How are Stock Options Handled in an Illinois Divorce?

 Posted on October 06,2021 in Divorce

High net worth couples getting divorced in Illinois face a particularly challenging marital asset division process. In addition to determining what is and is not considered a marital asset, unique or high-value assets must be valued and divided. One asset, in particular, can be difficult to value and divide: Stock options. Understanding how stock options are typically handled by Illinois law will make it easier for spouses to ensure they get an equitable share of their marital assets. 

What Are Stock Options? 

Stock options are sophisticated financial instruments that give an investor the right to buy or sell a stock at an agreed-upon price and date. Stock options are often given to employees as part of their overall compensation package. This allows the employee to buy stock in their company after a set period of time, incentivizing employees to remain at a particular company longer and help the company become successful. 

Because stock options are part of an employee’s compensation, they are subject to division in a divorce. But because the value of stock options is not available until the agreed-upon future date, they have no value until they are sold, or “exercised.” However, their potential future value to the employee remains considerable. This makes them difficult to divide in a divorce. 

Dividing Stock Options in a Divorce

Because deciding how to handle stock options is complicated and subject to disagreement, in 2016 Illinois amended its divorce laws to clearly address this issue. Even if an employee’s stock option has no value at the time of the divorce, it is considered a marital asset earned, at least partly, during the divorce and its future value is therefore subject to division. 

Now, Illinois courts generally handle this issue by kicking the can down the road just a bit - both parties must agree to an allocation of the stock option’s value and then wait until the employed party exercises the stock option, after which the value of the stock option is distributed to both parties. The employee spouse essentially becomes a trustee for the beneficiary spouse, holding the value of the stock option until it is fully exercised. 

Because stock options are considered income once they are exercised, spousal maintenance and child support payments may be modified if the value of the exercised stock options significantly raises the income of the employed party. 

Are Stock Options Worth Fighting For? 

Spouses who are unsure whether they want to negotiate aggressively for a share of the stock option’s value may want to consider the potential advantages and disadvantages of doing this. If it is many years until the stock options are realized, spouses will have to continue dealing with each other during that time. This may be too unpleasant or hostile to be a serious option. 

One alternative to dividing the future value of stock options is negotiating something of financial equivalence now. One spouse may want the marital home and be willing to give up any share of the stock option’s future value. An experienced divorce attorney can help you make these decisions. 

Work with a DuPage County Marital Property Lawyer

Understanding the division of complex financial instruments presents a serious challenge to divorcing couples. At Calabrese Associates, P.C., we are committed to helping you understand your options and will work hard to ensure you get an equitable portion of your marital stock options and other financial assets. Schedule a confidential consultation with an experienced Naperville divorce attorney you can trust by calling us today at 630-393-3111. 

Source:

https://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=075000050HPt%2E+V&ActID=2086&ChapterID=59&SeqStart=6200000&SeqEnd=8675000