Divorce: How are stock options and restricted stock handled?

According to Texas law, at the time of divorce, all community property is divisible. Moreover, all property owned by the parties in a divorce is presumed community until and unless proven to be separate property.

The court has no jurisdiction to divest either party of his or her separate property. Jurisdiction means power. Divest means take. So the court has no power to take anyone’s separate property from them.

Employer Provided Stock Options and Employer Provided Restricted Stock that are owned at the time of divorce are divisible, just like any other property. The community portion is divisible, the separate portion is not.

So, in order to determine how much of the Options or Stock is divisible, you must first determine how much of it is separate and how much of it is community.

The Texas Family Code explains how to perform the calculations to find out what is separate and what is community.

Pursuant to Section 3.007 of the Code:

A spouse who is a participant in an employer-provided stock option plan or an employer-provided restricted stock plan has a separate property interest in the options or restricted stock granted to the spouse under the plan as follows:

if the option or stock was granted to the spouse before marriage but required continued employment during marriage before the grant could be exercised or the restriction removed, the spouse’s separate property interest is equal to the fraction of the option or restricted stock in which:

the numerator is the sum of

the period from the date the option or stock was granted until the date of marriage; and

if the option or stock also required continued employment following the date of dissolution of the marriage before the grant could be exercised or the restriction removed, the period from the date of dissolution of the marriage until the date the grant could be exercised or the restriction removed;

and

the denominator is the period from the date the option or stock was granted until the date the grant could be exercised or the restriction removed; and

if the option or stock was granted to the spouse during the marriage but required continued employment following the date of dissolution of the marriage before the grant could be exercised or the restriction removed, the spouse’s separate property interest is equal to the fraction of the option or restricted stock in which

the numerator is the period from the date of dissolution of the marriage until the date the grant could be exercised or the restriction removed; and

the denominator is the period from the date the option or stock was granted until the date the grant could be exercised or the restriction removed.

The Code also provides that the computation must be done separately “for each component of the benefit requiring varying periods of employment before the grant could be exercised or the restriction removed.”

So basically, the value of the Options or Stock that is attributable to the period before marriage or after marriage is separate property. The amount attributable to the time that a person is married is community. These concepts are completely consistent with the analysis done for all property to determine whether its character is separate or community.

If you would like to discuss your situation with the attorneys at the Beal Law Firm, please call us at 817.261.4333 or 214.414.0418 or write us at lawyers@dfwdivorce.com. You can find us on the web at www.dfwdivorce.com.

Author: beallawfirmblog

This Blog is operated by the Beal Law Firm, PLLC. The attorney responsible for this is Eric Beal, Senior Attorney and Founder of the Beal Law Firm.