Written by Jonathan Breeden
You might already know that a North Carolina divorce will divide your home, retirement funds, and other assets. North Carolina also states that your stock options might be at risk for division, whether vested or unvested. This added layer of complexity requires you to obtain an accurate valuation that ensures these assets are divided fairly.
Here’s more on stock options and how they’re divided in a divorce.
A stock option gives an investor the right to purchase shares of a company. There is no obligation to invest in the company, but an investor simply can if they wish. This can be done independently, but it is also common for businesses to provide their employees the option of buying company stock. Any asset you acquire during your marriage is up for grabs in a divorce based on North Carolina’s equitable distribution laws, including your stock options.
Stock options are a valuable asset that you could account for in a premarital agreement to avoid a contentious divorce. Whether you include them in your prenup or not, you should consider the following when negotiating how to divide your investments:
When dividing stock options, it’s critical to obtain an accurate valuation to ensure they’re distributed fairly. You should ensure that your stock options have a fair market value especially ifyou chooseto sell them and divide the proceeds.
Additionally, you should value your stock options on your separation date so they have the most accurate valuation. North Carolina courts evaluate shares of stock using the intrinsic value method. A stock’s intrinsic value is the current market price minus the stock option’s strike price.
The stock’s current market price is the price it last traded for, and the strike price is the predetermined price someone can buy or sell it for. In other words, the current market price is the price that is constantly changing, whereas the strike price is a fixed number.
Unlike community property states that divide assets as a strict 50/50 split, North Carolina will divide your assets equitably based on various factors, such as each spouse’s income, custody agreement, and more.
So, if a judge feels your spouse would be better off with your stock options, you can expect them to be split up in your divorce. However, if you acquire stock options prior to your marriage or after the date of separation, these assets are not considered marital property and, therefore, won’t be subject to division during your divorce.
Another thing to consider in your divorce is which stock options are vested and unvested. You can access a vested stock immediately, but you must wait for a period of time — called the vesting period — to access an unvested stock.
For example, an employer may agree to offer the option to buy stock once an employee has worked with the company for five years. Like a vested stock, unvested stock must be valued and distributed if the vesting period overlaps with your marriage.
For those who are not as capable of handling stocks as others, taking on volatile portfolios might not be recommended. You or your spouse might consider converting these stocks into more manageable investments to mitigate the risks.
When you have several assets, including stock options, you must ensure that these assets are divided equitably between you and your spouse. That means obtaining an accurate valuation and assessing other factors contributing to property division are critical to protecting your rights.