Those lucky enough to have an employee stock plan might wonder how the courts consider those plans in a divorce. The answer is… It depends!
Very commonly, employees with active stock plans will need to have someone evaluate the plan to determine how much is community property and how much is separate property. Regardless of whether it is stock options, restricted stock units (RSU), phantom stock, an employee stock purchase plan, or something else, in California you are likely looking at a mix of separate and community property.
Income and bonuses from employment during a marriage is community property and stock plans are part of the employment package. Thus, these plans can be both community and separate property if the grant date occurred before the marriage and the vesting date after. If both dates occurred before the marriage, then the shares are separate property. If both dates occurred after the marriage and before the separation then the shares are community property. And to make it more complex the courts look at the intended purpose of the grant as part of the analysis.
I have yet to see an individual use the same formula as the California Court system when analyzing a stock plan to determine how much is separate and how much is community property. That’s the long way of saying, don’t bother trying. And to add a bit of further complication, once the separation period is in effect, income from vested stock plans becomes part of the income available for support used in spousal and child support.
It is not unusual for the soon-to-be ex-spouses to have differing opinions about how to handle incentive stock plans. Applying the formulas for determining the community and separate property portions helps to find middle ground and it is more likely to be an acceptable solution to both parties.
This is a perfect assignment for a Certified Divorce Financial Analyst (CDFA)! We do these on a regular basis using the right formulas. Better yet, we can explain it so that you totally understand the implications. What do we need to do this analysis? A copy of the stock plan description, a list of the grants, and the vesting schedules is an excellent starting place.