Dividing Stock Options in a Texas Divorce
When divorcing spouses own complex financial securities, the division of assets can be a major point of contention. While stock options are divided following the same basic path as other assets, their classification and valuation can be substantially more complex. Below, our blog takes a look at several considerations for the division of stock options in Texas.
- Classification as separate or community property: For stock options to be included under the umbrella of divorce, they first must be classified as community property. As the value of options may be granted as compensation for past work, it can be difficult to define if they should be included as income earned during a marriage. This can call the status of stock options as community property into question.
- Valuing an option: Once the options that are marital property have been established, the task of assigning value begins. The speculative nature of options can make accurate valuation difficult; however there are several methods by which this can be done. The “intrinsic value” method involves subtracting an option’s strike price from its current value (multiplied by the number of options owned). While this is a comparatively simple formula, it ignores any potential fluctuations in value which may occur before an option is exercised, which can be significant. On the other hand, the Black-Scholes method involves the estimation of how a company’s stock is likely to perform over time. However, this can involve the services of financial experts such as forensic accountants.
- Division by what is just and right: In Texas, property is divided based on the principle of what is just and right. This means that a court does not have to divide assets equally. During this process, it is highly recommended that spouses work with an attorney experienced in dealing with financial securities. Spouses who choose to forego their fair share of stock options will want to ensure their settlement includes other assets of comparative value.
Considering the potential value of stock options, if you or your spouse owns financial securities, Hendershot, Cannon & Hisey, P.C. can help you protect your interests. With substantial experience handling high net-worth divorce and the division of complex assets, our Houston divorce attorneys can fight for your fair share of marital property.