Many couples are unsure about how their stock awards will be treated in a divorce. It’s a confusing matter that’s often overlooked, but it’s important to understand how your stock awards could be impacted.
What are Stock Awards?
Stock awards are a way that some companies compensate their employees for their hard work. There are many different types of stock awards, though the most common are stock options, restricted stock units (RSUs), and performance stock units.
Stock options give employees the right to buy the stock at a specified price, known as the grant price.
RSUs offer employees the right to receive stock (or its equivalent cash value) at a specified time when the vesting period is over.
Performance stock units operate similarly to RSUs but these depend more on the stock’s performance.
Stock awards can accumulate to a considerable value over time.
How Are Stock Awards treated in a Divorce, and What happens to It?
The treatment of stock awards concerning a divorce depends on the state laws where you live. In some states, stock awards may fall under the property division law, while in others, they may be considered a form of income. But generally, during property division, the court considers stock options, RSUs, and other forms of the stock award as marital property. Once categorized as marital property, the court then divides the stock award between the spouses.
Who Gets the Stock Award and How is it Divided?
If the stock award is considered a marital asset, the court will divide it equitably between the spouses. The word “equitably” often leads to confusion as it does not mean “equally.” Rather, the court may consider several factors, such as the length of the marriage, the contribution of each spouse to the marriage, and the financial need of each spouse. Once the court decides on how to divide the stock award, the company involved will transfer the stock to the respective spouse’s brokerage account.
Remember that the specifics of how stock awards are divided during a divorce can vary depending on where you live. However, talking to a financial advisor can help you navigate this process. By doing your research and seeking expert advice, you can help protect your assets and move on with your life after a divorce.
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If you have more questions about divorce, our team is here to help you every step of the way. At Purposeful Wealth Advisors, we work closely with divorce attorneys, accountants, and other dedicated professionals to arrive at comprehensive solutions for our clients.
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Opinions expressed are those of the author and are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
