What is a stock option and how does it affect divorce?

| Apr 14, 2021 | Divorce |

Executives and other highly compensated employees in the greater Detroit area may receive compensation in the form of what are called stock options.

If a person is going through a split, he understand that these are valuable employment benefits that are subject to property division under Michigan law.

To put it another way, they are much more than mere job perks like vacation time or even extra income like a housing allowance or a guaranteed bonus.

Stock options can be difficult to divide in a divorce

As the name implies, a stock option is the right a person has to buy, or sell, share of a stock at an agreed on price. In an employment context, a company will usually offer an executive stock options in the company’s stock.

The option will specify during what time the person may exercise it. An executive’s goal would be to exercise the option after the company has grown in value.

For example, if an employee has an option to buy 100 shares of stock at $100 a share, or for $10,000, and exercises the option when the stock is worth $200 a share, the employee effectively makes $10,000 by buying the stock.

There are many reasons why stock options can be difficult to divide in a divorce.

For one, if one spouse received the stock options before marriage, she may want to argue that she should keep them outright.

Moreover, in part because they depend so much on what will happen in the future, stock options can be very complicated to value. The couple may even want to call in experts to assist them with this process, especially if a lot of money is at stake.