state. About a fourth of the states in the country divide marital property using the community property standard.

Pursuant to the community property standard, any assets accumulated or acquired during the course of a marriage are deemed community property. As a consequence, the presumption is that such property is to be divided equally between divorcing spouses.

What is a stock option?

A stock option provides an employee the ability to buy company stock at a determined point in time at the value or price on the day that the option is extended. Ideally, the value of the stock will have gone up between the granting of the option and the time it vests. As a consequence, a person can make a handsome profit when that stock option vests.

Vesting of a stock option and division of assets in a divorce

The issue in splitting stock options in a California divorce arises from the matter of vesting. Vesting is the point in time at which a person with a stock option is able to exercise that right to purchase and then sell the security. An argument is likely to be made that a stock option that has not vested and will not vest until sometime following the conclusion of divorce proceedings is not to be included in a computation of marital assets for the purposes of property division.

If a stock option was granted and vests during the course of the marriage, that security would then be subject to division in divorce proceedings. Should individuals have questions about how to split such assets, a divorce attorney may be helpful.