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Division of Stock Options and Restricted Stock Units in Colorado Divorce

Protecting Your Rights & Advocating For Your Interests

Determining which marital property is divisible in a Colorado divorce case can be very complicated and confusing without the help of an experienced divorce lawyer. One asset that is often overlooked by divorcing couples is employee stock options. Some employers will give employees stock options as part of their benefits package. While stock options are non-transferable, they may still marital assets subject to equitable division in a divorce.

In Colorado, vested stocks acquired during the marriage will be marital property subject to division in the divorce. Unvested stocks are handled differently in Colorado property divisions, depending on whether they are options or restricted stocks.

Getting a value on stock options and considering the value in the division of property can be extremely complicated. A number of factors go into evaluating stock options, and it usually takes the help of a financial expert to estimate a value. An experienced Colorado divorce attorney can help with handling stock options and other complex benefits in a divorce.

If you are going through a divorce and need to divide property such as stock options, the Denver divorce attorneys of Halligan LLC are ready to help. Call us now at (720) 608-2361 to schedule a consultation.

Difference Between “Vested” and “Unvested” Stock Options

With stock options, you are not yet getting actual shares of stock. Rather, you are getting the right to exercise, or buy, a set number of shares at a fixed price later on. You typically have to earn your options over time in a process known as “vesting.” You may only exercise vested stock options. Your rights become “vested” after you are eligible to exercise a stock option.

For example, let’s say you work at Company X, and you have been awarded stock options on 100 shares of Company X stock. Over the next five years, 20% of the options will vest each May 1. Therefore, on the next May 1, you will exercise the option and buy 20 shares at the specified price. A year later, another 20 shares will “vest.” Five years from now, you will be fully vested and can buy all 100 shares if you would like.

What Are Restricted Stock Units (RSUs)?

Restricted Stock Units (RSUs) are a kind of stock-based compensation for employees. Like stock options, RSUs are one of many ways that an employer can provide an employee with an opportunity to share in the company’s success. RSUs provide employees with the incentive to stay with the company (until the shares vest) and help it perform well so that their shares go up in value.

RSU shares are “restricted” because they are subject to a vesting schedule based on the length of certain employment goals. The shares may also be subject to limitations on the ability to sell or transfer shares. Unlike stock options, RSUs do not have monetary value until the employee’s vesting period has passed. The issue of asset splitting can be complex if you or your spouse have RSUs.

Addressing Restricted Stocks in Divorce

Unvested RSUs need to be considered in a divorce. Unvested RSUs must at least be addressed in the divorce paperwork, and RSU grants are considered to be “property” under divorce law. If not addressed in the appropriate paperwork, unvested RSUs may be considered as jointly owned.

Because RSUs are non-transferrable, the divorcing couple may agree to transfer a portion of the stock as the RSUs vest. Preparing a contract that accomplishes this and addresses the tax consequences requires skill and prior experience. To make sure this is done correctly, it’s highly advisable that you consult a divorce attorney who has experience in this area.

Dividing Stocks and Allocating Assets

You and your spouse have several options when it comes to splitting the stock shares you own together or the shares that one of you own but are considered joint marital property. Your options include:

Selling the Stocks

Selling then dividing the proceeds two ways may sound like the easiest solution. However, many people would prefer to hold on to their stocks in hopes they grow in value over time. Selling shares may also have tax consequences.

Splitting the Investments

Divorcing parties can split the stock holdings for a fair division. One can take all the stock in one company while the other takes stock of another company. You could also split the number of stock shares equitably. You could each take 500 of the 1,000 shares of stock that are marital property, for example, to ensure you both get your fair share based on the equitable distribution laws in Colorado. As with selling stocks, the division may have tax consequences.

Other Methods

In some cases, one party holds stock through their employer in their name, but it is considered marital property because it was acquired during the marriage. In this situation, you or your spouse may not want to liquidate the stock or give it away, especially if one of you is still with that employer. In this case, one of you may be able to pay cash value for the other’s share or offer them other assets. This method calls for you to place a value on the stock holdings, which may require the help of a financial expert.

Dividing Stock Options Is Complicated

Valuing and dividing stock options is more complex because stock options are an option to buy the stock at a certain price at a later date. While stock options may not have a clear current cash value, depending on the success of the company, the options could prove to be a fruitful investment years from now. This uncertainty makes it difficult to give the options a proper value. Stock options are sometimes non-transferable, so dividing them may not be feasible. If you have stock options, you will want a lawyer familiar with the Colorado case law on this topic and a financial expert to help calculate the value.

Contact Us Today

The skilled and compassionate Denver divorce attorneys at Halligan LLC have years of experience helping clients through property division that comes with a divorce. We know Colorado divorce law inside and out, and we know how to divide property, including stock options and employee benefits. Call us at (720) 608-2361 to schedule a consultation.