In many South Carolina divorces, stock options are among the most complex and misunderstood assets involved in the division of marital property. For spouses in Greenville, understanding how stock options, restricted stock units, and other equity-based compensation fit into the divorce process is essential to protecting both parties’ financial rights.
When one spouse holds stock options as part of an employment benefits package, the court must determine whether those options are considered marital property, how they should be valued, and how they will be distributed during the divorce. Because these assets often vest over time and may have a value tied to future performance, dividing stock options requires careful legal and financial analysis.
If you’re the employee spouse who holds stock options, or the non-employee spouse concerned about equitable distribution, the outcome of this part of the divorce can significantly affect your financial future.
Stock Options as Marital or Separate Property
In South Carolina, courts follow the principle of equitable distribution. That means all marital assets are divided fairly, but not necessarily equally, based on a variety of factors. One of the first questions in any divorce involving stock options is whether the options are marital property or separate property.
Stock options that were granted and earned during the marriage are generally considered marital property. However, if they were granted before the marriage, or relate to work performed after the parties separated, they may be considered separate property instead. Courts also consider whether the options are vested, unvested, or subject to a vesting schedule that extends beyond the marriage.
In some cases, only a portion of the stock options are included in the marital estate. This often depends on the grant date, vesting schedule, and the specific terms of the stock option plan. The court may use a time-based formula to determine how much of the stock options are related to the marriage and how much are tied to post-separation performance.
Valuing and Dividing Stock Options in Divorce
One of the most difficult aspects of dividing stock options in divorce is determining their value. Because stock options are derivative investment instruments, their value depends on several factors including the fair market value of the underlying stock, the strike price or grant price, and whether the options are vested or unvested.
Common valuation methods include the intrinsic value method, which calculates the difference between the stock’s current value and the strike price. In other cases, the court may rely on the present value of the options, or may require expert testimony to assess the potential value based on projected stock prices and a risk free rate.
When it comes to dividing stock options, South Carolina courts may award each spouse a portion of the options directly or assign a percentage of the value to be paid out when the options vest. If the company stock is publicly traded stock, division is generally easier. But with private companies or restricted stock units, dividing stock options often requires complex agreements or future payout structures.
Restricted stock, restricted stock units, and stock awards are frequently handled using deferred distribution methods. The employee spouse may be required to deliver stock to the other spouse upon vesting, or the non-employee spouse may receive a lump sum based on the estimated marital portion of the options.
Tax Consequences and Other Considerations
The tax consequences of dividing stock options can be significant. Non qualified stock options and incentive stock options have different tax treatments, and the income taxes triggered upon exercise may fall to either the employee spouse or the former spouse depending on how the asset is transferred.
Courts will consider the full financial picture, including tax implications, future performance potential, and whether the options were granted as deferred compensation or part of regular employment benefits. In some cases, the court may offset stock options with other marital assets to maintain fairness and avoid unnecessary tax burdens.
Because dividing stock options requires attention to both family law and complex financial rules, spouses are strongly advised to work with experienced counsel who can help evaluate the options granted, analyze the stock value, and present persuasive evidence about the marital portion of these assets.
Learn more about how stock options may impact your divorce. Call Sarah Henry Law at (864) 478-8324 to schedule your free, no-obligation consultation. You can also reach us anytime through our contact page. Let us help you take the first step toward resolution and peace of mind.
FAQs: How Do Stock Options Shape a South Carolina Divorce Payout?
Are stock options considered marital property in South Carolina?
If stock options were granted or earned during the marriage, they are generally considered marital property and subject to equitable distribution. However, options earned before the marriage or after separation may be treated as separate property.
How do courts value stock options during divorce?
Courts may use several valuation methods, including the intrinsic value method or present value approach. Factors like strike price, fair market value, and the underlying stock’s performance are all considered.
What happens to unvested stock options in a divorce?
Unvested stock options may still be considered marital property depending on the grant date and vesting schedule. The court may assign a percentage of future payouts to the non employee spouse once the options vest.
How are tax consequences handled when dividing stock options?
Dividing stock options can trigger tax consequences for either spouse. The court will often consider income taxes and tax treatment in its decision and may offset other marital assets to balance the financial outcome.
Can restricted stock units be divided in a divorce?
Yes. Restricted stock units are often divided using deferred distribution, meaning the non employee spouse receives their share after the RSUs vest. The structure depends on the specific terms of the restricted stock plans and the marital portion of the awards.
