For executives, technology employees, and many professionals, a large share of the family's wealth is not in a bank account. It is in stock options, restricted stock units, and other equity awards, some of which have not vested yet and may never vest. These awards are harder to divide than almost any other asset because their value is uncertain, their terms are set by a company plan, and their tax treatment changes what they are really worth. Here is how Florida law approaches them in a divorce.
Why equity compensation is different
Equity compensation comes in several forms. Nonqualified stock options and incentive stock options give the employee the right to buy company stock at a set price. Restricted stock units are a promise to deliver shares, or their cash value, once vesting conditions are met. Restricted stock is stock granted up front that can be forfeited if conditions are not met. Performance shares and employee stock purchase plans add their own rules.
What these awards have in common is that their value depends on things nobody controls in the divorce: the company's stock price, whether the employee stays long enough to vest, and whether performance targets are hit. Most plans also restrict whether awards can be transferred to anyone else, which limits how they can be divided.
Are they marital? Florida's starting point
Florida Statute § 61.075(6)(a) defines marital assets to include assets acquired during the marriage, and it specifically includes vested and nonvested benefits, rights, and funds accrued during the marriage in deferred compensation and similar plans. Under Florida Statute § 61.075(8), assets acquired during the marriage are presumed marital unless shown to be nonmarital.
Awards that were granted and vested during the marriage are generally marital. The harder questions involve timing. An award granted during the marriage that vests after the cutoff date may be partly marital and partly nonmarital. An award granted before the marriage that vests during it raises the same question in reverse. Florida courts look at the facts of each grant, and a key question is what the award was meant to compensate: work performed during the marriage, or work the employee will perform after the divorce.
A grant made after the cutoff date under Florida Statute § 61.075(7) is generally not marital. But an award granted shortly after filing that rewards performance in the prior year may still be argued to reflect work done during the marriage.
Reading the grant documents
Because so much depends on the terms of each award, the plan documents and grant agreements are some of the most important records in the case. They are part of what both sides exchange through mandatory disclosure under Family Law Rule of Procedure 12.285 and discovery. The details that usually matter include:
- The grant date, and whether the grant was tied to hiring, retention, a promotion, or past performance
- The vesting schedule, and whether vesting depends on time, performance targets, or both
- The exercise price and expiration date for stock options
- What happens to unvested awards if the employee leaves, is terminated, or the company is sold
- Whether the plan allows transfer to a former spouse, and on what terms
- Any clawback, forfeiture, or noncompetition conditions attached to the award
Dividing awards that have not vested yet
When an unvested award is partly marital, the parties and the court need a way to measure the marital share. One approach often used is a time-based fraction. For each block of shares, the marital portion is the time from the grant date to the cutoff date, divided by the time from the grant date to the vesting date. The idea is that an award earned over time is marital to the extent that time fell within the marriage. Whether that approach fits a particular award depends on what the grant was for, and other methods may fit better.
There are then two broad ways to divide the marital share. In an immediate offset, the award is valued now and the non-employee spouse receives other assets of equal value. In a deferred division, the employee spouse holds the other spouse's share and delivers the proceeds if and when the award vests or is exercised. An immediate offset ends the financial connection between the spouses but requires a present value for something uncertain. A deferred division avoids guessing at value but keeps the spouses tied together, so the agreement or judgment must spell out timing, notice, who decides when to exercise, and who bears the tax.
Valuing options is its own problem. An option's value today is more than the simple difference between the stock price and the exercise price, because the option has time left to run. Valuation professionals use recognized option pricing methods to account for that, and the choice of method and assumptions can be disputed.
Taxes change the real value
Two awards with the same value on paper can be worth very different amounts after tax. Restricted stock units are generally taxed as ordinary income when they vest, and employers often withhold shares to cover the tax. Nonqualified stock options are generally taxed as ordinary income when they are exercised. Incentive stock options carry special federal tax treatment and generally cannot be transferred to another person, so dividing them usually means the employee spouse holds and exercises them for the other spouse's benefit.
Federal tax rules also address who reports the income when equity awards are divided between spouses as part of a divorce, and the answer depends on the type of award and how the division is structured. Florida has no state personal income tax, but federal taxes alone can change the comparison significantly. Talk to your tax adviser before agreeing to how equity awards will be divided.
Equity compensation and support
Equity awards can affect support as well as property. Florida Statute § 61.08(3) directs the court to consider each party's financial resources, including income generated from marital and nonmarital assets, and child support under Florida Statute § 61.30 depends on income. When vested equity or its proceeds is counted as income for support, the same value generally should not also be counted as a divided asset. Courts watch for counting the same money twice, and how equity is treated in one part of the case should be consistent with the other.
Protecting the value while the case is pending
Equity awards need attention from the start of the case. Options can expire, and unvested awards can be forfeited if the employee changes jobs. Exercising, selling, or letting awards lapse without agreement can be challenged, and Florida Statute § 61.075(1)(i) lets the court consider the intentional dissipation, waste, or depletion of marital assets after the petition is filed or within 2 years before it was filed. When an exercise or expiration date falls during the case, the spouses and their lawyers can address it by agreement or ask the court for direction.
Reyes Miller Law Group represents executives, professionals, and their spouses in Florida divorces involving stock options, restricted stock, and other equity compensation, from offices in Coral Gables and Boca Raton. A free consultation is available to review your awards and how Florida law applies to them.
Questions about your own case?
Yvette B. Reyes, Esq. offers a free first consultation, in English or Spanish, for families in Palm Beach, Miami-Dade, Broward, Monroe, Orange, Hillsborough and Leon counties.
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This article is general information about Florida law, not legal advice about your situation, and reading it does not create an attorney-client relationship. Florida law changes, and every case turns on its own facts. Full disclaimer.
