Are Unvested Stock Options Marital Property?
Copyright © 2005 Shaw Law Firm, LLC
The law is clear that stock options earned during the marriage are marital property that are subject to equitable distribution (equitable distribution means they can be distributed to each party, but it is within the discretion of the court as what percentage each party will get). The issue will be resolved on an "equitable" basis given all the factors around the marriage and divorce.
The issue is much more murky when it comes to unvested stock options, when the contingent right was earned during the marriage, but the stock options will not vest until many years after the marriage is over. This is not a small issue as these stock options are often worth a large amount of money, even if still unvested and contingent.
For such an important issue, you may find it strange that Georgia has not entirely settled the issue as to whether or not these unvested stock options are marital property or not. Nevertheless, Georgia has not settled this issue. Therefore it comes down to the skill and persuasiveness of the attorney arguing the issue as to whether or not the unvested options will or will not be made marital property by the court, or in negotiations with your spouse whether your spouse will concede on this issue.
As for the law, the closest Georgia has come to deciding this issue involves a case called Courtney which involved a retirement plan (not stock options). In Courtney the husband's receipt of certain future retirement benefits were made contingent on the happening of future events (ie, unvested). However, the unvested contingent right was granted during the marriage, although the contingent events would only occur or not occur after the marriage was over. This is a situation that is very analogous to unvested stock options. The court in Courtney held that the "retirement plan, while admittedly unvested, is nevertheless an important contractual right, which will become a reality upon satisfaction of certain conditions. Thus, it is far less speculative in nature than the possibility of an inheritance, and we cannot agree with the husband that it should play no part in the jury's consideration of the distribution of the marital property…{therefore} we hold that insofar as they are acquired during the marriage, unvested retirement benefits are martial property subject to equitable division."
If one were to apply Courtney, one can argue that the unvested stock options, like the unvested retirement plan, should also be considered marital property, and therefore the option holding spouse should be entitled to a cut of the unvested stock options, should said options ever vest. Or at least that is one might want to argue if your spouse has significant unvested stock options.
Of course, if you’re the spouse who owns the unvested stock options you want to argue just the opposite. That Courtney does not apply, and that the unvested options are too contingent to be marital property, that the unvested stock options were awarded for future, not past, work performance, work performance that your spouse will not contribute to, and even if they are marital property, the farther out they go the less they should be considered marital property, etc. There are a host of arguments that can be persuasively made and cases from around the nation to support each side of the argument.
The take away being, is that unvested stock options may or may not be marital property in the State of Georgia. The truth is, nobody really knows. The law is unsettled on the issue, and it does make a difference as to which attorney you employ in regard as to whether or not the court will in the end award unvested stock options as marital property to the non-option holding spouse or conclude that the stock options are non-marital and not subject to being distributed to the non-option holding spouse.
I've had the chance to successfully argue the issue from both sides, and can attest that one reason you want an attorney who exclusively practices in the areas of divorce and child custody is because issues like this pop up all the time. Your divorce attorney needs to know, whether it is in settlement negotiations, trial preparation, or trial, how to spot these issues, how to garner arguments, gather evidence, and how to persuasively sell the argument in real time during your case. Whether the issue is unvested stock options or any other tricky issue that arise in a divorce action, only someone whose practice is exclusively or predominantly family law is likely to recognize and understand the issue so it can be exploited to your advantage, and these issues are often critical to a case.
Note: On top of his law degree, Mr. Shaw has earned an MBA from Duke University, Fuqua School of Business and held previous positions as a stock analyst / editor. Mr. Shaw limits his practice to divorce, child custody, child support, alimony and other family law issues including those involving a family business.