Executive compensation plans often complicate divorces. This is typically because of the complexity of the assets rather than the dollar value, although both factors certainly tend to play a role.
This is especially obvious when it comes to equity packages. Details matter when attempting to reach equitable property division agreements for complex assets such as stock options or restricted stock units.
Texas law on stock options
Texas has specific statutory laws that guide the division of stock options during divorce. The statute outlines two common situations that could complicate division.
The first situation involves an executive who has stock options or restricted stock units from before the marriage. It provides a formula for determining the amount of separate property interest that the employee-spouse has. It allows for situations in which the instrument reaches maturity either during the marriage or after the date of its dissolution.
The second situation would involve an asset that the company granted to the employee during the marriage, but that had a restriction or exercise date after the date of dissolution. Again, the law provides a formula to determine the ratio of separate property interest.
Finer points about stock options and restricted stock units
Dividing these assets is rarely as simple as applying the simple statutory formula. Even in the most straightforward situations, these stock packages often have tiers to balance liquidity for the employee and stability for the employer. Therefore, couples usually must apply different ratios to different parts of a compensation plan.
Finally, like many other components of high-asset couples’ portfolios, the value of stock options relies heavily on relatively volatile market conditions. To reach a fair and equitable agreement without sacrificing the opportunities investments or assets represent: That typically requires foresight, strategy and knowledge that goes beyond formulas.