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Stock Options, Executive Compensation, and Divorce

By Greg Gann

One of the most lucrative forms of compensation for corporate officers, managers, and other executives comes in the form of stock options and rights to restricted stock. The four most critical issues for executives awarded these financial instruments who divorce is whether these perks were marital, vested, a determination as to how they will be valued, and how will the tax considerations be handled.
A stock option is simply the right to purchase a stock at some future date at a stipulated price that is determined and offered in the present. If a stock option provides the right for the employee to purchase the stock at a stipulated strike price, say $50 per share at an assigned date in the future, this creates a significant economic windfall to the employee, if at the time of time of eligibility or vesting, the stock is trading at a price significantly above the strike price, say $100 per share. It should be evident that such forms of executive compensation are valuable pro…