Divorce is never easy and often has financial complexities that require an expert to evaluate.  Some of the most confusing assets are the various components of executive compensation.  Executive compensation is a term that encompasses stock options, restricted stock or RSUs, an employee stock purchase plan and deferred compensation plans.  Let me provide a bit of a primer on each type.

Employee Stock Options

Stock options give an employee the right, not the obligation, to buy stock at a discount at some date in the future and are usually subject to some sort of vesting schedule.  Options used to be the most common type of non-wage compensation.  Changes in accounting rules have made them less common, but there are still plenty of plans out there.  Occasionally, the options can even be for shares of a different, but related, company.  There are two primary types of stock options:  Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQs).  Generally, you won’t see ISOs anymore.  Recent tax changes have made them less advantageous for employers.  The difference between the two is in tax treatment and transfer-ability.

Where it gets tricky, is if the options are partially vested at the time of divorce but can’t be touched for four more years.  Well, obviously some of the intrinsic value belongs to the spouse, but how much?  The calculations are ugly.  Trust me; you just want to bring in an expert to have it done right.  In a nutshell, if an option grant of 100 shares has a 6-year vesting schedule, and 3 years has elapsed at the time of the divorce, then 50%, or 50 shares, are deemed to be marital property and subject to division in the divorce.  That is the most common situation, but there are some states where the vesting is irrelevant and ALL shares are marital.  You need to ask the expert familiar with your state.

Restricted Stock

Restricted stock is now the most commonly used form of executive compensation.  This is shares of company stock, given to an employee, either as compensation for past performance or an incentive for future performance.  It’s critical to get the actual grant documents in order to know which case it is.  It makes a big difference when determining how many of the shares are Marital Property.  They can be in two forms, either actual shares of stock (RSAs), or a right to acquire shares at vesting (RSUs).  Restricted Stock has less risk than options and is rarely worthless.  Again, depending on award dates, vesting schedules, dates of marriage and separation, the marital portion can be quite complex to calculate, but critical that you have it done.  This is another job for that CDFA® (Certified Divorce Financial Analyst) or other specialist.

If your spouse received shares like this on an annual basis, the future grants are likely to be included in his/her income projections and available for either spousal maintenance calculations and/or child support.

Employee Stock Purchase Plan

This is a benefit wherein the employee is allowed to buy company stock at some regular frequency, usually at a price that is discounted from the current market price.  When the shares are purchased, they can be sold immediately or held at least a year for more favorable tax treatment.

The key to remember here, is that because the employee can buy at a discount and immediately sell, it’s like instant cash over and above the regular earnings.  That can definitely be considered as income for support.