Dealing with stock options, units and awards in a divorce

One complex financial situation that can arise during a divorce in Colorado is one in which a spouse has executive compensation, particularly in the form of stock. The first challenge is to identify this compensation since it may be easily overlooked or hidden. This can mean digging into such documents as annual award benefit statements, award letters and other information on the plan.

Stock options

The next challenge is to understand the nature of the executive compensation. Most commonly, these are stock options or restricted stock awards and units. In the case of the former, this means that an employee can purchase the stock at a future date at the price that the stock cost when the options were granted. The employee has to remain at the company for a certain amount of time, usually five years, in order to exercise these options. If the stock has increased in value, this can be an important piece of property to divide, but if taxes are not accounted for, a substantial amount could be lost to taxes.

Trusts and taxation

Restricted stock units are other possible type of compensation. As with stock options, these require a vesting period. However, there is another complex property division issue to address with these types of assets. They usually cannot be transferred, so they must be placed in a trust for the benefit of the spouse who is not an employee. This must be carefully addressed in the divorce settlement along with tax issues. The employee might be responsible for paying all taxes on the stock.

Divorce can have substantial financial ramifications, and both partners may need to take steps to protect their financial stability. Attorneys may help individuals negotiate a settlement in which they are able to reach an agreement that satisfies them both instead of going to court.