Preparing for Divorce Stock Options and Divorce

by Elliot D. Samuelson

Corporate executives contemplating or faced with divorce are beset with a myriad of financial problems. Not only must consideration be made with respect to the payment of maintenance (the former term for alimony) and child support, but perhaps the most difficult area, the valuation and division of marital assets which can include businesses, professional practices and the like. New York is not a community property state that simply makes an arithmetic distribution of assets. Rather, it is an equitable distribution state that places wide latitude in judges to make either equal or widely disparate divisions based upon the relative contribution of the parties.

High income wage earners must consider the valuation of options. A recent case by the state's highest court, the Court of Appeals, has held that stock options that have been granted to a spouse during marriage may be considered, under certain circumstances, marital property, subject to valuation and division upon divorce. Of course, separate property is not considered by the courts, so it becomes important to discern whether a stock option is considered marital or separate property. To that end, the Court of Appeals has held that if the stock option grant was made for past services performed, then the option would be considered marital property. Conversely, if the stock option was granted in order to induce the employee to remain in the service of the corporation in the future, then the option would be considered a separate asset. Many times stock option grants are made for both purposes so then it becomes necessary to parse out the separate from the marital asset to arrive at a value.
This case teaches us that it becomes vitally important to clearly delineate the purpose of the stock option grant. A corporate executive may receive far better treatment if management awards the stock options as an incentive to remain in employment rather than to reward a party for past services.

When business valuations are involved, it is exceedingly necessary to retain a team of attorneys who specialize in this area, together with forensic accountants who testify and are respected in the courts when fixing fair market business values. Valuations of businesses, professional practices and other marital assets vary greatly. Sometimes the better approach is to obtain the testimony of a business broker who is aware of the custom of the trade to fix the fair market value of a business rather than creating a formula based upon earnings and a consideration of profits. Of course, whether to do so depends upon whether you are seeking to fix a higher or lower value and upon which side of the fence you may then be sitting.
Divorce today is a very complex matter. No longer is fault an important facet of the courts. Rather, judges look to discern marital assets and then attempt to value and distribute them according to their sense of fairness. Of course, the role of an attorney often becomes most critical in the court making an assessment of what is the right and fair thing to do.

Elliot Samuelson is the senior partner in the Garden City matrimonial law firm of Samuelson Hause & Samuelson, LLP. Mr. Samuelson is included in "The Best Lawyers of America" and the "Bar Registry of Preeminent Lawyers in America" and has appeared on both national and regional television and radio programs, including Larry King Live. Mr. Samuelson can be reached at (516) 294-6666 or Saillex@aol.com.

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