How Are Stock Grants Treated in Divorce?

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Many C-suite executives get stock grants as part of their compensation package. The value of these grants can be substantial and desirable because they have tax advantages over income-based compensation. In divorce, stock grants are included as an asset in equitable distribution. However, there are specific rules regarding how much of a share the non-recipient spouse is entitled to receive.

What Is a Stock Grant?

A stock grant is when an employer grants an executive shares of stock in the company. This is done in an employment agreement. Typically, the shares are given every year for a specific number of years with the rights to the stock vesting after a designated vesting period. Once the stock vests, the executive is free to sell the shares. The stock grant is lost if the employee leaves before the vesting period ends. Importantly, the stock grant has some intrinsic value, which is why it is considered marital property.

How Are Marital Assets Divided in Divorce?

In New York, marital assets are subject to equitable distribution. This means marital property is split fairly, not necessarily equally. In the case of passive assets, such as stock grants, generally, the assets are divided equally. The non-recipient spouse would get either half the number of shares the recipient spouse received or half its value as of a particular date determined or agreed on between the date of the divorce action and the date of trial.

How Much of the Stock Grant Does the Non-Recipient Spouse Get?

The non-recipient spouse is generally entitled to half of the amount the recipient earned up until the date the divorce action is filed. For example, let’s say the recipient spouse’s employment agreement provides that he or she receives $1 million in stock grants every year for four years. The couple files for divorce in April of Year Two. Typically, the stock will be divided as follows:

  • Year One. The non-recipient spouse would get one-half of what the recipient earned in Year One. 
  • Year Two. Since the divorce action was filed on April 1st, the recipient spouse would only have earned one-quarter of the annual amount prior to the divorce filing. As a result, the non-recipient spouse is only entitled to one-half of one-quarter of the stock grant.
  • Years Three and Four. The non-recipient spouse is not entitled to any share of the stock grant.

Can You Negotiate How the Stock Grant Is Divided?

The parties can always negotiate the division of property. Often, spouses agree to a different division of one asset to compensate for the loss of another asset or for tax reasons. 

Hiring an experienced attorney and financial expert can help ensure that property has been valued correctly and is distributed fairly.

If you are considering divorce, contact us to discuss how we can help protect your interests.

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