How Are Stock Options Handled in an Illinois Divorce?
Posted on November 07, 2024 in Divorce
If your divorce includes stock options or complex forms of executive compensation, your marital asset division will almost certainly be complicated. Undoubtedly, the division of stock options during a divorce adds another layer of complexity to the overall process. Stock options are subject to some of the more convoluted tax laws.
Further, determining whether those stock options are separate or marital property can also be challenging. One spouse may have complex forms of executive compensation like bonuses and preferred compensation that can be just as complex as dividing stock options. A divorce with a complex property division can benefit from having a highly skilled Wheaton, IL, divorce lawyer from Andrew Cores Family Law Group.
How Can Stocks Be Divided During a Divorce?
Illinois is an equitable distribution state rather than a community property state. Marital assets are divided between the spouses based on many different factors and are divided fairly rather than equally. First, the court will determine which assets are separate and which are marital.
Separate assets are those owned by one spouse prior to the marriage (which have not been commingled with marital assets), assets designated in a pre or post-nuptial agreement as separate, or inheritances or gifts given to one spouse. Marital assets are everything else the couple has acquired during the marriage.
Depending on the other marital assets to be divided, stock options can be sold, and the proceeds split, but this can have adverse consequences. The stock options can be split between the spouses, or the value of the stock options can be compared to the value of other marital assets, allowing one spouse to keep the stocks and the other to receive a marital asset of equal value. It is important that the stock options are accurately valued to ensure a fair division.
Are There Different Types of Stock Options?
Incentive stock options offer preferential tax treatment to employees but must strictly adhere to specific IRS rules. Employees exercising ISOs do not have to pay regular income tax on the difference between the exercise price and the stock’s market value at the time of exercise and may be subject to an alternative minimum tax.
Regular stock options are often offered to high-value employees as a form of equity compensation. The stocks are not given to the employee; the employee is offered the right to buy a specific number of company shares at a fixed price. Then, if the stocks go up in value, the employee has the right to sell them at a profit.
NSOs or non-qualified stock options do not qualify for special tax treatments and may be given to directors, contractors, employees, and others, usually with more flexibility in who can receive them. The difference between the exercise price and the stock's market value at the time of exercise is subject to income and payroll taxes as ordinary income.
Any type of executive compensation awarded based on the achievement of performance goals is known as performance shares and often relates to individual performance targets, financial metrics, or company milestones. Executive compensation that gives an employee the right to receive company stock once certain conditions are met are known as redistricted stock units, or RSUs. RSUs have value as soon as they vest, although the vesting schedule may span several years.
Contact a DuPage County, IL Complex Property Division Lawyer
If you or your spouse have stock options, it is extremely important that you have an experienced Wheaton, IL complex property division attorney from Andrew Cores Family Law Group to guide you through the process. Attorney Andrew Cores served as a member of the TEC Committee for the Collaborative Law Institute of Illinois and has the skills and knowledge necessary to handle the most complex division of assets during a divorce. Call 630-871-1002 today to schedule your free consultation.
