Answers To Client FAQs About Stock Options And Divorce

Prospective clients in Orange County frequently come to Nelson Kirkman with a variety of questions about their stock portfolios and what will happen to them in a divorce. Having practiced family law in Newport Beach since 1998, we are uniquely qualified to provide answers to these questions.

Are stock options that vest during the marriage considered community property?

Yes, stock options are a form of compensation, which is traditionally community property. If all or a portion of the stock options vest during the marriage, that portion is characterized as community property by the court.

What causes stock options to be partially community property and partially separate property?

Even if stock options are granted before the marriage, they will likely have a community property interest if they vest all or in part during the marriage. Likewise, stock options earned during the marriage are likely to have both a community and separate property portion. California law dictates that earnings are community property, and the nature of stock options mean they often partially fall into both community and separate property categories.

Does the court have multiple ways to allocate stock options?

Yes, the court has multiple formulas it can use to allocate stock options between community property and separate property. There are three main formulas (IRMO Nelson, IRMO Hug and IRMO Harrison) in use today. The community interest in options that vest after separation lessens each year after the separation.

What factors contribute to the selection of a formula to allocate stock options?

The following factors contribute to the decision of which formula to use to allocate stock options between separate and community property:

• Date of the grant
• Date of marriage
• Date of separation
• Was the grant made for past service or retention?
• Are there forfeiture provisions?
• Vesting schedule
• Vesting provisions
• Is the grant a “golden handshake?”
• Strike price at time of grant

Are there multiple types of vesting?

Yes, there are multiple types of vesting for stock options. If stock options vest over a series of years, they have “graded vesting,” also known as tiered vesting. If the entire grant vests after a certain number of years, they have “cliff vesting.” Some options also have a performance metric attached such as a financial milestone that must be achieved for vesting.

More Answers Are Available In A Consultation

Nelson Kirkman is an established law firm with an informative team of divorce lawyers to help you in a divorce. When you need specific answers to your questions about divorce, please schedule an initial consultation with us. You can send us an email or call 949-430-6952 to schedule yours today.