A Divorce Can Affect Stocks
Because stocks are part of the assets or wealth in a marriage, they need to be divided between the two spouses. Transfer of stocks incident to divorce is a common occurrence at brokerage firms.
People who are continuing to work and make contributions to their employee retirement plans in the midst of a divorce should seek legal help regarding equitable division. Not all stock options are vested, meaning that they are not disposable at the time of divorce.
How Stocks are Divided During Divorce
All states consider “vested” stock options (belonging to the employee and subject to forfeiture upon expiration) property subject to distribution. These options are not easy to divide, even if they are publicly traded companies. Moreover, most states regard non-vested stock options as property. There are a few states that currently prohibit the distribution of non-vested options in a divorce case. It isimportant to check with a lawyer to determine your state’s position on this vesting/non-vesting matter as well as a careful review of the company’s option plan. Some plans do not permit a spouse to hold options while other plans do.
One of the preferred methods that the court can use to determine value of stocks that are not vested is to use the percentage method. This method gives each person a percentage of the value of the stocks or retirement plans at the time they are distributed.
Furthermore, the spouse receiving transferred stock is taxed on the gain or loss upon selling the stock in the future. This is calculated as the difference between the sale proceeds and the cost basis. The cost basis of the recipient spouse is the same as the cost basis as the transferring spouse.
What to do With Stocks During a Divorce
What is a non employee spouse to do? First, obtain complete discovery regarding your spouse’s employment assets. Carefully review the summary documents and handbooks for all employee stock purchase plans. Get copies of all employment contracts,stock grants,Securities and Exchange Commission filings for relevant employment periods,and any other documents, letters or memorandums regarding your spouse’s employee benefits and compensation.