Divorce Magazine Article
by Danyel Thomson
March 11, 2005

Question: My spouse has stock options at his work; are those considered an asset to be divided during our divorce?

The State of New Jersey views marriage as a shared enterprise or joint undertaking, which is much like a partnership.  Thus, any property acquired from the date of the marriage until the date that the divorce complaint is filed is considered marital property subject to equitable distribution.  Stock options certainly fall into the category of assets subject to be divided between you and your spouse during a divorce so long as they were either: (1) awarded prior to the filing of the divorce complaint; or (2) awarded as deferred compensation for past services. 

As to stock options awarded after the filing of the divorce complaint, the court focuses on whether the options were awarded as a result of the joint efforts of the parties during the marriage.  If it is determined that joint efforts led to the award, then they are considered assets subject to equitable distribution.  Otherwise, the options are the personal property of the person who received them.  The New Jersey Supreme Court’s reasoning behind this rule is to prevent the mischief that may arise since a spouse contemplating divorce might file the complaint just before he/she is expecting to receive a bonus or commission. 

As an example, in one New Jersey case the wife was granted two options 10 days after she filed the divorce complaint.  One option was for 1,800 shares and the other was for 4,000 shares.  The wife argued that the options should not have been included in the assets to be equitably distributed.  The Court focused on whether the nature of the asset is one that is the result of the spouses’ joint efforts during the marriage and decided that both grants should be included in the assets that were subject to equitable distribution.  The Court reasoned that even though the option for 4,000 shares was in recognition of the wife’s promotion and would require increased future responsibility, the wife’s promotion resulted from her stellar job performance during the marriage.  Thus, the Court decided that the husband in that case was like a spouse who assumes responsibility for the domestic duties while the other rises to the top of a company; by fulfilling his role as husband and father, he contributed to the wife’s success, which led to her promotion.  Since the options were awarded due to efforts expended during the marriage, both sets of options were subject to equitable distribution.

Once it is determined that the stock options are subject to equitable distribution, how they will be distributed must be decided.  For example, if the actual transfer of the options or exercise and transfer of the stock is not possible, profitable, or convenient, the use of a trust device may be appropriate.  In one New Jersey case, the court awarded the wife a 25% ownership in the husband’s stock options and imposed a constructive trust in the wife’s favor naming the husband as trustee.  As the trustee, the husband exercised the wife’s share of the options at her discretion and cost. 

In conclusion, as long as the options were awarded prior to the filing of the divorce complaint or awarded as deferred compensation for past services, they are in the so-called “marital pot” to be distributed in an equitable manner.

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