When spouses get divorced, if the parties cannot reach an agreement, the Court will determine how to divide the parties’ community property. Basically, community property consists of the assets and debts that you and your spouse acquire during the marriage. The Court cannot divide a party’s separate property. Separate property consists of the assets and debts that each party owned prior to marriage or obtained during the marriage through gift, inheritance or devise. A recovery from a personal injury law suit will also be a spouse’s separate property except for any portion related to lost wages. Unfortunately, determining what is community and what is separate is not always easy. This is often true when analyzing the employee benefits one party receives from his/her employment.
Some of the most coveted employee benefits are stock grants or stock option grants. Frequently, the grants are the most valuable part of the marital estate. Most of the time, the grants and options vest, or become exercisable over a period of years (often four or five). So, what happens if you find yourself in the unfortunate position of getting a divorce and your spouse has thousands of unvested stock options or stock grants? They’re all his right? Wrong.
When stock options or grants are obtained during the marriage, they are subject to division. This is true for both vested and unvested options and grants. Vested stock is treated just like any other part of the marital estate, i.e. it is community property and subject to division by the Court. Unvested stock options are different.
The Texas Family Code provides a formula to determine what part of the grant and options are separate property and what portion is community. Why is this important? Because the Court cannot divide a party’s separate property. Community property? Now, that’s a different story.
In determining what portion is separate and what portion is community, the Court is going to look at when the stock options and grants were obtained (before or during the marriage) and when the stock vests or becomes exercisable (during or after the marriage). The answers to these questions will determine what part is community, and thus, to what you are entitled.
So, what is the most important thing to take away from this article? Don’t risk your family’s future by not knowing your rights. Division of the marital estate is often difficult and confusing and should not be attempted without the help of an experienced family attorney.
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The information contained in this article is general information only and does not constitute legal advice. ©2014