If you’re a high-powered executive or you’re married to one, you likely have to deal with executive compensation when you decide to divorce. More than 15 million employees in the United States have restricted stock plans and stock options. Here are some things you need to know about going through a high-asset divorce.
Employee stock plans
One divorce financial planner says that companies often offer employees stock plans as a motivational tool to increase productivity and morale. Many companies provide stock options to some of their best employees to retain top talent. Stock plans are classified as an asset, which means that when couples divorce, the spouse with the stock options may have to divide these assets with the other spouse.
Stock options allow an employee to purchase company stock in the future. The advantage of stock options is that the employee can buy the stock based on the price of the stock at the time of issue. If the price of the stock goes up in five years, the employee can purchase the stock at the price it was five years ago. However, the employee must wait until the vesting period, which is usually between one and five years, to cash in on the stocks.
Restricted stocks
Restricted stocks are even more popular than stock options. Employees are not permitted to sell restricted stocks until after the vesting period. These stocks are often called “golden handcuffs” since an employee won’t have rights to the restricted stocks if they leave the company or are fired before the vesting period is over. After the vesting period, the whole value of the stock is taxable at regular income tax rates. This means that the restricted stocks will also become marital property to be divided in a high-asset divorce.
Whether you are worried about protecting your stock options or you want to make sure you get your fair share off your spouse’s executive compensation, you may need legal assistance during the property division process. You want to make sure your divorce is as fair and efficient as possible.
