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How are stock options divided in a divorce or separation?

As we have discussed in earlier blog posts, California is a community property state. This means that in a divorce or a separation, the general rule is that anything which is considered marital property, or community property, will get divided 50-50.

While this may make things simpler for some couples, for high-net worth individuals, the process of dividing their property may be difficult for a lot of reasons. For instance, Los Angeles residents who make a lot of money often hold professional jobs which provide a lot of valuable fringe benefits, including stock options.

When one owns stocks outright, it is fairly easy to put a value on the stock, assuming of course it is stock for a publicly traded company. However, a stock option is not stock itself but a right, or option, to buy company stock at a future date, usually after an employee has worked at that company for a certain number of years. The price is agreed upon at the time the person, an employee or executive, receives the option.

A stock option is valuable because, assuming the company grows in value, a person can purchase stock at what amounts to a discount. For instance, if the price of a stock is worth $20, but a person owns an option allowing a purchase at $10, then the person buying the stock can effectively save 50 percent.

Putting a value on a stock option is tricky just because there are a lot of variables that are in play when doing so, including the inherent difficulty of predicting changes in the market. For this and other reasons, a person going through a divorce and who owns stock options will likely want to speak with a family law attorney with experience in handling complex assets.

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