Property division in any divorce is complicated enough when discussing tangible assets, such as the house, the car, or bank accounts. When it involves money that the spouse has not actually acquired yet, such as stock options or retirement benefits, division may seem even more complicated. At the Adams Law Firm our Katy asset division attorneys are trained in handling these complex matters to get you through the process as easily as possible.
Community Property Versus Separate Property
Texas is a community property state, which means that all property acquired during the marriage is considered to be assets of both parties and is divided equally if the parties divorce. Separate property is any property that the parties owned prior to the marriage, and which remains their property in the event of a divorce.
Some types of separate property can be considered community property if they increase in value during the marriage or because of actions taken by both parties during the marriage. For instance, if one spouse owned the house prior to the marriage, but both parties contributed time and money to an extensive remodel of the house, thus increasing its value, the increased value of the home would be part of the community property.
Stock Ownership and Community Property
Depending on how stocks are purchased, who they were purchased by, and when they vest or mature, stocks may or may not be the separate property of the person who bought them. There is no easy rule defining stock options, but the Texas Family Code has outlined the law that attorneys must follow.
- If the stock was an employer-provided stock option plan that required continued employment, and the stock was acquired before marriage, then the spouse retains a separate property interest from the date of the acquisition of the stock until the date of marriage, plus any period after separation but until dissolution, until the grant may be exercised.
- If the stock was acquired during the marriage, then the separate property interest accrues only after the date of dissolution until the date the grant may be exercised.
What does this mean to the average person?
If you, as Spouse A, receive stock options from your company that you may cash in after ten years of continuous employment, your date of stock ownership begins from the date of your employment. If you are married five years after you begin working for the company, then you may claim five years’ value of the stock as your separate property. If you are married five years before you begin working for the company, then all the stock value will be community property until after (or if) you get divorced, at which time the stock value will be your separate property.
So, if you work for BigCo and have a grant of 10,000 shares with an option to sell after ten years, and at the end of those ten years, your shares are worth $50,000, then in the first scenario, you would be able to claim $25,000 as your separate property. In the second scenario, all $50,000 would be community property if you were still married at that time.
What Other Factors Should Be Considered?
In divorce and property division, nothing is ever that simple. Other factors come into play when deciding what is and is not community property, even for something like stock options. For instance, you must consider whether or not your employer matched your stock purchases, or whether any money was deducted from or added to your paycheck (for instance, in lieu of dividends).
For instance, if your right to purchase additional stock options were contingent upon your receiving a promotion, and your spouse took on extra duties at home so that you could work extra hours to receive your promotion, then in the event of a divorce, the additional stock option value would be weighed against your spouse’s contribution to your work effort.
Depending on other restrictions in the stock purchase or grant, what is sometimes called an employer-provided restricted option, there may be other limitations on what you can do with your stocks in the event of a divorce. Some employer-provided options call for penalties (including forfeiture of the stock) if you resign or are terminated before the stock vests, which might leave you with a large balance on the community property side.
Who Gets the Stocks?
The stocks themselves are the property of the purchaser. In the case of employer-provided stocks, they remain the property of the employee. The only thing being divided at the time of dissolution is the value of the stock options at the time of the divorce.
This may create a dilemma for the stock owner, another reason the Adams Law Firm strongly recommends you consult with an attorney well-versed in the ins and outs of dissolution and property division. If you have not yet reached the point at which you can cash out your stocks, you have only a few alternatives.
- Offer the non-employee spouse the cash value of the stocks at the time of dissolution. This may be a good alternative for spouses whose divorce is less than amicable or when one spouse needs a lump sum of money right away. This option works best when the spouse who holds the stocks can afford to pay out the immediate value of the stocks even at some short-term loss.
- Wait until the grant period ends. If the other spouse is willing to wait or does not need the money immediately, then the only other alternative is to allow the grant period to end so that the employee spouse can cash out their option.
Contact the Adams Law Firm Today
If you have been thinking about dissolving your marriage, or if you’re concerned about the possible effects that a divorce could have on your marital property, contact the Adams Law Firm at (281) 391-9237 for a confidential consultation. Our asset division attorneys will review your situation and give you clear, concise advice on the best way to protect your assets and your property, whether you decide a divorce is for you, or whether you want to wait and see.