Stock options are no longer reserved for only high-level
executives. Options are being offered to rank and file
employees with much greater frequency. Accordingly,
stock options have become increasingly valuable assets of
the marital estate. If spouses decide to divorce, those stock
options become a complex and often contentious aspect of
the division of the parties’ property.
Under Massachusetts law, stock options, both vested and
unvested, are marital assets which may be included when
dividing the marital estate in a divorce action. In Baccanti v.
Morton, 434 Mass. 787, 797 (2001), the Court explained:
The division of property incident to a divorce proceeding is
based on the principle that marriage is a partnership…. Assets
are assigned in order to recognize and recompense the parties’
contributions to the partnership…. The key question, then, in
assigning one spouse’s employee stock options is what, if any,
portion of the options is to be considered marital property and
what, if any, portion is to be considered nonmarital property
because the options relate to a period subsequent to the marriage.
In order to determine whether and to what extent stock
options may be included in the marital estate, a finding must
first be made as to whether the stock options were granted
for efforts expended before, during, or after the marriage.
Id. at 799. If the options were granted for efforts expended
before or during the marriage, the Baccanti Court concluded
that they should be included in the marital estate. Id. at n.7.
Stock options granted for efforts expended after the marriage
may still be included in the marital estate if the judge
concludes that such efforts were attributable to the marital
partnership. Id. By way of example, if the non-employee
spouse contributed to the employee spouse’s ability to achieve
the position for which the stock options were granted, those
options may be properly included in the marital estate even if
granted after the parties’ separation.
In making a finding whether the stock options were granted
for past, present, or future services, the Baccanti Court
suggested that judges look to:
- Testimony from the employee spouse;
- Testimony from the employer;
- Testimony from an expert witness, if available; and
- The employee’s stock option plan.
Judges may also consider whether the stock options were
“‘intended to (1) secure optimal tax treatment, (2) induce the
employee to accept employment, (3) induce the employee
to remain with the employer, (4) induce the employee to
leave his or her employment, (5) reward the employee for
completing a specific project or attaining a particular goal,
or be granted on a regular or irregular basis.’” Id. at 800
(citations omitted).
The spouse challenging the inclusion of the stock options in
the marital estate has the burden of proving the stock options
were granted for efforts expended after the dissolution of the
marriage. That spouse also has the burden of establishing
that the other did not contribute to the acquisition of the
options. Even if the spouse meets his burden, a judge may
still divide the stock options “if equity requires the options be
apportioned.” Id. at 801.
In short, the division of stock options in a divorce action is
often complex. As a result, individuals confronting this issue
should not do so alone. The attorneys in Fletcher, Tilton &
Whipple’s Family Law Department are experienced in all
aspects of matrimonial law and can navigate you through the
divorce process.
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