There are almost limitless opportunities for investors of all types and budgets, and stock options are one option that enables you to derive value from the underlying asset at a later date. The basic definition of a stock option is a contract between the buyer and seller to complete a stock purchase transaction in the future at a designated price.
From the date of the contract to finalize the transaction, stock options have some qualities of property because there is value down the road. At the same time, before the option is exercised, the current value is fleeting.
When stock options are the subject of Illinois divorce, there can be complex questions about how state laws on property division apply. The details vary widely based upon the contract, especially when a stock option is linked to the employment of one of the parties. It is critical to retain a divorce lawyer in Chicago if you are faced with such complications, but a summary can help frame the relevant issues.
How Illinois’ Property Division Statute Applies to Stock Options
Illinois divorce laws are based upon the concept of equitable distribution, which essentially involves two steps:
- Classifying items as marital or separate, since only assets acquired after the marriage are subject to property division.
- Divvying up the property between the parties in a way that is fair and reasonable, even when the result is not an exact split.
To accomplish this process with respect to stock options, it will be necessary to establish the value. There are various methods for conducting valuation, so financial professionals will likely play a role. However, assuming the stock options are marital assets subject to equitable distribution and they carry a designated value, the next inquiry becomes how to divide them.
Strategies for Dividing Stock Options in Illinois Divorce
Illinois divorce laws encourage parties to agree on asset division, and the benefits include lower legal fees, fewer trips to court, and certainty. With many stock options, it makes sense for the contracting party to retain the property and make an adjustment to credit the other.
However, there is the possibility that the stock option may never be exercised, creating an imbalance in property division. In such a case, the owner of the option may agree to make a cash payment upon exercising it. Fortunately, this scenario dispenses with the need to get a current value of the stock option.
Note that, when the stock option is linked to one spouse’s employment, your strategies may be limited. Some stock options can be transferred pursuant to a divorce, but other options (ISOs) cannot. For non-transferable options, allocating each spouse’s marital interest is more complex, requiring the assistance of an attorney with experience with this type of property.
Trust a Divorce Lawyer in Chicago to Assist with Property Division
This information may not give you a definite answer on how stock options work in your divorce, but an experienced Chicago divorce attorney can explain the details. For more information on property division and related issues, please contact Michael C. Craven at (312) 621-5234. We can schedule a free consultation to review your circumstances.