A recent study revealed Indiana has one of the highest divorce rates in the country, ranking 10th among all states. While divorce is never easy, a high-asset divorce can certainly complicate things. Even if only one spouse is the income earner, the other spouse must understand how all assets may be treated in divorce.
Why higher assets make divorce more complex
The rules that govern high-asset divorce are state-specific and can vary. However, when it comes down to it, divorce is divorce, and most assets are treated the same during division. However, the more complicated the finances are, the more difficult it can be to apply the law of division. This can certainly be true when couples have stock options.
Stock options and divorce
Stock options allow an employee of a company to purchase a set number of shares at a specific price. For example, an employee may be given stock options to purchase up to 50 shares of the company’s stock at $50. The employee will have a certain amount of time to purchase the stock, and when they do, the purchase price would be $50 a share no matter when the stock is purchased. Therefore, if the stock is now worth $100, the employee will gain a value of $50 per share.
The issue with stock options is they cannot be transferred to another person. This includes transferring to a spouse in a large-asset divorce. To protect the assets of both spouses, the stock options would have to be transferred into a trust owned by the employee spouse for the benefit of the non-employee spouse.
Additionally, the divorce settlement agreement should define who will pay the taxes when the stock options are exercised. Without this direction, one spouse could end up paying more than their fair share of taxes on the income.