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What happens to stock options in a divorce?

On Behalf of | Oct 3, 2022 | Divorce

Many companies offer their employees stock options as part of a compensation package. A stock option is a contract that allows an employee to purchase shares of stock at a specific price.

If you have stock options with your employer, you may wonder how these get treated in a divorce.

Marital property

Under Illinois law, the court will consider stock options earned during the marriage as marital property. You can try to exclude your stock options from marital property by showing you obtained them before the marriage through an inheritance or gift. Otherwise, any settlement will have to account for the value of the options in determining the property split between the parties.

Valuing the options

Stock options often do not have a set value as they represent a future right. Therefore, it is often difficult to determine their worth. Courts in Illinois often defer in a valuation of the stock options until the party who holds the options exercises them. In the meantime, the court can determine how the options get allocated.

Allocation of the property

Courts in Illinois have broad discretion in determining how to allocate assets in a divorce. In addition to other factors for deciding the distribution of marital property, judges must also consider the details of the stock option grant, vesting schedule, future performance required from the holder of the option and the length of time the holder has to exercise the options.

Stock options usually are not transferrable from one party to the other. In a divorce, the only way to transfer options is through a court-approved settlement or order.