Quatela Chimeri, PLLC

The problem of dividing ESOPs in divorce

A standard part of compensation contracts today is the ESOP or employee stock option. To make employment and retention attractive, employees are offered shares of their company's common stock, for them to buy or sell at their option.

A benefit once offered only to top executives is now available to millions of employees at every level. About half of all companies offer stock option plans of one kind or another.

ESOPs, like all other assets, must be divided during divorce. The problem is obtaining a proper valuation of them, as the options may not have been exercised.

Stock options are distributed using one of two methodologies:

  • Deferred distribution upon exercise of options
  • Present valuation with off-set against other assets

Valuing ESOPs becomes more complex when certain conditions apply:

  • When shares of stock have been granted but not yet vested
  • When the individual stock is experiencing ups and downs, with value changing from day to day
  • When the general economy is experiencing similar turbulence
  • When the stock does not trade publicly and prices are kept close to the vest

Despite these fluctuations and uncertainties, an accurate valuation is still essential to a division that is acceptable to both sides in the divorce.

It is not a process to be trusted to ordinary divorce lawyers. You should choose an attorney with experience in the area. He or she may, in turn, rely on the appraisals of forensic accountants or tax specialists.

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