Stock Option Division | Retirement Fund Division

401K - 401Ks, 403B, and similar tax deferred retirement fund assets are subject to division in a divorce (the marital portion). And yes, assets in these accounts can be transferred in a tax free manner through a document called a Qualified Domestic Relations Order (QDRO or "quadro" as we call it).
- Valuation questions are not often a big issue, as the values in a 401K type account are readily ascertainable. What is at issue are usually two things (1) what portion of the account is marital and subject to division in the divorce, and (2) what portion of the marital portion of the account should be divided to the other spouse.
- As to whether or not it is marital or not, the rule is, if the money that went into the 401K was earned from work during the marriage, it is marital, including the employer contribution portion. If it was earned prior to marriage, it is non-marital.
  - Complexities arise. For example, are 401K monies earned after the parties separate still marital funds? The answer is, yes, however in many cases it is a good argument to say, so what, after separation there was no marital contribution. This is often an issue that arises.
  - Other complexities involve, for example, what about the appreciation of pre-marital 401K money? Yes, if your 401K has appreciated solely due to the share prices of your stocks rising, that appreciation also remains non-marital, and this value should not be part of the marital portion that your spouse has a claim to. PROBLEM HOWEVER, how do you distinguish the appreciation on 401K stock that is pre-marital, from what is marital? The answer takes some financial acumen, and it is not something that should probably be trusted to an attorney who does not specialize in complex asset issues in divorce as we do at Shaw Law firm, but Georgia law does provide an answer.
  - Often 401k money is transferred from one job to the next, resulting in multiple accounts and roll-overs. Tracing this money is often difficult but can be very important.
- These and other issues are things that we deal with on a daily basis. We only handle divorces, including the financial aspects, which often are complex, and we are good at it. Mr. Shaw's experience includes not just graduating cum laude from law school, but he also has an MBA from Duke, and is an experienced investor and financial writer with real world experience in these areas.
Real Property - Complex issues often result in real property issues, even in something as simple as the marital home. Things can get much more complex if property is commercial or investment or even recreational. I will discuss some issues below, but my intent here is not to draft a thesis, but just an example of some major issues that often arise. I discuss several examples below, including what is sometimes the most important what is the marital and non-marital portions, as a former spouse should only get a share of the marital portion, and this can be a substantial amount of money in many cases.
- One issue in most cases is how do you divide the marital home? In the generic case, assuming there is equity in the home, you either agree to sell the home and split the equity, or one party keeps the home, and if necessary refinances the mortgage in their own name, and pays the other party their equity interest in the home.
  - Selling the home is the simplest in regard to valuing the asset, but it creates many other complexities that come with the sale. Just agreeing on the process of the home sale can be CRITICAL.
    - As just an example, I took over a case (after the divorce) where the attorneys agreed that the sales price for the home would be set by the average of what each party thought the house should sell for. Wife would remain in the home in the interim of the sales process, and leave there with Husband paying the mortgage. Essentially, rent free for life the way the parties' Settlement Agreement was drafted. WIFE HAD NO INCENTIVE TO SELL, SHE WAS SITTING PRETTY, and the Settlement Agreement had no provision to make sure the house would sell. Wife just continued to say she wants to sell the house in the million + dollar range, and averaged with Husband's number, it stood on the market for over 700 Days! Wife was not taking care of it, and the house's condition was deteriorating and its real value continued to fall.
    - My client had to pay me, after the fact, firing his prior attorney, to somehow get Wife to agree to sell it at a price that it would sell for. Not an easy task as the court can only enforce what is in the Settlement Agreement, and the Settlement Agreement plainly allowed my client no relief. We did finally get the house sold, but only after discovering a communication from Wife where she indicated the house was only worth $x. Had we not found that communication, she would probably still be living in that house today, fully subsidized. The way it was, the house lost 6 figures in equity from what it would have had it sold earlier.
  - Just the simple matter of selling the house needs to insure details to make sure the house does sell within a reasonable amount of time, no matter what, to make sure neither party sabotages the sale, low balls the sale, to allocate expenses of improvements and upkeep, and a whole host of things.
    - Things become even more complex if the parties want one of them (say with their children) to continue living in the marital home until a date in the future. You have to make sure that the house payment will be paid by that party, on time (you cannot allow a loop hole for the party to periodically pay late and destroy your credit), provisions have to be made so the house is not allowed to deteriorate, for early sale, for end date when house must be sold, process for it and again a whole host of issues, and finally these details must not be filed with the court so that future buyers are aware of what the sale price of the house is.
  - If at all possible, the party whose name is on the mortgage SHOULD NEVER allow the other party to stay in the home, when that party (who may be quite hostile) has no vested interest in maintaining your credit.
  - There are also issues as to what portion of the property is marital and what portion is non-marital. This issue can be extremely complex. But yes, Georgia law does provide an answer. It is an answer that takes financial acumen, and not something that should probably be trusted to an attorney who does not specialize in complex asset issues in divorce as we do at Shaw Law firm, but Georgia law does provide an answer.
    - Things get even more complex if you bought the property with your spouse before you were married.
    - Like with 401Ks, there is also the issue that the home value can include both marital and marital portions. How do you distinguish what is marital, and what is non-marital?
      - Even further, what if the property has appreciate in value? How do you distinguish the appreciation that results from the non-marital portion from the marital portion (as the marital portion is the only portion that your spouse should be entitled to). And the complexities do not stop there. I don't exaggerate the importance of having an experienced attorney who works in this area everyday to handle such issues.
    - Other common issues are title issues. Did you put property in your spouse's name that was otherwise non-marital? This creates some real issues in dividing real property that need to be recognized. It makes a big difference, did you own property prior to marriage, and then after marriage transfer title into joint names, or did you simply buy the property, at the same time, as joint tenants. The former may very well waive your pre-marital rights, the latter, depending on how it is argued, often will not.
- The above describes some often encountered complexities that exist with the marital home, which is usually the least complex of real property that may exist. Commercial property presents many of the same issues, and many more issues that may be of even more complexity. Regardless if the property is the marital home, commercial property, recreational property, Shaw Law Firm's only business is family law and we deal with issues like this every day as an everyday aspect of handling our client's cases.
Stock Options - The first question I get is, can my (wife/husband) get my stock options? The answer is that, if they were earned during marriage, or if the contingent right to such options were earned during marriage, the answer is possibly. For vested stock options, that were earned during marriage, the answer is clearly yes. But like with other asset classes that I describe on this web-site, things can become complicated.
- As an example, what if the contingent right to the stock option was granted prior to marriage, but only vested after marriage. Should your (wife/husband) be entitled to these stock options? What did they do to earn them? Often nothing. But you have to know how to legally argue the issue. Was the contingent right to the stock options awarded for work done prior to marriage, or were the contingent stock options awarded to retain you for future work (work that you only do after or partially, during the marriage).
- What if your awarded contingent stock options during the marriage, but they vest only after the divorce? You may be surprised, but the Georgia Supreme Court has yet to answer this question. We still argue the issue, and know how to argue the issue.
- What if you had vested stock options before marriage, but you never exercised them until after marriage? Are they now marital property? Many Georgia trial courts said yes, the Georgia Supreme Court, fortunately, did clarify this issue, and it goes back to a marital/non-marital analysis, which in and of itself can be extremely complex. But we do have law on this topic that we can work with.
- After deciding how many stock options your wife gets, then there are issues as to how your spouse can exercise these options without any tax issues being occurred for you.
- There are valuation issues. A contingent option is not worth as much as a vested; a vested option might not be worth nearly as much as a straight-forward back of the napkin calculation when a Black Scholes calculation is made.
- These are things we deal with on a daily basis at Shaw Law Firm, and not something that should probably be trusted to an attorney who does not work with such issues and with complex asset issues in divorce on a daily basis as we do at Shaw Law Firm.
Deferred Compensation - Deferred Compensation issues are very similar in most respects to the issue of stock options. Please refer to that section, and substitute in Deferred Compensation for stock option. Deferred compensation has other issues, such as what is the after tax discounted value of the compensation. Your spouse should not get more than the real value of the deferred compensation, and then only the marital portion.
Pensions & Federal/State/Military Pensions. 401Ks and other similar pension plans such as 403B are defined contribution plans, and I discuss them elsewhere. Pensions that I am referring here are what is known as defined benefit plans, where you are guaranteed a certain monthly benefit upon retirement. Such pensions are indeed divisible in a divorce, and thus your spouse may very well be entitled to a share. And your spouse's share can be transferred tax free via a Qualified Domestic Relations Order (QDRO - or pronounced "quadro"). The QDRO for a fixed benefit pension is different from the QDRO used for a 401K transfer. Said QDRO is often more complex.
- Pension issues usually involve valuation (only an expert should value), and what portion of the pension is marital and what portion is non-marital.
- A pension can be divided by paying a lump sum, or they can be divided so that your spouse's share is taken out at the same time you receive your pension (e.g. at age 65 or whenever you are eligible, whatever monthly payment you would get, your ex-spouse will receive her cut based upon whatever portion her cut is derived to be during the divorce proceedings).
- Federal pensions can be highly complex and an expert is needed to divide such pensions.
- State pensions are usually a bit less complex, but an expert is still needed.
- Company pensions require expertise to divide, but are usually simpler to do so than Federal or State pensions.
- In addition to the division of pensions, there are issues of survivorship, and other issues that may arise.
- MILITARY PENSIONS. First off, military pensions are divisible in divorce, so your spouse may be entitled to a portion of your military pension.
  - Second, a military pension is still divisible in a divorce EVEN IF YOU HAVE NOT BEEN MARRIED FOR 10 YEARS. The ten year requirement is generally the requirement for having your spouse's portion of the pension automatically withheld. That right of withholding does not exist if the marriage is less than 10 years in duration. But your spouse may still be entitled to a portion of your military pension.
  - Military pension issues almost always involve marital/non-military issues. Your spouse should not get a portion of the military pension that is non-marital, and often the actual non-marital portion of the pension will be undetermined, because you may still be earning active duty credit towards your pension that will take place after the divorce. Your spouse should not be entitled to this portion of the pension anymore than the portion of your pension earned prior to marriage.
  - The disability portion of your military pension can be very complex, and is often a trap, particularly for the non-military spouse, as this portion of the pension may be not divisible upon divorce (no matter what the divorce decree says) and a party, if this is not accounted for, can often take their regular pension and convert a portion of it to a disability pension, and deprive their spouse of this portion of the pension.
Professional Licenses - Professional licenses, such as a law degree, medical degree, C.P.A. are NOT property in a divorce. So your spouse cannot get any value from your degree or professional license. HOWEVER, that does not mean that they don't have value. Issues of alimony can arise. It can be argued, as an example, that the education needed to obtain the license was a marital contribution, and therefore alimony should be paid to make it equitable. We know these arguments back and forth from both sides of the case. These are the sort of issues we deal with on a daily basis at Shaw Law Firm.
- Professional businesses such as law firms, medical practices, dental practices, etc., are such however to division between the spouses. Like with the section on Real Property, and 401K, one of the most complex, and often most lucrative aspects to such business involve determining the marital and non-marital portions of the business. Your spouse is only entitled to a portion of the marital portion.
- Such businesses have the same issues as other businesses that I discuss in the Business Valuation section. One thing professional practices have, that often distinguishes them from other types of businesses, is that not only do they have what is called "professional" goodwill, but also a good chunk of "personal" goodwill. Goodwill is a economic concept that is often added to the value of a business, but personal goodwill needs to be removed from this calculation. This is but one example of complex issues that arise, and can mean a lot to the end result. The attorney you retain does matter and does make a difference. These are the sort of issues that we handle on a daily basis at Shaw Law Firm, and we have enough experience being the second attorney on a case (once the first attorney is unable to properly handle the issues at hand) that we know, first hand, with multiple examples, that the firm you retain does make a difference in the outcome of the case.

Stock and Property Division