Many times, employers will give their employees the right to buy their employer’s stock for a set price at a future date and for a specified time, commonly known as stock options. Unlike the RSUs, the shares are not actually given to the employee. The employee merely has the right to purchase the company’s shares. For example, if the spouse’s employer grants the employee the right to buy the company shares for $5.00 a share and the employee buys the shares, holds onto them, and then at a later date, the shares are worth $50.00 each, the employee could potentially sell each share and make a $45.00 gain for each share the employee purchased at $5.00 a share.
At the time of divorce, a value is assigned to the stock options awarded to the employee spouse. Before a value can be assigned, one must first determine which portion of the stock options is community property (property subject to division at time of divorce) and which portion of any stock option is separate property (property not subject to division at the time of divorce). In order to determine which portion is community property and which portion is separate property of the stock options, the Texas Family Code Section 3.007 (d) – (e) provides a formula specifying a numerator and a denominator. The formula is lengthy; therefore, it will not be included in this summary. Generally speaking, the longer the time required before the employee spouse has the right to purchase the stock (this is when the stock options vest to the employee), the greater the portion of stock options are separate property. After determining the community property portion and the separate property potion, a value must be assigned to the options. Due to the complexity of the formula, Christine will usually hire a CPA familiar with divorce laws and calculating the value of restricted stock and stock options for divorce purposes.