The stock options granted by an employer to a
worker can be a valuable asset. A recent New Hampshire Supreme Court
decision has clarified how such options may be divided in a divorce.
In the matter of Valence and Valence, the
Court on May 7, 2002 addressed the marital distribution of stock
options. The husband who had stock options granted to him by his
employer agreed that vested stock options should be considered marital
property to be divided by the parties. He argued, however, that the
trial court had erred when it distributed all the unvested stock
options as marital property without considering that unvested stock
options will vest only upon his continued employment with the company.
The Court first noted that unvested options are
property, but had to determine what part of the unvested options
belonged to the husband at the time of the dissolution of the marriage
and therefore were part of the marital estate to be distributed. The
Court noted that the husband's employer's stock incentive plans states
that the purpose of the plan was to advance the interest of the
employer and its stockholders by attracting and retaining associates
and directors and providing such persons with incentives and rewards
for superior performance.
Thus, the Court noted that options granted in that
case might have been awarded for past services, incentive for future
services, or a combination of both. The Court noted that the trial
court would have to make an explicit finding whether the stock options
were intended for only future and not past services. The Court noted
that the portion of the unvested options that are attributable to the
husband's employment prior to the dissolution of the marriage
represents the portion of the unvested options that the husband earned
prior to the dissolution of the marriage and therefore belong to him
for purposes of marital property distribution.
The Court further noted, however, that because
unvested options have no present value and may never vest, the trial
court should determine the number of shares that represents the wife's
portion and order distribution of those shares if, and when, they
vest.
The Court also said the
trial court should not, when addressing stock options in a divorce
decree, require the husband to expend his own resources to distribute
his wife her share. In this case, the trial court had required the
husband to exercise available options without delay, such that the
wife might be able to require him to purchase stock with his own funds
which the Court found unacceptable.
In the matter of Dolan and Dolan, which is a separate
decision from last year, the Court held that the gain recognized upon
exercising stock options should be considered in determining income
for child support purposes. These two cases illustrate that the Court
recognizes stock options as a valuable asset and potential income
source and that they are formulating rules to address such stock
options in the divorce matters.
