Opções de ações divórcio massachusetts

Massachusetts, Greater Boston advogado de divórcio, advogado da família & amp; mediador do divórcio, Marion Lee Wasserman. Liga hoje!
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OPÇÕES DE AÇÕES E DIVÓRCIO EM MASSACHUSETTS.
Uma versão deste artigo foi publicada na edição trimestral da mediação familiar do Conselho de Massachusetts sobre Family Mediation, edição de verão de 2009.
Suponha que você tenha um amigo passando por um divórcio em Massachusetts após se casar por vinte anos. Seu amigo tem opções de ações acumuladas durante os últimos dez anos de seu casamento, e ele diz que espera mantê-las fora da divisão de propriedades. Por um lado, seu plano de opções de ações indica que as opções são intransferíveis. Por outro lado, suas opções não valem muito hoje, mas ele prevê que elas cresçam significativamente em valor após o divórcio. Além disso, um terço das opções ainda não foram adquiridas. Seu amigo trabalhou duro em seu trabalho, e ele diz que suas opções são uma recompensa por seu trabalho duro. Ele associa suas opções com tudo o que ama sobre seu trabalho e seu empregador de longo prazo. Você ouve, mas lembra que, no seu divórcio em Massachusetts, também tinha opções de ações, e elas eram tratadas como bens conjugais sujeitos a divisão, juntamente com a casa e as contas de investimento. E até mesmo aquelas opções que não seriam adquiridas até depois do divórcio foram tratadas dessa maneira. Eles deveriam ter sido?
Sob a lei de divórcio de Massachusetts, as opções de ações são, de um modo geral, tratadas como bens conjugais, sejam elas adquiridas ou não antes do divórcio. No caso chave sobre este assunto, o Supremo Tribunal Judicial de Massachusetts declarou que, embora o estatuto de Massachusetts que rege a divisão de propriedades após o divórcio (Leis Gerais c. 208, § 34) não menciona expressamente as opções de ações, a linguagem no estatuto que a propriedade de uma party & # 8216; estate & # 8217; inclui & # 8216; todos os benefícios, direitos e fundos adquiridos e não investidos & # 8217; indica claramente que as opções de ações adquiridas e não investidas podem ser tratadas como ativos conjugais. & # 8221; Baccanti v. Morton, 434 Mass. 787, 794-795 (2001). Em relação às opções não investidas, a opinião do Baccanti aponta que assim como os benefícios de aposentadoria não utilizados são ativos que podem ser tratados como parte do patrimônio conjugal, as opções de ações não investidas são ativos que podem ser tratados como parte do patrimônio marital.
A opinião do Baccanti reconhece a natureza especial das opções de ações & # 8212; em particular, o valor incerto das opções não utilizadas. O vesting das opções pode ser dependente do emprego continuado. Além disso, o valor da ação quando o colete de opções pode ser menor que o preço no qual as opções podem ser exercidas. Mas Baccanti deixa claro que qualquer incerteza em valor não é um impedimento para dividir o incidente da propriedade com o divórcio. Em vez de determinar um valor presente para as opções, é possível que as opções sejam distribuídas entre as partes como parte da divisão de propriedades. Então, à medida que as opções forem exercidas e forem exercidas, as partes compartilharão os recursos de uma venda das opções, de acordo com o rateio predeterminado (50-50 ou de acordo com outro índice especificado). Isto se e quando for recebido & # 8221; abordagem é considerada aceitável pelo Tribunal em Baccanti. Para prever a possibilidade de o cônjuge empregado poder optar por não exercer as opções quando elas se aplicam, ou optar por não vender as ações quando o cônjuge não empregado preferir, o cônjuge não empregado pode receber o poder de exercer as opções atribuídas a ele, agindo através do cônjuge empregado; Da mesma forma, o cônjuge não empregado pode ter o poder de vender suas ações por meio do cônjuge empregado. (Se o plano de opção de compra de ações permitir que as opções sejam assinadas para o cônjuge não empregado no momento do divórcio, o cônjuge não-funcionário pode atuar diretamente e não através do cônjuge empregado.) Cada parte pode ser responsabilizada pelo cônjuge não empregado. conseqüências fiscais resultantes da venda de suas ações.
Com relação às opções de ações não investidas, a figura acima é complicada por um elemento adicional discutido na opinião do Baccanti. Se o cônjuge empregado puder provar que as opções foram concedidas para serviço futuro (isto é, serviço a ser executado após o casamento terminar), e se o cônjuge empregado puder provar que o cônjuge não empregado não contribuiu para a capacidade do cônjuge empregado de adquirir as opções não investidas, & # 8221; então um juiz pode decidir, à luz de todos os fatores sob as Leis Gerais c. 208, § 34, que uma parte das opções não investidas não deve ser incluída no estado civil. O ônus da prova está no cônjuge empregado. Se o ônus for cumprido, o juiz tem autoridade para determinar que parte das opções não investidas deve ser omitida da divisão de propriedades e qual parte deve ser incluída no estado civil; e, com relação à última parte, qual é a divisão apropriada. A opinião do Baccanti estabelece uma chamada "regra do tempo" & # 8221; como um meio eficaz e direto & # 8221; determinar qual parte das opções não investidas omitir do estado civil nestes casos. Os juízes têm o poder de modificar a regra do tempo de Baccanti ou usar outra abordagem que alcance uma divisão equitativa.
A regra de tempo Baccanti funciona assim: O número de ações não investidas de opções de ações é multiplicado por uma fração cujo numerador representa o período de tempo que o empregado possuía as opções antes da dissolução do casamento (ou seja, a duração do tempo que o empregado possuía as opções antes e durante o casamento), e cujo denominador representa o tempo entre a data em que as opções foram emitidas e a data em que elas estão programadas para serem adquiridas. O produto resultante é o número de ações sujeitas a divisão. & # 8221; Isso parece confuso, mas quando a fórmula é aplicada a um conjunto de fatos em um caso específico, na verdade é bastante simples.
Embora a parte da discussão acima relativa ao ónus da prova se aplique apenas aos divórcios litigados, consideração das questões subjacentes & # 8212; ou seja, por que as opções não investidas foram concedidas e o que o cônjuge não empregado contribuiu para a aquisição das opções & # 8212; pode ser importante em divórcios não contestados também. Os mediadores e advogados colaborativos não devem negligenciar essa parte da opinião do Baccanti.
Toda a análise Baccanti, incluindo a regra do tempo, estabelece o contexto para lidar com opções de ações e divórcio em Massachusetts, independentemente de o divórcio ser ou não contestado. Nos casos em que as partes são capazes de cooperar, incluindo divórcios mediados, o Baccanti fornece orientação essencial para alcançar uma resolução justa e razoável do problema das opções de ações.
¹ A opinião de Baccanti, na nota de rodapé número 10, fornece o seguinte exemplo de como aplicar a regra de tempo: & # 8220; & # 8230; Nossa hipótese é que um empregado recebeu cem ações de opções de ações não investidas; que foram emitidos três anos antes da dissolução do casamento do empregado; e que eles serão investidos dois anos após a dissolução do casamento. O tempo que o empregado possuía as opções antes da dissolução do casamento seria de três anos, e o tempo entre a data da emissão das opções e a data em que o colete seria de cinco anos (três anos antes da dissolução mais dois anos depois). A parte das opções que poderiam ser incluídas no estado civil seria de três quintos. As cem ações são multiplicadas por três quintos, o que equivale a sessenta. Portanto, sessenta das cem ações de opções de ações não investidas podem estar sujeitas à divisão entre os cônjuges. O juiz então faria uma designação dessas sessenta ações de opções de ações de acordo com G. L. c. 208, § 34. As quarenta ações restantes não seriam incluídas no estado civil e, portanto, pertenceriam unicamente ao cônjuge empregado. & # 8221;
Copyright © 2009-2011 Marion Lee Wasserman. Todos os direitos reservados.
O artigo acima é fornecido para fins informativos gerais. Este artigo baseia-se na jurisprudência de Massachusetts e aplica-se apenas aos divórcios de Massachusetts. Além disso, não se destina a aplicar-se a quaisquer fatos ou circunstâncias específicas e não deve ser interpretado ou aplicado como aconselhamento jurídico ou parecer jurídico ou como aconselhamento fiscal ou como estabelecimento de uma relação advogado-cliente.
Categorias.
Pensão alimentícia (3) Custódia da criança (3) Suporte à criança (1) Suporte à criança Modificações (1) Custódia (1) Divórcio Mediação (7) Processo de divórcio em Massachusetts (4) Declaração de divórcio (3) Jurisdição (1) Acordos matrimoniais (1) ) Mediação Conjugal (2) Fundamentos de Mediação (3) Planos de Parenting (3) Acordos pós-nupciais (1) Acordos pré-nupciais (2) Divisão de Propriedade (3) Religião e divórcio (2) Divórcio do mesmo sexo (3) Casamento entre pessoas do mesmo sexo ) Pais do mesmo sexo (2) Acordos de Separação (4) Resolução de Disputas (2) Stock Options & amp; Divórcio (1)
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São opções de ações e renda RSUs ou ativos em um divórcio MA?
O advogado de divórcio de Massachusetts, Jason V. Owens, analisa um recente caso no Tribunal de Apelações que apresenta opções de ações e RSUs como renda e ativos.
Um parecer do Tribunal de Apelação de Massachusetts no caso de Ludwig v. Lamee-Ludwig (2017) forneceu orientações importantes sobre o tratamento de opções de ações em casos de divórcio em Massachusetts. A decisão esclarece e aplica o chamado "método Baccanti". ou "Baccanti Formula & rdquo; pela divisão de opções de ações não investidas em função da cisão de ativos em divórcio, e estabelece que as opções de ações não-investidas (ou RSUs) que não sejam divididas como ativos devem ser contabilizadas como receita para fins de cálculo da pensão alimentícia. A opinião bem escrita oferece muita clareza necessária em uma área da lei de Massachusetts que tem atormentado cada vez mais juízes, advogados e litigantes de divórcio.
As opções de compra de ações, e seus primos intimamente relacionados, unidades de estoque restritas (RSUs), têm crescido em popularidade nas últimas três décadas como um método de compensação para profissionais altamente qualificados e gerentes corporativos. De muitas maneiras, as RSUs suplantaram as opções de ações como o “quase-bônus”. compensação de escolha para empresas de capital aberto e seus funcionários. Neste blog, vou comparar RSUs e opções de ações, como tribunais de Massachusetts historicamente dividiram RSUs e opções de ações não investidas, e como o caso Ludwig atualiza e esclarece como opções de ações e RSUs são tratadas em um divórcio em Massachusetts.
Índice para este Blog.
Uma breve visão geral das opções de ações: como elas funcionam Como funcionam as RSUs? Como opções de ações, apenas opções de ações mais previsíveis e RSUs em casos de divórcio: eles merecem o mesmo tratamento? Parentes Exóticos: a Equity Compensation Alphabet Soup Dividindo Unvested Stock Options e RSUs como Ativos em Casos de Divórcio: o Baccanti Formula DIY Baccanti: Use Nossa Planilha para Calcular Baccanti Você Mesmo Tratando RSUs Não Utilizados e Opções de Ações como Fonte de Renda para o Pagamento de Pensão Alimentar ou Apoio à Criança em Massachusetts Ludwig v. Lamee-Ludwig: as opções de ações não investidas ou RSUs que não são divididos como ativos sob o Baccanti são uma fonte de renda para o cálculo de pensão alimentícia ou pensão alimentícia? Uma nota final sobre o Ludwig v. Lamee-Ludwig Audição & rdquo; On Representation & rdquo;
Uma breve visão geral das opções de ações: como elas funcionam.
As opções de ações eram uma forma popular de compensação nos anos 80 e 90, porque criaram um método claro para as empresas compensarem seus funcionários com base no desempenho das ações da empresa. No entanto, as opções de ações sofrem de várias limitações. A primeira dessas limitações é o fato de que as opções de ações só pagam ao empregado se o valor das ações da empresa aumentar; se o preço da ação diminuir, a opção de ações não valerá nada. Em uma economia globalizada, essa limitação deixou a fortuna financeira dos empregados com opções de compra de ações à mercê da Média Industrial Dow Jones.
Ao contrário das RSUs, um funcionário que "vende" suas opções de ações não recebem o preço total da ação na venda. Por exemplo, se um indivíduo receber 500 opções de ações com um período de carência de 3 anos, isso significa que, após 3 anos, o portador poderá "vender". O estoque. O produto da venda é limitado ao aumento do valor do estoque ao longo dos três anos (ou seja, a diferença no valor entre o estoque no dia 1 e o valor no final do ano 3). Se o preço das ações da ação for menor no Ano 3 do que no Dia 1, as opções de ações serão efetivamente inúteis. No entanto, a maioria dos funcionários pode manter suas opções de ações entre 7 e 10 anos (contanto que permaneçam funcionários da empresa), portanto, uma opção de ações que é inútil no Ano 3 pode se recuperar e ter valor mais tarde.
Opções de ações são uma sacola para os empregadores, não apenas funcionários. Porque o funcionário tem a opção & ldquo; & rdquo; de manter ou vender o instrumento por muitos anos, as empresas cujo preço da ação cai podem ter um problema secundário: de repente, os funcionários estão vendendo milhares de opções de ações, o que pode agravar quaisquer problemas que causaram a queda do preço. Além disso, como os funcionários tendem a estocar suas opções de ações ao longo de muitos anos, os empregadores enfrentam situações em que os funcionários que saem da empresa ganham centenas de milhares de dólares em opções de ações de uma só vez. Isso pode criar problemas de fluxo de caixa mesmo para grandes empresas.
Como funcionam as RSUs? Como opções de ações, apenas mais previsível.
Cerca de uma década atrás, as RSUs começaram a suplantar opções de ações como uma forma popular de compensação corporativa. As RSUs possuem várias vantagens sobre as opções de ações, devido principalmente à simplicidade do RSU em comparação com as opções de ações. Um funcionário que é premiado com um RSU detém uma participação real na empresa. Se as ações da empresa estiverem sendo negociadas a US $ 65 por ação, o RSU que o empregado detém vale US $ 65. A única limitação no RSU é a temporização: a maioria das RSUs se apropria automaticamente e paga em um cronograma fixo de 1 a 5 anos. Quando a data de aquisição chega, o RSU automaticamente "vende", e o empregado recebe o preço total da ação para quantas RSUs não utilizadas ele ou ela possuía.
Para os funcionários, as RSUs são muito superiores às opções de ações porque o valor da retenção, mesmo que o preço das ações da empresa caia. Por exemplo, se o funcionário receber 100 RSUs quando as ações da empresa estiverem avaliadas em US $ 65 por ação e o preço cair para US $ 55 por ação nos próximos três anos, o funcionário ainda receberá US $ 5500 quando as RSUs forem adquiridas. Se o preço da ação aumentar, o pagamento da RSU aumenta, o que beneficia o empregador & ndash; amarrando a remuneração do empregado ao sucesso global da empresa. O cronograma de pagamento altamente previsível para RSUs é uma benção para funcionários e empregadores. O funcionário sabe quando receberá o pagamento da RSU e não ficará na difícil posição de decidir se deve ou não “vender”. suas opções de ações ao preço atual. Enquanto isso, o empregador evita funcionários "sell-offs & rdquo; quando o preço das ações cai, bem como grandes pagamentos para funcionários de longa data que acumularam opções de ações.
Talvez o maior benefício para pagar seus funcionários por meio de RSUs seja o benefício de retenção de funcionários. Um funcionário só recebe sua compensação de RSU se ele ou ela é um funcionário da empresa no momento em que as RSUs são adquiridas. Se você sair da sua empresa, você desiste de todos os seus RSUs não investidos. Ao contrário de um bônus em dinheiro, que é pago integralmente a um funcionário, os prêmios de RSU permitem que as empresas recompensem os funcionários em destaque por meio das chamadas “algemas de ouro”. & ndash; o funcionário deve permanecer na empresa para colher os benefícios do pacote de remuneração.
Uma nota final sobre opções de ações e RSUs: ao contrário de uma venda de ações privada, os pagamentos de opções de ações e RSUs são tratados como renda W-2 tributável para o empregado no ano em que são pagos. Se um funcionário receber pagamentos de US $ 100.000 de RSUs ou de opções de ações em 2016, seu W-2 para o ano mostrará os US $ 100.000 como receita ordinária de emprego, assim como um bônus em dinheiro. O tratamento do RSU e da opção de compra de ações como receita ordinária no ano recebido tem um impacto significativo nos casos de divórcio em que um cônjuge recebe RSUs ou opções de ações.
Opções de ações e RSUs em casos de divórcio: eles merecem o mesmo tratamento?
Como as opções de ações têm sido populares por mais tempo do que as RSUs, a maioria da jurisprudência que trata da remuneração baseada em ações concentra-se em opções de ações em vez de RSUs. Em Hoegen v Hoegen (2016), no entanto, o Tribunal de Recursos aplicou grande parte do raciocínio de Wooters v. Wooters (2009), lidando exclusivamente com opções de ações, a um caso envolvendo RSUs. Nós escrevemos sobre Hoegen na época, observando que o Tribunal de Apelações considerou que os pagamentos de RSUs, como opções de ações, são uma fonte de renda para fins de suporte. Na decisão de 2014 não publicada, Brookes v. Brookes (2014), o Tribunal de Apelações caracterizou RSUs como sendo parte da mesma família de “ações, bônus e contingências”. que incluíram opções de ações em casos anteriores.
Do ponto de vista do divórcio, opções de ações e RSUs são bastante semelhantes. Cada forma de compensação tem um período de carência, e cada um paga a um empregado como renda W-2 tributável. De fato, de certa forma, as RSUs são significativamente mais fáceis de explicar em um divórcio; Ao contrário das opções de ações, que um cônjuge pode economizar e acumular ao longo do tempo, a maioria das RSUs paga automaticamente com base em um cronograma fixo. Indiscutivelmente, o fato de RSUs representar um pagamento garantido que é contingente apenas com o emprego continuado do cônjuge faz com que as RSUs sejam um ativo mais confiável. do que opções de ações, que exigem um ganho no preço das ações para ter valor. No entanto, as RSUs também costumam ter uma vida útil mais curta do que as opções de ações, tornando-as mais semelhantes, em alguns aspectos, a bônus em dinheiro do que uma opção de ações, o que parece mais um investimento de longo prazo.
Em qualquer caso, nada na jurisprudência de Massachusetts sugere que as RSUs devam ser tratadas de forma diferente das opções de ações em um processo de divórcio, dado o propósito geralmente geral, o tempo, as condições e o tratamento fiscal dos pagamentos de cada instrumento.
Parentes Exotic: a sopa do alfabeto da compensação da equidade.
Opções de ações e RSUs não são as únicas formas de compensação de capital lá fora para empregados com alto rendimento. Funcionários corporativos recebem uma sopa inteira de instrumentos de compensação:
Opções de estoque não estatutárias (ou não qualificadas) ("NSOs" ou "NQOs" ou "NSSOs") Opções de ações de incentivo ("ISOs") Prêmios de ações restritas ("RSAs") Direitos de valorização de estoque ("SARs") Unidades de desempenho de compartilhamentos de desempenho (& ldquo; PSUs & rdquo;)
Enquanto cada forma de compensação de capital inclui diferentes detalhes e gatilhos, a maioria é tratada de forma semelhante às opções de ações e RSUs em um divórcio, sujeito a várias exceções.
Dividindo Unvested Stock Options e RSUs como Ativos em Casos de Divórcio: a Fórmula Baccanti.
A natureza demorada de opções de ações e RSUs torna-os um assunto complexo em casos de divórcio. Por mais de uma década, uma questão girou em torno de opções de ações não investidas e RSUs: esses instrumentos devem ser tratados como ativos, sujeitos a divisão ou como fonte de renda futura, a partir dos quais pensão alimentícia ou pensão alimentícia podem ser pagos. O resultado desta questão é importante. Se um RSU não investido for tratado como um ativo, o outro cônjuge tem um forte argumento de que ele ou ela deve receber 50% do valor do RSU na divisão de ativos. Se a RSU não arrecadada for tratada como uma fonte de renda futura, o outro cônjuge provavelmente terá direito a uma parcela substancialmente menor (ou seja, entre 15% e 35%) na forma de pensão alimentícia futura ou pensão alimentícia.
Como o advogado Lynch escreveu em seu blog Hoegen:
A decisão de Hoegen aborda se as RSUs devem ser tratadas como receita em uma ação de modificação. E quanto ao tempo do divórcio? As RSUs não utilizadas pagas a um cônjuge durante o casamento devem ser tratadas como bens, sujeitos a divisão ou renda a partir da qual pensão futura ou pensão alimentícia podem ser pagas? Os tribunais de Massachusetts têm lutado com essa questão espinhosa por mais de uma década.
Em 2001, o Supremo Judicial respondeu parcialmente a estas questões em Baccanti v. Morton (2001). Em Baccanti, o Tribunal considerou que as opções de ações não investidas podem ser divididas como ativos em um divórcio. No entanto, o SJC reconheceu que pode ser injusto tratar as opções de ações não investidas recebidas pouco antes de o divórcio se tornar definitivo como ativos, onde o cônjuge empregado precisaria trabalhar um período adicional de anos antes que ele ou ela pudesse cobrar as opções de ações não investidas. Para resolver esta preocupação, o Tribunal anunciou a chamada "fórmula Baccanti".
A fórmula de Baccanti envolve o tipo de equação matemática que é relativamente fácil de executar, mas pode ser difícil de explicar em linguagem simples. A premissa básica é mais ou menos assim: se as opções de ações não casadas do cônjuge estiverem na metade do período de carência no momento do divórcio, então, metade das opções de ações não investidas deve ser dividida. Se as opções de ações são um quarto do caminho para o vesting no momento do divórcio, então um quarto das opções de ações deve ser dividido. Se o período de aquisição estiver 98% concluído, 98% das opções de ações deverão ser divididas, etc.
A Tabela abaixo ilustra a fórmula de Baccanti em ação. Na Tabela, vemos três prêmios de ações, cada um com um período de carência de 5 anos:
A fórmula de Baccanti & rdquo; fornece um método para dividir opções de ações e unidades de estoque restritas (RSUs) de acordo com a divisão de ativos em um divórcio em Massachusetts.
Stock Award 1 foi premiado há 1 ano, o que significa que serão mais 4 anos antes do colete de ações. Assim, podemos dizer que o Stock Award 1 é 20% investido. Stock Award 2 (100 ações) foi premiado há 3 anos, o que significa que serão mais 2 anos antes do colete de ações. Assim, podemos dizer que o Stock Award 2 é 60% investido. Stock Award 3 (150 ações) foi premiado há 4 anos, o que significa que será mais um ano antes do colete de ações. Assim, podemos dizer que o Stock Award 3 é 80% investido.
Sob a fórmula de Baccanti, a porcentagem de estoque mostrada na tabela que será dividida como um ativo é a seguinte:
Prêmio de ações 1 & ndash; 50 ações x 20% = 10 ações divididas 50/50 Stock Award 2 & ndash; 100 ações x 60% = 60 ações divididas 50/50 Stock Award 3 & ndash; 150 ações x 80% = 120 ações divididas 50/50.
Assim, de um total de 300 ações, 190 ações serão divididas como um ativo. Assumindo uma divisão 50/50, isso significa que o cônjuge não empregado receberá 95 ações, enquanto o cônjuge empregado reterá as 205 ações restantes.
Baccanti DIY: Use nossa planilha para calcular Baccanti Yourself.
Tem um cronograma de aquisição de opções de ações, RSUs, RSAs, PSUs ou compensação de ações semelhantes para funcionários? Aplique a fórmula de Baccanti usando nosso formulário: FORM.
(OBSERVAÇÃO: para usar o formulário: (1.) clique no canto superior direito do gráfico para abrir a visualização no Planilhas Google, (2.) clique em & ldquo; Abrir no Planilhas Google & rdquo; na parte superior da próxima página, (3.) Insira os dados em Campos VERMELHOS para Data de Concessão (Coluna B), Data de Coleta (Coluna C), Data Estimada de Divórcio (Coluna D) e Total de Acções (Coluna I) para cada Prêmio. Calcule até 5 Prêmios de Ações de uma só vez. (4.) Nossa Planilha irá calcular o número de ações a serem divididas usando a Fórmula Baccanti, com resultado em AZUL. Por favor, esteja certo que fazer este formulário funcionar em seu navegador / dispositivo pode exigir algum conhecimento técnico.)
Tratar RSUs e opções de compra de ações como fonte de renda para pagamento de pensão alimentícia ou pensão alimentícia em Massachusetts.
em Wooters v. Wooters (2009), o Tribunal de Apelações de Massachusetts considerou que as opções de ações do ex-marido eram receitas para fins de cálculo da pensão alimentícia após as partes. divórcio:
O sentido geral determina que a renda obtida com o exercício das opções de ações deve ser tratada como renda bruta de emprego: é comumente definida como parte do pacote de remuneração de um, e está listada nos formulários W-2 e é tributável ao longo do tempo. com a outra renda. & hellip; Se as opções de ações exercidas não fossem consideradas renda para fins de pensão alimentícia, uma pessoa poderia potencialmente evitar suas obrigações simplesmente escolhendo ser compensada em opções de ações em vez de por um salário. & hellip ;. Em suma, concluímos que as opções de ações exercidas pelo marido são parte de sua renda anual bruta de trabalho.
Embora a Corte Wooters claramente tenha defendido que opções de ações (e provavelmente RSUs) podem ser tratadas como fonte de renda para fins de pensão alimentícia, é importante reconhecer que Wooters lidou com opções de ações que foram exercidas pelo ex-marido em 2006, mais de oito anos depois que as partes se divorciaram em 1994. Em outras palavras, o dinheiro das ações recebidas pelo Marido em Wooters veio muitos anos após o divórcio.
Ludwig v. Lamee-Ludwig: são opções de ações não investidas ou RSUs que não são divididos como ativos sob o Baccanti uma fonte de renda para cálculo de pensão alimentícia ou pensão alimentícia?
Em Ludwig v. Lamee-Ludwig (2017), a Corte de Apelações proferiu uma opinião judicial lúcida e bem escrita que combina o raciocínio de Baccanti e Wooters para fornecer um caminho claro para os casos de divórcio envolvendo opções de ações e RSUs em Massachusetts. O Tribunal afirmou a sentença de primeira instância proferida por Hon. John D. Casey do Probate de Norfolk e do Tribunal de Família em todos os aspectos. A decisão de Ludwig estabelece várias orientações claras para os tribunais RSUs de revisão em divórcios em avanço:
A data de cálculo sob a fórmula de Baccanti é a data do divórcio. Em Ludwig, o Marido argumentou que a data da separação das partes & ndash; e não a data do divórcio & ndash; deve ser usado para calcular a parcela de cada parte das opções de ações não investidas no Baccanti. O Tribunal rejeitou este argumento, mantendo a decisão do tribunal inferior de aplicar a fórmula de Baccanti a partir da data do divórcio. Esta parte da decisão foi especialmente importante, onde mover a data de avaliação para trás até a data da separação ou serviço da Reclamação para o Divórcio teria encorajado os cônjuges a adiar o divórcio a fim de excluir uma parcela maior das opções de ações não utilizadas da divisão. de ativos. Ao fixar a data de avaliação até a data do divórcio, a Corte de Apelações trouxe muita clareza para uma questão que muitas vezes frustra a liquidação em casos envolvendo RSUs e opções de ações. Opções de Ações Excluídas da Divisão sob a Fórmula Baccanti são Receitas Futuras para Pagamento de pensão alimentícia ou pensão alimentícia. Em nosso exemplo da fórmula de Baccanti acima, 190 de 300 ações possíveis estão sujeitas a divisão. Consequentemente, isso significa que 110 ações foram excluídas da divisão em nosso exemplo. Sob Ludwig, as 110 ações que foram excluídas da divisão podem ser tratadas como uma fonte de renda futura para o pagamento de pensão alimentícia ou pensão alimentícia. O Tribunal de Apelações rejeitou o argumento do marido de que tratar essas ações indivisíveis e não investidas como renda para fins de apoio constituía “duplo-mergulho”. Quando as ações foram excluídas da divisão por meio da fórmula Baccanti, a Corte argumentou que não havia “double-dipping & rdquo; em que as ações foram divididas como um ativo e usado uma fonte de renda para suporte.
Uma nota final sobre o Ludwig v. Lamee-Ludwig Audição & rdquo; On Representation & rdquo;
Eu seria negligente se não incluísse uma nota final sobre a audiência única que levou à decisão em Ludwig v. Lamee-Ludwig. De acordo com o Tribunal de Apelações, as partes entraram em um acordo de separação em que concordaram com todas as questões em seu divórcio, exceto por duas questões:
Se as opções de ações não investidas que foram excluídas da divisão sob a fórmula de Baccanti devem ser contabilizadas como renda para fins de pensão alimentícia, conforme definido pelas partes; Acordo de Separação, que presumivelmente concedia à Esposa uma porcentagem da renda do Marido como pensão alimentícia. Se a fórmula de Baccanti deve ser calculada a partir da data do divórcio ou em uma data anterior, como a data da separação ou a data do serviço da Reclamação para o Divórcio.
Curiosamente, as partes concordaram em renunciar a um julgamento sobre essas duas questões e, em vez disso, concordaram que seus advogados argumentariam sobre os méritos da representação. & ndash; isto é, sem testemunho pessoal. Os advogados submeteram várias exposições concordadas ao juiz, incluindo o relatório do especialista do marido. Ao argumentar as questões dessa maneira, as partes pouparam muito tempo e honorários legais em comparação com o atraso e o custo de um julgamento completo. No entanto, a decisão do Tribunal de Apelações ilustra alguns dos riscos envolvidos em renunciar as formalidades do julgamento.
Especificamente, o Tribunal de Apelações criticou o argumento do marido em torno da data de avaliação:
A única razão que ele dá é que o juiz não fez descobertas factuais sob G. L. c. 208, & sect; 34, sobre a contribuição da esposa para a manutenção das opções não investidas & rdquo; depois das partes & rsquo; separação. & hellip; O marido dificilmente pode culpar o juiz por não ter feito as constatações quando as partes, por estipulação, não apresentaram nenhum testemunho ou outra prova que lhe permitisse fazê-lo.
A rejeição da Corte ao argumento do marido sobre a contribuição não deve ser interpretada como uma crítica ao advogado do marido. Quando as partes concordam que um juiz deve tomar uma decisão sobre a representação, as partes sacrificam o testemunho detalhado que as partes e suas testemunhas entregariam durante uma avaliação de vários dias. Invariavelmente, este testemunho cobre uma ampla gama de questões e eventos. Neste caso, um julgamento provavelmente incluiria algum testemunho sobre a contribuição da ex-esposa para o casamento após as partes. separação. No entanto, é improvável que tal evidência faça parte do registro quando questões são tentadas "na representação"; mesmo que o advogado argumente a questão, o argumento não constitui evidência para fins de julgamento.
Há muitas razões para as partes renunciarem ao julgamento concordando em apresentar uma questão a um tribunal "sobre representação". A primeira dessas razões é o custo e o tempo. Outro fator crucial pode ser as partes & rsquo; desejo de travar e solidificar seu acordo em todas as questões que não precisam ser julgadas. Em Ludwig, as partes concordaram com praticamente todas as principais questões em seu divórcio, e fez muito sentido para as partes envolvidas. concordar em apresentar os dois pontos de direito restritos e contestados ao juiz "sobre a representação". After all, nothing in the decision suggests that husband would have received a different outcome if the case had been fully tried, but one thing is certain: a full-blown trial would have taken a lot more time, and cost the husband a whole lot more in fees than the hearing “on representation”.
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Employee Stock Options and Divorce.
Learn how to determine the value of a stock before you decide whether or not to purchase it or take advantage of your employers stock option incentive. Expert accountant explains how the stock system works and formulas used to predict its future.
Updated: February 25, 2015.
As the stock market continues to rise, divorce attorneys are involved in more and more cases involving stock options. The grant of stock options to key employees is now common in high technology companies and is becoming popular in many other industries as part of an overall equity compensation strategy. Larger, publicly traded companies such as Pepsico, Starbucks, Travelers Group, Bank of America, Merck and the Gap now give stock options to almost all of their employees. Many non-high tech closely held companies are joining the ranks as well.
Traditionally, stock option plans have been used as a way for companies to reward top management and "key" employees and link (golden handcuff) their interests with those of the company and other shareholders. More and more companies, however, now consider all of their employees as "key." As a result, there has been an increase in the popularity of broad-based stock option plans, particularly since the late 1980s. More than a third of large United States companies now have broad-based stock option plans covering all or a majority of their employees--more than double the rate that existed in 1993. In a 1997 survey of 1,100 public companies conducted by Share Data, Inc. and the American Electronics Association, it was found that 53% of respondents provide options to all employees. In companies having 500 to 999 employees, the study found that 51% offer options to all employees, as compared to 30% in Share Data's 1994 survey and 31% in Share DataÕs 1991 survey. Forty-three percent of companies with 2,000 to 4,999 employees offer options to all, as compared to 10% in 1994. Forty-five percent of companies with 5,000 or more employees offer options to all, compared to 10% in 1994.
Since this trend shows no apparent sign of slowing down, matrimonial attorneys must be ready to address the unique issues that arise therefrom. This article will explain the basic nature of employee stock options, how they are valued, taxed and ultimately distributed incident to divorce.
What is an Employee Stock Option?
There is no question that "stock options" are assets subject to equitable distribution. However, simply to say that they are assets is not enough to guide the matrimonial litigator. We must first understand the basic nature and definition of a stock option. Basically, a "stock option" is "the right to purchase a specified number of shares of stock for a specified price at specified times, usually granted to management and key employees. The price at which the option is provided is called the "grant" price and is usually the market price at the time the options are granted.
Generally, stock options are an incentive to stimulate the efforts of key employees and to strengthen the desire of employees to remain in the employment of the corporation. Such incentives do not apply to retired employees. Os planos de opção de compra de ações podem ser uma maneira flexível de as empresas compartilharem a propriedade com os funcionários, recompensá-las pelo desempenho e atrair e reter uma equipe motivada. For growth-oriented smaller companies, options are a great way to preserve cash while allowing employees a piece of future growth. They also make sense for public firms whose benefit plans are well established, but who want to include employees in ownership. (Note: By issuing stock options, a company potentially dilutes the value of existing shares.)
Whether a stock option is granted for money, for past services, as an incentive for future services, or for no consideration at all, an option holder must exercise the option within its terms or he is subject to the loss of his/her right to do so. In an option contract "time is of the essence." Generally, expiration provisions and stock option agreements are strictly enforced. The courts reject the inevitable breach of contract and forfeiture claims that employees, former employees and other stock option holders press when they fail to timely exercise their options. Although this rarely becomes an issue in divorce litigation, it is something to keep in mind in order to avoid severe economic loss to either party or a potential malpractice claim.
Are there different kinds of stock options, and how are they taxed?
Generally, stock options come in two basic categories: (1) incentive stock options (commonly referred to as ISOs) which are qualified or statutory options and (2) non-qualified stock options (which are commonly referred to as NQSOs). Simply put, the difference between an ISO and a NQSO turns on its compliance with specific Internal Revenue Code requirements at the time of grant which ultimately effects how the option is taxed.
Incentive stock options are granted to individuals for reasons connected to their employment. As a result they may only be granted to employees. They must also be approved by the shareholders of the corporation and granted at fair market value.
NQSOs, on the other hand, may be granted to both employees and independent contractors, and their beneficiaries.
An employee will not realize any taxable income upon the grant or exercise of an ISO. Concomitantly the corporation is not entitled to a deduction upon the exercise of the option. If the employee sells the stock within two years after the option is granted and within one year after the option is exercised, ordinary income will be realized in an amount equal to the lesser of 1) the excess of the fair market value of the shares at the date of exercise over the option price, or 2) the excess of the amount realized on the disposition over the option price. If the individual holds the shares for two years after the grant of the ISO and one year after exercise of the ISO, the difference between the sale price and the option price will be taxed as a capital gain or a loss. If the stock is sold after the two-year/one-year period, that gain will also be an alternative minimum tax preference item subject to the26/28 percent tax rate.
Regarding a NQSO, the holder "employee" of a non-statutory option must recognize income at the time the option is granted if the option has a "readily ascertainable fair market value" at the time of grant. If the option is not transferable and does not have a "readily ascertainable fair market value," no income will result to the individual upon the granting of the option. When the non-qualified stock option is exercised, the individual is taxed at ordinary income rates on the difference between the fair market value of the stock and the exercise price of the option. When the individual sells the stock, a capital gain or loss will be incurred on the difference between the amount received for the stock and its tax basis. Typically the tax basis is equal to the fair market value at the time of the exercise of the option. The capital gain would be either long term or short term depending on the length of the time the shares were held after exercise.
If the option is "actively traded on an established market" the code considers the option to have a "readily ascertainable fair market value." If there is no "readily ascertainable fair market value" at the time of the grant, the optionee recognizes income at the time of the option either: (1) becoming "substantially vested" or (2) is no longer subject to a "substantial risk of forfeiture". Any profit is a short term capital gain, taxable at ordinary income rates. The code establishes four conditions necessary for an option that is not "actively traded on an established market" to meet the "readily ascertainable fair market value" standard: (1) the option is transferable by the optionee (2) the option is exercisable immediately in full when granted (3) there can be no condition or restriction on the option that would have a significant effect on its fair market value, and (4) the market value of the option privilege is readily ascertainable. All four conditions must be met. Since these conditions are seldom satisfied, most non-qualified, non-statutory stock options not traded on an established market, do not have a readily ascertainable value.
There is another factor to consider that can apply to both incentive and non-qualified stock options. Some companies are offering options with a reload feature. A reload option provides for automatic grants of additional options whenever an employee exercises previously granted options.
If the stock that is received upon the exercise of the option is restricted property, the taxation is deferred until the restrictions lapse. Frequently employees receive restricted stock for services. The stock is not freely transferable and is subject to a risk of forfeiture based on the individualÕs performance or continued employment for a period of time. Pursuant to Internal Revenue Code Section 83(b), an individual can elect to recognize the fair market value of the shares, ignoring the restrictions, as income at the time of the award; if a Section 83(b) election is made, the holding period for capital gains purposes commences at the time of the election, otherwise the holding period begins to run at the conclusion of the restriction.
Based upon the foregoing, it may be appropriate to tax effect executive stock options for purposes of equitable distribution. This is because executive stock options have a fixed expiration date and therefore must be exercised and sold. The resulting tax is inevitable and therefore should be considered.
How are Stock Options Valued?
There are various methods to arrive at a present value for stock options. The two most popular are the "intrinsic value" and the "Black-Scholes" method. In 1995 the accounting profession formally recognized that executive stock options have value beyond their intrinsic value. In addition, the Black-Scholes Option Pricing Model was recognized as an appropriate method to calculate the value of executive stock options by the accounting profession. Interestingly, the Financial Accounting Standards Board (FASB) specifically stated that, "an employee's stock option has value when it is granted regardless of whether, ultimately (a) the employee exercises the option and purchases stock worth more than the employee pays for it or (b) if the option expires worthless at the end of the option period.
In the intrinsic value method, the value of the stock option is equal to the difference between the option exercise price and the fair market value of the stock. For example, if you had an option to purchase stock "x" for $5, and the stock was currently trading for $27 per share, the intrinsic value of the option would be $22 ($27 - $5 = $22). However, the intrinsic value method does not consider the value to the holder of having the right to buy the stock at some point into the future at a predetermined price. It also does not consider the volatility of the underlying stock as well as the incumbent advantages and disadvantages of same. Moreover, it does not consider the advantages and disadvantages of the option holder not receiving the stock's dividends as well as the opportunity cost of purchasing the stock and forgoing the lost interest on the acquisition funds.
One method that considers the above-referenced items is the Black-Scholes Method. You can see the Black-Scholes formula by clicking here.
The explanations of the letter designations for the other variables in the Black-Scholes formula are:
C = SN (ln(S/K) C = theoretical call premium N = cumulative standard normal distribution e = exponential function log = natural logarithm.
The first part of the calculation determines the expected benefit of purchasing the stock outright. The second part of the calculation determines the present value benefit of paying the exercise price in the future. The difference is the fair market value of the option.
However, an underlying problem with the Black-Scholes Method is that it makes assumptions concerning the volatility of the stock, future dividend rates, and lost interest. A change in these underlying assumptions can affect the value of the option calculated pursuant to this method.
The following table provides a summary of how a change in one of these assumptions will affect the value of the stock options calculated under the Black-Scholes Method.
Increase in Variable.
Decrease in Variable.
Comércio livre de risco.
A common misconception in the valuation of long term options is that an option value is best represented by its intrinsic value. In fact, based on the various Black-Scholes factors, stock options which are "out of the money," i. e., the strike price exceeds the current fair market value, are actually traded with various dollar values. For example, a Dell Computer stock option with a strike price of $50.00 and a market value of $37.3125 as of May 24, 1999 traded for $8.75. This is so even though the option was almost $13.00 out of the money when the option was valued. The disparity in the value is due to investor optimism that the Dell shares would rise and be worth more than $58.75 before the expiration of the option.
How Are Stock Options Distributed In Matrimonial Matters?
Generally, the methods to distribute stock options usually fall into two categories:
Deferred Distribution Upon Exercise of Options (Constructive Trust); Present Valuation with off-set against other assets.
(Where one party argues that a portion of the stock options are non-marital, then an issue arises as to what portion of the stock options whether distributed through method 1 or 2 above, should be granted to the non-employee spouse. This is dealt with in more detail under the next section of this article.)
Deferred Distribution Method.
The Deferred Distribution Method is likely the most common manner in which options are distributed and was utilized in one of the earliest New Jersey cases dealing with stock options incident to divorce, to wit: Callahan v. Callahan. In that case, the trial court ruled that stock options acquired by a husband during the course of the marriage were subject to equitable distribution notwithstanding the fact that the options would terminate if the husband left the company within a certain period of time and the fact that they were subject to various SEC regulations. The court impressed a constructive trust on the husband in favor of the wife for a portion of the stock options owned by him in order to best effect the distribution of property between the parties without creating undue financial and business liabilities. It should be noted that all of the options were granted during the course of the marriage. However, although not specifically stated, it appears that some or all of the options were not fully vested since they were subject to divestiture under certain circumstances. This may have been why the wife was awarded only 25% of the options when they matured." (See section below regarding determining distributive shares.)
The second mode of distribution is the Present Valuation Method. In this method, the stock options must be valued with the non-employed spouse receiving her share of the marital portion in cash or cash equivalent. Such a method should use discounts for mortality, interest, inflation and any applicable taxes. The downside of this "off-set method" is that it may become inequitable in the event that the employee spouse is either unable to exercise the options or, on the date they become exercisable, they are "worthless" (i. e., the cost of the option exceeds the fair market value.)
A review of out-of-state authority indicates that matrimonial courts differ on the method of distribution of stock options depending upon the nature of the options themselves, whether they are vested or unvested, transferable or salable. If the options are able to be transferred to the non-employee spouse, that is the preferred method of distribution, since it effects a clean break between the parties; there is no need for further communication between the parties and there is no need to use valuation methodologies. However, transfer of stock options is rarely permitted by employee stock option plans. Some courts have devised other methods, including but not limited to allowing the parties to be tenants-in-common, or allowing the non-employee spouse to order the employee spouse to exercise his or her respective portion of the options, upon furnishing the capital to do so. This is similar to the constructive trust solution devised in the Callahan case previously discussed. Trial courts are accorded broad discretion in fashioning an approach to fit the facts of the individual case. (Caveat: all of these methods still assume that there is no exclusion of options based upon the argument that they are unvested or were otherwise not earned during the marriage.)
As a practice point, please note that when distributing options in kind, consideration should be given that neither party violates any insider trading rules. For example, it may be a violation if the participating spouse advises the non-participating spouse that he or she intends to exercise his options in the near future. Another concern about the distribution of options in kind is that they can lapse if the individual's employment with the company is terminated, either voluntarily or involuntarily.
Determining the non-employed spouse's distributive share.
What happens when the employed spouse argues that some of the options are unvested or were otherwise "not acquired during the marriage" and therefore not distributable to the other spouse?
New Jersey courts have made it clear that it is necessary to balance the need for definitiveness embodied in the date of complaint rule (i. e., the cutoff date for determining which assets are subject to distribution) with the need for flexibility inherent in equitable distribution when addressing stock options incident to divorce. Whereas courts of many other states have employed the "time-rule formula" approach to determine what portion of stock options should be subject to distribution (see below), New Jersey courts have laid the groundwork in a more general fashion. Basically, assets or property acquired after the termination of the marriage, but as a reward for or result of efforts expended during the marriage, normally will be includable in the marital estate and thus, subject to equitable distribution. The law in New Jersey recognizes that assets acquired by gainful labor during the marriage or as a reward for such labor are distributable while assets acquired after dissolution due solely to the earner's post-complaint efforts constitutes the employed spouse's separate property.
The seminal case in the State of New Jersey regarding the distribution of stock options is the Supreme Court case of Pascale. In that case, the parties were married on June 19, 1977. A complaint for divorce was filed on October 28, 1990. The wife began her employment with the Liposome Company on April 14, 1987 at which time she was immediately granted the option to purchase 5,000 shares of stock in said company. As of the date of trial, the wife owned 20,069 stock options awarded between April 14, 1987 and November 15, 1991. 7,300 of the stock options were granted after the complaint for divorce was filed.
There were two blocks of stock options in dispute (i. e., 4,000 and 1,800), both granted on November 7, 1990. These were granted approximately ten days after the wife filed for divorce. (There was no indication of whether the options were vested in whole or in part, however, it is assumed that these options were "unvested".) Her position was that these options were not subject to distribution because the 1,800 were issued in recognition of past performance and the 4,000 options were awarded in recognition of a job promotion that imposed increased responsibility on her in the future. The wife relied on the transmittal letters from her company to support her arguments. The trial court found that neither of the two blocks of options granted on November 7, 1990 could be excluded from equitable distribution and were to be divided equally.
However, the Appellate Division found that one of the two sets of options awarded on November 7, 1990 should have been included in the marital estate while the other should have been excluded. The Appellate Division based that decision on its interpretation of the facts, finding that the block of 4,000 options granted in recognition of a promotion in job responsibility and an increase in salary was "more appropriately . designed to enhance future employment efforts" and should not have been included in the marital estate. However, as to the block of 1,800 options, the Appellate Division found that these options were granted in recognition of past employment performance. Therefore, these options were properly includable in the marital estate notwithstanding the date of complaint rule.
In reversing the Appellate Court, the Supreme Court in Pascale concentrated on N. J.S. A. 2A:34-23 and the guiding principles enunciated in Painter v. Painter, that "property clearly qualifies for distribution when it is attributable to the expenditure of effort by either spouse during the marriage." The Supreme Court in Pascale made it clear that the focus in these cases becomes whether the nature of the asset is one that is the result of efforts put forth "during the marriage" by the spouse jointly, making it subject to equitable distribution. To refute such a presumption, the party seeking exclusion of the asset must bear "the burden of establishing such immunity [from equitable distribution] as to any particular asset."
The Pascale court concluded that "stock options awarded after the marriage is terminated but obtained as a result of efforts expended during the marriage should be subject to equitable distribution. The inequity that would result from applying inflexibility to the date of complaint rule is obvious." Note that no distinctions were made as to vested or unvested options. Therefore, it appears that the Supreme Court agreed with the goals sought to be achieved by the Appellate Division, but did not agree with their conclusions based on the record below. The Supreme Court gave greater weight to the "credible finding" made by the trial court after listening to many days of testimony that the promotion came about as a result of the excellent service that the wife had provided to the company during the marriage.
Query, what would the NJ Supreme Court have done if it determined that a block of options were awarded for a mix of pre and post marital efforts? What if there is no clear indication as to why the options are granted? What if the options are unvested and require future work effort to fully vest? These circumstances often exist and are where things get murky. New Jersey has not adopted a clear and precise method to determine what portion of options which have yet to be fully earned should be distributed. New Jersey's approach provides for a much more subjective analysis (and room for advocacy) than in other states which utilize various formulaic approaches including a coverture factor or time-rule usually taking into account vesting schedules.
Like New Jersey, the majority of states in this country do consider unvested stock options to be property subject to distribution in marital dissolution proceedings. Such was the recent ruling of the appellate court in Pennsylvania in the case of MacAleer. The Pennsylvania Appellate Court addressed the issue of whether stock options granted to a spouse during the marriage, but not exercisable until after the date of separation, constitutes marital property to be divided during the divorce. That court's reasoning parallels, to a large degree, the majority of the other states which hold that unvested stock options are marital property. Analogizing their prior decisions determining that unvested pensions were subject to distribution, the court noted that benefits resulting from employment during marriage are marital, since these benefits are received in lieu of higher compensation which would have been utilized during the marriage to acquire other assets or to raise the marital standard of living. Only a handful of states have specifically held otherwise. These states are Indiana, Colorado, Illinois, North Carolina, Ohio and Oklahoma. North Carolina and Indiana do not divide unvested stock options on the basis of the state's statutory definition of "property." Oklahoma does not consider unvested stock options to be marital property based on the common law foundation of the stateÕs statutory scheme. These states award the unvested stock options to the employee spouse as separate property not to be considered for equitable distribution. These decisions are distinguished upon the fact that they are heavily influenced by statutes which define property in those jurisdictions. However, the remaining states which have addressed the issue, do find unvested stock options to be marital property and generally follow the same procedure for determining how much, if any, of the options constitute marital property.
Many jurisdictions, like New Jersey, view the first consideration to be a determination of whether the options were granted for past, present or future services. However, most courts have learned that employee stock options are not usually granted for any one reason, and could be compensation for past, present and future services. As a result, these courts sought some structure to determining the distributable share.
Remember: The options that are clearly given to the employee spouse as compensation or incentive for future services are wholly non-marital property. The options clearly granted exclusively for past or present services are fully marital property. There is no need for the court to utilize a coverture factor or time rule fraction for either category in order to determine the marital interest since they are wholly marital or non-marital property as the case may be. The problems arise when the reasons are unclear, where the options are unvested or include an indiscernable mix of pre and post marital efforts.
"Coverture Factor" or "Time-Rule Fractions"
Most out-of-state courts which have addressed distribution of unvested stock options use a "coverture factor" or "time rule fraction" to determine how much, if any, of the unvested stock options constitute marital property. The most prevalent time rule fraction has evolved from that which was used by the California Court of Appeals in Hug. The trial court in Hug found that the number of options that were community property were a product of a fraction; the numerator was the period in months between the commencement of the spouse's employment by the employer and the date of separation of the parties, and the denominator was the period in months between commencement of employment and the date when the first option is exercisable, multiplied by the number of shares that can be purchased on the date that the option is first exercisable. The remaining options were found to be the separate property of the husband.
The husband in Hug agreed that the options were subject to division according to the time rule; however, he contended that the trial court used an erroneous formula. He argued that the proper time rule should begin as of the date of granting the option, not the date of commencement of employment, since the options were not granted as an incentive to become employed. He argued further that each annual option was a separate and distinct option which is compensation for services rendered during that year, and as it was to accrue after the date of separation, it was totally his separate property. The court examined the various reasons why corporations confer stock options to employees, and found that no single characterization could be given to employee stock options. Whether they can be characterized as compensation for past, present, or future services, or all three, depends upon the circumstances involved in the grant of the employee stock option. By including the two years of employment prior to the granting of the options in question, the trial court implicitly found that period of service contributed to earning the option rights at issue. The appellate court found that this was supported by ample evidence in the record.
Various versions of coverture factors have evolved as courts addressed different factual circumstances. The recent Wendt case out of Connecticut entails a voluminous decision in which the court surveys the states which addressed the issue of division of unvested stock options, and notes the competing arguments and the most common numerators and denominators in diverse forms of the coverture factors. A brief summary of the Wendt court's decision as to stock options is helpful to understanding the approach of many courts to the issue of unvested stock options.
According to the December 31, 1996 unaudited financial statement prepared by KPMG Peat Marwick, LLP, the husband owned 175,000 shares of General Electric Vested Stock Options and Appreciation Rights in the following amounts: 100,000 units granted November 20, 1992 with a $40 per share exercise price, 70,000 units granted September 10, 1993 with an exercise price of $48.3125 and 5,000 units granted June 24, 1994 with an exercise price of $46.25. The unaudited financial statements used the "intrinsic value" method, with a December 31, 1996 New York Stock Exchange price of G. E. common stock at $98 7/8 per share. On May 12, 1997, G. E. common stock split two for one and, thus, the number of options doubled to conform to the stock split. As of the date of separation, December 1, 1995, G. E. was trading at $72 per share. As of October 7, 1997, G. E. was trading at $72 per share in its split status or $144 per share at the pre-May 12, 1997 stock split number of stock options. Based on the facts found, the court divided the 175,000 vested stock options and appreciation rights based on the date of separation, December 1, 1995. In rejecting a Black-Scholes approach in favor of the "intrinsic value" method, the trial court valued the vested options as follows: 175,000 stock options at $3,200,000 for the November 20, 1992 grant; $1,658,125 for the September 10, 1993 grant and $128,750 for the June 24, 1994 grant for a total Ôintrinsic value" of $4,986,875. The court noted that this amount was before taxes. The court additionally noted that the options had no cash value until exercised at which point there would be tax due at short term capital gains tax rates, i. e., ordinary income tax rates. The court assumed maximum rates for the IRS, Medicare and Connecticut tax and calculated the net after tax of the intrinsic value to be $2,804,219. The court distributed one-half of that sum to the wife. The court found that the doubling of the G. E. stock after the date of separation was not due to the efforts of the wife, but that "she should share in the general increase in the investment community."
The Wendt court then proceeded to address the 420,000 unvested stock options differently. The court had already concluded that only a portion of these unvested stock options was marital property. The court had also concluded that the unvested stock options were granted for future services. Therefore, a coverture factor was required. The coverture factor was determined by a fraction as follows:
Number of Months from the Date of Grant to December 1, 1995.
Number of Months from the Date of Grant to the Date of Vesting and are not Subject to Divestment.
Number of Shares to be Vested at that Date of Vesting.
Since there were eight separate dates of vesting, eight separate coverture factors had to be calculated. For example, the coverture factor utilized for the 70,000 units granted on September 10, 1993 which vested on September 10, 1998 was as follows:
27.7 / 60 = 44.5% x 70,000 units = 31,150 units to be divided.
The court then took the price of the G. E. common stock on the date of separation (i. e. $72 per share) to calculate the intrinsic value and thereby determine the dollar amount owed to the wife for the marital portion of the unvested options. This was represented as follows:
$72.0000 -48.3125 (exercise price) = $23.6875 intrinsic value per share x 31,150 units = $737,866.
The "$737,866" represents the pre-tax dollar value of the marital portion of the unvested shares as determined by the coverture factor.
After all eight coverture factors were performed, the total dollar values of the marital portion of the unvested stock options was $1,626,273. The court then explored the various risk factors associated with the unvested stock options. It is helpful to review the various scenarios explored by the Connecticut court concerning what could happen to effect the unvested stock options.
The court had basically rejected the wife's expert's valuation methodologies (which included "Black-Scholes") and opted to use the "intrinsic value" to obtain the appropriate value. Specifically, the court rejected the wife's expert's use of the Black-Scholes model which actually resulted in a value 10% lower than the "intrinsic value" ultimately used by the court. The court then determined the wife's share of the intrinsic value of the unvested stock options (i. e., $1,626,273). The court noted that this amount was before taxes. The court proceeded to assume current maximum rates for the IRS, Medicare and Connecticut and found that the net after tax value of the gross intrinsic value would be $914,486. The court then proceeded to award the wife half of this sum. The court ordered the husband to pay the sum in cash and not in any portion of the options.
A similar approach was taken in the case of In re Marriage of Short. In this case, the court held that the inclusion of the unvested stock options in the pool of distributable assets depended on whether the options were granted to compensate the employee for past, present or future employment. The court held that unvested options awarded for past and present services were marital property regardless of the continuing restriction on transfer or vesting. Unvested options granted for future services were deemed to be acquired periodically in the future as the options vest and are subject to a time rule division to allocate the shares between marital (community) and non-marital (separate) property. A different time rule than in the Hug case was used to differentiate between vested options that are clearly separate property for which no time rule would be applied, and those which include both a community effort and separate effort.
Just recently, New York joined the substantial majority of states holding that "restricted stock and stock option benefit plans provided by a spouse's employer constitute marital property for the purposes of equitable distribution, where the plans come into being during the marriage but are contingent on the spouse's continued employment with the company after the divorce." New York's highest court, in a seven-judge panel, unanimously joined the majority of jurisdictions that use a time rule to divide such contingent resources. The DeJesus court laid out the following four-step procedure to guide courts in dividing such options:
1. Trace shares to past and future services; Determine the portion related to compensation for past services to the extent that the marriage coincides with the period of the titled spouseÕs employment, up until the time of the grant. This would be the marital portion; Determine the portion granted as an incentive for future services; the marital share of that portion will be determined by a time rule; and Calculate the portion found to be marital by adding: i) that portion that is compensated for past services; and ii) that portion of the future services deemed to be marital after application of the time rule.
The sum result will then be divided between the parties using the equitable distribution criteria.
This was the method utilized in Colorado in the case of In re Marriage of Miller. The DeJesus court was persuaded that the Miller type analysis best accommodated the twin tensions between portions of stock plans acquired during the marriage versus those acquired outside of the marriage, and stock plans which are designed to compensate for past services versus those designed to compensate for future services.
However, notwithstanding the complexity of these methods, the danger of rigidity and resulting unfairness from a blind application of a formulaic approach still exists. Such issue was addressed by an Oregon Court which stated that "No one rule will produce a just and proper result in all cases and no one rule will be responsive to many different reasons why stock options are granted." This was, more than likely, the reason that New JerseyÕs Supreme Court ruled as it did in Pascale.
Can stock options be viewed as income to the employee for support purposes?
There is little doubt that stock options constitute a form of compensation earned by the employed spouse during the marriage.
In February of 1999, an Ohio appeals court agreed with Susan Murray, the former spouse of Procter & Gamble Company executive Graeme Murray, that unexercised stock options should be used in calculating the value of child support for the couple's 16-year-old son. This decision was the first by an Appellate Court to say that parents cannot shelter income from their children Ð intentionally or unintentionally, by postponing the exercise of stock options until the kids are grown. Note that options granted in consideration of present services may also be deemed a form of deferred compensation. (See In Re Marriage of Short, 125 Wash.2d 865, 890 P.2d 12,16 (1995).
A Wisconsin Court of Appeals pointed out that a stock option is not a mere gratuity but is an economic resource comparable to pensions and other employee benefits. The Appellate Court of Colorado held that for purposes of determining child support, income includes proceeds received by father from actual exercise of father's stock options. The Supreme Court of Colorado held, in the Miller case already referenced above, that "under the Internal Revenue Code, the optionee of a non-statutory employee stock option must recognize income at the time the option is granted if the option has a "readily ascertainable value" at the time of the grant. If the option does not have a readily ascertainable value at the time of the grant, the optionee recognizes income at the time the option becomes "substantially vested" or no longer subject to a "substantial risk of forfeiture," which generally does not occur until the option is exercised.
The Miller Supreme Court found that unlike pension benefits, employee stock options may well be considered compensation for future services as well as for past and for present services.
It is clear that there is a growing trend among the courts of this nation to distribute unvested or non-exercisable stock options that were granted during the marriage. The key factor in such distribution is a determination as to the purpose for which the options were granted, i. e., whether the options were granted for past or future performance. Where an option is granted for a mixed purpose and/or requires continued employment past the termination date of the marriage (as determined by local law), many states are employing a time-rule fraction which may be modified by the trial court based upon the particular facts and circumstances of the case. Matrimonial practitioners must be aware of the various forms of time-rule fractions that can be used and the factors that can modify the fraction. Such factors include, but certainly are not limited to the following: (1) when the option was granted; (2) whether the option was granted for past or future performance (if "past" how far back); (3) whether or not the option was granted in lieu of other compensation; (4) whether or not the option was a qualified incentive stock option or non-qualified stock option; (5) when the options will expire; (6) the tax effect of the grant of the option; (7) the tax effect of exercising the option; (8) whether or not the option has a "readily ascertainable fair market value;" (9) whether or not the option is transferable; (10) whether or not the option is restricted property; (11) the extent to which the option is subject to risk of forfeiture; and (12) any other factors that the parties or court may deem fair and equitable to consider.
Since the majority of employee stock options are non-transferable and cannot be secured as with qualified pensions under federal laws such as ERISA, matrimonial attorneys should specifically tailor their language when drafting agreements concerning such assets. These agreements should include: (1) a list of all options granted and an explicit description of which options are marital and which are not; (2) if a Deferred Distribution Method is employed, a resortation of whether and under what terms the non-owner can compel the owner to sell options after they are vested; (3) provision for payment of the "strike price" by the non-employed spouse and taxes resulting from the exercise of options; (4) a description of how and when distribution is to be made to the non-owner spouse and (5) precise notification and document exchange provisions.
The matrimonial attorney involved in a case concerning stock options, especially when representing the non-employed spouse, should be sure to obtain the following information and documents: (1) a copy of the stock option plan; (2) copies of any correspondence or internal memorandum which were issued by the company at the time of the grant of any stock options; (3) a schedule of granted options during the employees period with the company; (4) the date of each option granted; (5) the number of options granted at each date; (5) the exercise price of options granted at each date; (6) the expiration date of each set of options granted; (7) the date of vesting for each set of options granted; (8) the date and number of options exercised; (9) all short term or long term employee incentive plans covering the employed spouse; (10) all Employment Agreements between the employed spouse and his or her employer; (11) all company plans, handbooks and option award letters related to stock options granted; (12) copies of the firm's 10K and 8K for the entire period that the employed spouse is with the company; (13) dates of promotions and positions held by the employee; (14) a brief job description of each position; (15) the salary history of the employee indicating all forms of compensation; (16) the grant date of exercised options and (17) copies of any corporate minutes or proxy statements referencing the award of options. The information listed herein provides the core information from which option values can be calculated and agreements intelligently reached concerning their distribution.
As we enter the 21st Century, it is clear that matrimonial attorneys will need to become as knowledgeable as possible regarding this unique kind of asset. Hopefully, this article has given some insight into the complexities involved when dealing with Employee Stock Options and Divorce.
Charles F. Vuotto, Jr., Esq. is a family law attorney in New Jersey.
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TONI BACCANTI vs. GEORGE I. MORTON.
Docket No.: SJC-08442.
April 5, 2001. - August 13, 2001.
Present: Marshall, C. J., Greaney, Spina, Cowin, Sosman, & Cordy, JJ.
Summary: Divorce and Separation, Division of property, Findings. Complaint for divorce filed in the Worcester Division of the Probate and Family Court Department on June 15, 1995.
The case was heard by John J. Moynihan, J.
The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
Mark I. Zarrow for the defendant.
Penelope A. Kathiwala (Barbara A. Cunningham & Michelle R. King with her) for the plaintiff.
COWIN, J. The husband, George I. Morton, appeals from a judgment of divorce issued by a Probate and Family Court judge. He claims that the judge (1) failed to consider the requisite factors under G. L. c. 208, § 34, in dividing the marital estate; (2) abused his discretion in dividing premarital assets; and (3) erred in awarding the wife, Toni Baccanti, one-half of the husband's unvested employee stock options. We transferred the case to this court on our own motion, and we affirm the judgment of the Probate and Family Court judge.
We recite the facts from the judge's findings and the uncontradicted evidence that was before him, reserving recitation of certain facts as they become relevant to the issues raised. The husband and wife were married on June 1, 1986. They adopted a boy, Sean, who was born on July 20, 1983, and began living with them in August, 1988.
After Sean came to live with the parties, they agreed that the wife would work part time so that she could be home with Sean after school. Sean's behavioral problems required extra attention. At first, the wife worked part time for Data General. Later, she taught college computer courses and established a computer software consulting business that she ran from her home. The husband is an engineering manager at Analog Devices, Inc., and has been working there since January, 1988.
The judge determined that both parties contributed to the marriage. He found that the husband was the primary financial provider and that, while both parties participated in raising Sean, the wife was the primary caretaker. He also found that the husband and wife shared the household chores, but that the wife was largely responsible for the maintenance and operation of the marital home.
Each spouse had acquired assets prior to the marriage. The husband owned a home, in which the parties lived when they first were married. They paid off the mortgage and kept that house, but purchased a new home together. The husband also owned stock that he either purchased or received as a gift before the marriage. The husband and wife each had their own IRA accounts and had money in separate checking and savings accounts. Initially, they contributed money from these separate checking accounts to pay bills, but they later opened a joint account in which they deposited their paychecks and from which they paid expenses. They accumulated other assets during the marriage including stock and mutual funds. Some of these assets were held in one spouse's name, while others were held in both names. The husband also had a 401K plan through Analog Devices.
The wife filed a complaint for divorce in June, 1995, in the Worcester Division of the Probate and Family Court Department. Trial began in October, 1998, and the judge granted a judgment of divorce nisi in June, 1999. He granted both parties legal custody of Sean and the wife physical custody. He ordered the husband to pay alimony and child support to the wife. As to the assets, the judge awarded each party approximately an equal amount. The marital home was assigned to the wife, while the home originally purchased by the husband was assigned to him. The parties were awarded their separate checking and savings accounts, as well as their mutual fund and IRA accounts. The joint checking account was divided equally. The wife was awarded a jointly held brokerage account in its entirety. She also was given twenty-five per cent of the value of stock held in a brokerage account in the husband's name; the husband was awarded the remainder. In addition, the judge assigned each party one-half of the husband's 401K account and the vested and unvested stock options that the husband had received from his employer. The husband has appealed from the judgment, challenging certain aspects of the division of the marital estate.
The husband argues that the judge failed to make findings as to each of the requisite factors under G. L. c. 208, § 34, in dividing the marital property.(1) Section 34 provides in relevant part:
"[I]n fixing the nature and value of the property . . . to be so assigned, the court . . . shall consider the length of the marriage, the conduct of the parties during the marriage, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income. . . . [T]he court shall also consider the present and future needs of the dependent children of the marriage."
We review the judge's findings to determine whether he considered all the relevant factors under § 34 and no irrelevant factors. See Williams v. Massa, 431 Mass. 619, 631 (2000); Mahoney v. Mahoney, 425 Mass. 441, 447 (1997); Bowring v. Reid, 399 Mass. 265, 267-268 (1987); Rice v. Rice, 372 Mass. 398, 402-403 (1977). We then determine whether the reasons for his conclusions are "apparent and flow rationally" from his findings and rulings. Williams v. Massa, supra. See Mahoney v. Mahoney, supra.
The husband contends that the judge failed to make specific findings as to certain factors. While the judge's findings might have been more precise, we are confident that he properly evaluated the relevant factors and weighed the competing considerations. First, the husband claims that the judge did not consider the parties' premarital assets. We disagree. In reviewing the estate of the parties and the amount and sources of their income, the judge expressly stated that he "considered [the husband's] contributions from assets he acquired prior to the marriage, including the $36,000 down payment he made on the [home purchased by the husband before the marriage] and the stock which he either purchased or received as gifts."
In addition, the husband argues that the judge did not credit his testimony that the parties orally agreed to "keep the assets that we had accumulated prior to our marriage separate, and . . . to add to those assets separately from our salaries or any other . . . sources that we each individually had and that we would just pay our living expenses together." The judge was not required to credit this testimony. See, e. g., Early v. Early, 413 Mass. 720, 727 (1992). Although the parties did maintain the accounts that they had established prior to the marriage, there is no evidence that they agreed to keep the assets in these accounts separate in the event of divorce. The wife testified that there was no such agreement. Moreover, the husband's contention is belied by the fact that both parties contributed to paying off the mortgage on the house purchased by the husband before the marriage and by the fact that the parties opened and maintained joint checking and brokerage accounts. This evidence indicates that the fine line dividing premarital and marital assets that the husband suggests does not exist and that the parties intended to do more than pay living expenses together. The judge was warranted in finding that he was "not persuaded by [the husband's] contention that the parties orally agreed to retain their separate assets in the event of a divorce. The parties never executed a pre-nuptial agreement and they did maintain joint accounts."
The husband next claims that the judge did not make "specific findings" regarding the accounts that each party individually opened prior to the marriage and maintained after the marriage. The judge did make findings as to these accounts; he simply did not make the findings sought by the husband. The judge provided a detailed chart of all the parties' accounts and in whose name the accounts were held. Moreover, his findings make clear that he was aware of the parties' separate accounts. With the exception of stock held in the husband's name in a brokerage account, the judge assigned the husband all the accounts (including checking, savings, IRA, and brokerage accounts) that were in his name only, as he did for the wife. The judge granted the wife the jointly held brokerage account in its entirety, but divided the joint checking account equally.
The husband also asserts that the judge did not make a finding with respect to the "contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates." G. L. c. 208, § 34. This is a discretionary, not a mandatory, factor under the statute. See id. ("The court may also consider the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates . . ."). The judge therefore was not required to make such a finding. However, the judge did discuss the parties' respective contributions to the marriage, including their division of responsibilities in caring for their home as well as the husband's contributions from assets he acquired prior to the marriage.
Finally, the husband argues that the judge did not consider the wife's education or her prior work history. The judge did comment briefly on the wife's occupation, vocational skills, employability, and opportunity to acquire assets and income in the future in his memorandum, as required by the statute. The judge stated that the wife taught computer courses part time and had started a computer software consulting business. He noted the amount that the wife earned from these endeavors. Further, he indicated that the wife should be able to work full time once Sean graduated from high school. This indicates sufficiently the wife's ability to earn income and support herself in the future. After examining the judge's decision, we conclude that he considered all the relevant factors under § 34, and no irrelevant factors, and that the reasons for his decision are apparent in his findings and rulings.
The husband claims that the judge abused his discretion in assigning the wife portions of the husband's premarital assets. We disagree.
General Laws c. 208, § 34, provides that a judge "may assign to either husband or wife all or any part of the estate of the other." That includes property acquired prior to the marriage. See Rice v. Rice, supra at 400-401. Once the judge decides to include premarital assets as part of the estate, he has considerable discretion in determining how to divide the assets equitably. See Williams v. Massa, supra at 626 (" Massachusetts has no hard and fast rules" as to appropriate allocation of premarital assets); Bianco v. Bianco, 371 Mass. 420, 422-423 (1976). We will not reverse a judgment with respect to property division unless it is "plainly wrong and excessive." Mahoney v. Mahoney, supra at 447, quoting Bowring v. Reid, supra at 267; Pare v. Pare, 409 Mass. 292, 296 (1991). Redding v. Redding, 398 Mass. 102, 107 (1986).
In this case, the judge determined that an evenly divided distribution of the marital property was most equitable in light of the parties' contributions to the marital enterprise, the length of the marriage, and their ability to obtain future income and assets. See Heins v. Ledis, 422 Mass. 477, 482 (1996) (property division is based on spouses' joint contributions to marriage); Heacock v. Heacock, 402 Mass. 21, 24 (1988) (purpose of division of marital property "is to recognize and equitably recompense the parties' respective contributions to the marital partnership"). He did credit the fact that the husband had brought assets into the marriage, but decided that an even distribution should include assigning to the wife some portions of the husband's premarital property. Given the judge's conclusions regarding the parties' equal contributions to the marital partnership and his discretion in equitably dividing the marital estate, we cannot conclude that his division of the husband's premarital assets was plainly wrong or excessive. Cf. Williams v. Massa, supra at 632-633 (judge's decision to award husband his inherited and gifted assets "flowed rationally from her determination that the 'greater burden or responsibility fell to the husband throughout the marriage'").
The husband argues that the judge erred in awarding the wife one-half of his issued but unvested employee stock options.(2) He claims that the options should not have been considered marital property subject to division because they would not vest until after dissolution of the marriage. In the alternative, he asserts for the first time on appeal that, if the options are considered marital property, only that portion of the options attributable to efforts he expended during the marriage should be subject to division.
As a preliminary matter, we consider whether unvested stock options are assets that may be included in the marital estate. This involves a question of statutory interpretation that this court has not previously addressed. General Laws c. 208, § 34, provides that "the court may assign to either husband or wife all or any part of the estate of the other, including but not limited to, all vested and nonvested benefits, rights and funds accrued during the marriage and which shall include, but not be limited to, retirement benefits, . . . pension, profit-sharing, annuity, deferred compensation and insurance." We interpret a statute consistent with the legislative intent and in order to effectuate the purpose of its framers. See Boulter-Hedley v. Boulter, 429 Mass. 808, 811 (1999), and cases cited. When the statutory language is plain and unambiguous, we apply its ordinary meaning. See Massachusetts Broken Stone Co. v. Weston, 430 Mass. 637, 640 (2000), and cases cited.
"In the past, in considering whether particular interests constitute part of the property of the marital estate of a party to a divorce, this court has not been bound by traditional concepts of title or property. Instead, we have held a number of intangible interests (even those not within the complete possession or control of their holders) to be part of a spouse's estate for purposes of § 34." Lauricella v. Lauricella, 409 Mass. 211, 214 (1991), citing Dewan v. Dewan, 399 Mass. 754, 755 (1987) (unvested pension rights); Hanify v. Hanify, 403 Mass. 184, 186-190 (1988) (rights in pending lawsuits); Lyons v. Lyons, 403 Mass. 1003, 1003 (1988) (rights under contingent fee agreement). Although the statute does not expressly mention stock options, the language in the statute that a party's "estate" includes "all vested and nonvested benefits, rights and funds" clearly indicates that both vested and unvested stock options may be treated as marital assets.(3) In their simplest form, stock options are another way for employers to compensate their employees. An option gives the employee the right to purchase the employer's stock at a predetermined price during a prescribed time period. See, e. g., Bornemann v. Bornemann, 245 Conn. 508, 517 (1998); Littman, Valuation and Division of Employee Stock Options in Divorce, 29 Colo. Law. 61, 61 (2000). The fact that the options will vest in the future (even after dissolution of the marriage) is no different from unvested retirement benefits, and we have held that unvested retirement (including pension) benefits are assets that may be included when dividing the marital estate. See Mahoney v. Mahoney, supra at 443; C. P. Kindregan, Jr., & M. L. Inker, Family Law and Practice § 41.6, at 63 (2d ed. 1996).
What distinguishes employee stock options from most other assets is the uncertainty of their value: an employee who has been given options may never realize any value from them if their vesting is contingent on continued employment and the employee is no longer employed by the company, or if the value of the stock when the options vest is less than the price at which the options can be exercised. That, however, is simply the nature of the asset and a risk inherent in accepting stock options. Other assets, such as real estate and stock, are also subject to fluctuations in value based on varying economic factors beyond either party's control. Cf. Hanify v. Hanify, supra at 188 ("The fact that the pending lawsuits are of uncertain value does not require their exclusion from the marital estate"). An employee may remain with the company until the options vest and, if the value of the stock has increased, the asset will have value. A judge can provide for this uncertainty by dividing the shares at the time of dissolution and ordering any proceeds from the options to be divided if and when they vest and are exercised.(4) Cf. Dewan v. Dewan, supra at 757 (although assigning present value to future pension benefits is preferred, "an area of discretion must be left to the judge because a pension plan may have specific provisions which favor" allocating benefits if and when received). That way, the husband and the wife share in the rise or fall of the value of the asset.
Granting stock options to employees has become increasingly widespread. See, e. g., Curtis, Valuation of Stock Options in Dividing Marital Property Upon Dissolution, 15 J. Am. Acad. Matrimonial Law 411, 411-412 (1998) (Curtis); Business Week 16 (May 28, 2001) ("America's 200 largest corporations are allocating a record 15% of their shares to employee stock options"). If we concluded that unvested stock options could not be considered marital assets, we would be denying one spouse the right to share in what "may be the most valuable asset between the spouses," and one to which both may have contributed. Curtis, supra at 412. Such an unjust result cannot have been the intent of the Legislature.(5)
Having concluded that unvested stock options are assets that may be included in a party's assignable estate, we next address.
to what extent they may be included. The division of property incident to a divorce proceeding is based on the principle that marriage is a partnership. See Heins v. Ledis, 422 Mass. 477, 480 (1996). Assets are assigned in order to recognize and recompense the parties' contributions to the partnership. See Heacock v. Heacock, 402 Mass. 21, 24 (1988). 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.
A minority of State courts have held that options granted during the marriage are marital property and may be included in the marital estate in their entirety. See, e. g., Green v. Green, 64 Md. App. 122, 136 (1985); In re Marriage of Chen, 142 Wis. 2d 7, 12 (1987). Most courts, however, have held that stock options are marital property only to the extent that they reflect efforts expended during the marriage. See, e. g., In re Marriage of Hug, 154 Cal. Aplicativo. 3d 780, 784 (1984); Bornemann v. Bornemann, supra at 522 & n.6 (collecting cases); Davidson v. Davidson, 254 Neb. 656, 663 (1998); DeJesus v. DeJesus, 90 N. Y.2d 643, 648 (1997).
According to these courts, whether options should be considered part of the marital estate depends on the reason (or reasons) for which they were given. See, e. g., In re Marriage of Hug, supra ("since the purposes underlying stock options differ, reference to the facts of each particular case must be made to reveal the features and implications of a particular employee stock option"). Options may be given to an employee as compensation for past services (e. g., a project already completed), present services (e. g., accepting employment with the company), future services (e. g., remaining with the company or work to be performed in the future), or a combination thereof. See, e. g., Bornemann v. Bornemann, supra at 522; Batra v. Batra, 17 P.3d 889, 893 (Idaho Ct. App. 2001); Garcia v. Mayer, 122 N. M. 57, 60-61 (Ct. App. 1996) ("The purpose of awarding options to employees may differ from company to company and may even change from time to time within a single company"). A majority of courts have concluded that if stock options were given as compensation for past or present services performed during the marriage, their value should be recognized as part of the marital estate. See, e. g., DeJesus v. DeJesus, supra at 650-651; Matter of the Marriage of Short, 125 Wash. 2d 865, 873 (1995). However, according to the decisions of such courts, if stock options were given as compensation for future services, which may extend beyond the time of the marriage, then they are not so considered. See, e. g., In re Marriage of Nelson, 177 Cal. Aplicativo. 3d 150, 154- 155 (1986); DeJesus v. DeJesus, supra. These courts have concluded that only that portion of the stock options attributable to the efforts of the employee spouse during the marriage properly may be considered part of the marital estate. See, e. g., In re Marriage of Hug, supra at 784; Davidson v. Davidson, supra at 663; DeJesus v. DeJesus, supra at 648.
As a general matter, we agree with the majority of State courts that have considered this issue. Their approach focuses on the parties' respective contributions in acquiring the asset, rather than on the date that the options were granted. This is consistent with the purpose of dividing property under G. L. c. 208, § 34: "to recognize and equitably recompense" the parties' joint efforts in obtaining and maintaining marital assets. Heacock v. Heacock, supra at 24.
However, most courts rigidly define marital property as only that property acquired, or, in the case of stock options, awarded for the expenditure of efforts, during the marriage. We decline to adopt such a restrictive approach. General Laws c. 208, § 34, requires that all property "whenever and however acquired" is part of the estate that may be assigned to either spouse. Rice v. Rice, supra at 400. Stock options, as property to which a spouse holds title, must be treated the same as other marital property and considered part of the marital estate even if given for past services performed prior to the marriage. See id. at 401.
In addition, there may be circumstances, such as a long-term marriage in which both parties have contributed to the "partnership" and the options are exercisable soon after the divorce, where the judge finds that stock options should be deemed wholly marital property even though the options were given for services to be performed in part after dissolution of the marriage. In these cases, the judge must determine the extent of each spouses' contribution to the asset. Cf. Pascale v. Pascale, 140 N. J. 583, 610 (1995) ("stock options awarded after the marriage has terminated but obtained as a result of efforts expended during the marriage should be subject to equitable distribution"). See Dalessio v. Dalessio, 409 Mass. 821, 829 (1991) (lawsuit proceeds compensating husband in part for future loss of earning capacity could be included in divisible estate); Johnson v. Johnson, 22 Mass. App. Ct. 955, 956-957 (1986) (no error in including percentage of spouse's future pension benefits in marital estate, despite fact that percentage includes benefits not attributable to marriage). The trial judge has discretion under G. L. c. 208, § 34, to decide whether an asset should be included in the marital estate based on the parties' joint efforts in acquiring that asset and should not necessarily be confined by the period of the marriage.(6) However, the fact that only one party may exert efforts after dissolution of the marriage to obtain the asset should be taken into account when dividing property in a divorce proceeding. Dalessio v. Dalessio, supra at 831. In future cases, "judges should indicate for the record that they have considered this fact and that it has entered into their division of the marital assets." Identidade.
We thus conclude that, in those cases in which the division of options is contested, in order to determine whether and to what extent stock options may be included in the marital estate, the judge must determine if the options were given for efforts expended before, during, or after the marriage.(7) This requires a finding as to the reason (or reasons) for which the options were given (i. e., for past, present, or future services). In making such a finding, the judge may look to the employee's stock option plan, testimony from the employee or a representative of the employer, or testimony from an expert witness, if any such evidence is offered. See, e. g., In re Marriage of Hug, supra at 784. The judge also may consider any other relevant factors or circumstances surrounding the grant, including whether the 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] (6) be granted on a regular or irregular basis."(8) Davidson v. Davidson, supra at 665. Judges should be aware of the potential for fraud in this area, particularly the possibility of collusion between the employee and the employer as to the reasons behind the issuance of the stock options.
The party challenging the inclusion of the options in the marital estate (presumably, the employee who was given the options) has the burden of proving that the options were given for future services to be performed after dissolution of the marriage. In addition, this party has the burden of establishing that the non-employee spouse did not contribute to the employee spouse's ability to acquire the options at issue and, for that reason, the value of the options either in whole or in part should not be considered part of the marital estate. The party to whom the options are issued is in a better position to obtain information regarding the circumstances surrounding the grant, and thus should bear the burden of proof on this issue.
If the party with the burden of proof establishes that the options were given in whole or in part for future services to be performed after dissolution of the marriage, and the judge determines that equity requires that the options be apportioned,(9) the judge must calculate the portion of the options that properly may be included in the marital estate. The majority of jurisdictions apply some variation of a "time rule" to make this calculation, whereby the unvested options are apportioned based on the time that the employee both owned the options and was married and the time from issuance of the options to vesting. See, e. g., In re Marriage of Nelson, 177 Cal. Aplicativo. 3d 150, 155 (1986); Davidson v. Davidson, supra at 665; Garcia v. Mayer, 122 N. M. 57, 61 (Ct. App. 1996); DeJesus v. DeJesus, supra at 652-653. Because, in Massachusetts, property acquired prior to the marriage may be included in the marital estate, see Rice v. Rice, supra at 400, we modify the time rule as follows: the number of unvested shares of stock options is multiplied by a fraction whose numerator represents the length of time that the employee owned the options prior to dissolution of the marriage (i. e., the length of time that the employee owned the options prior to and during the marriage), and whose denominator represents the time between the date the options were issued and the date on which they are scheduled to vest. The resulting product is the number.
of shares subject to division.(10),(11) The judge then would apply the factors under G. L. c. 208, § 34, to assign equitably those shares subject to division.
A time rule can be an effective and straightforward means for apportioning issued but unvested stock options. We recognize, however, that one formula will not necessarily work in every case and emphasize that trial judges have broad discretion to modify the time rule or adopt another method that will achieve the most equitable apportionment in a particular case. Cf. In re Marriage of Hug, supra at 792 (stressing that no single rule or formula can be used in every case and that trial courts should have discretion to fashion approaches that will result in most equitable outcome).
Once the options have been apportioned (pursuant to a time rule or some alternative method, if the judge decides that apportionment is necessary) and/or assigned, the judge must determine how and when to value the options. The judge here adopted an "if and when received" método. He ruled that the husband could exercise the options and then sell any or all of his shares if and when the options vest. If so, the judge determined that the husband must share with the wife one-half of the net gain (i. e., the gross proceeds less the purchase price and less the tax consequences to the husband) from the sale. If the husband decides not to exercise his vested options, the judge ordered that the husband notify the wife of his decision and allow her to exercise her share of the options through him. The wife would then be responsible for the tax consequences resulting from the sale of the shares.(12)
Although a present division of assets is generally preferable, if present valuation is uncertain or impractical, as it often will be with unvested stock options, "the better practice is to order that any future recovery or payment be divided, if and when received, according to a formula fixed in the property assignment." Hanify v. Hanify, 403 Mass. 184, 188 (1988), and cases cited. Cf. Early v. Early, 413 Mass. 720, 726 (1992) ("award of pension benefits 'if and when received' . . . avoids the difficult problem of determining the present value of the pension"). We leave it to the judge's discretion to determine in each case whether a present value can be assigned to the options or whether it is more practical and equitable to divide the proceeds (stock or cash derived from the sale of the stock) if and when the options vest and are exercised.
In the present case, we affirm the judge's decision to include the husband's issued but unvested stock options in the marital estate. The husband did not argue at trial that his options were given in whole or in part for future services to be performed after dissolution of the marriage. Instead, he argued only that his unvested stock options could not be considered marital assets because they would not vest until after dissolution of the marriage.(13) As discussed above, the determinative factor is whether the options, or a portion of the options, are attributable to the marital partnership, not whether they will vest after dissolution of the marriage. Options may vest after the divorce, yet the services for which the options were given may have been performed entirely during the marriage. By failing to argue below that his options were issued for future services to be performed after dissolution of the marriage, the husband waived his right to raise it on appeal. See Cacicio v. Secretary of Pub. Safety , 422 Mass. 764, 769 n.9 (1996), citing Commissioner of Correction v. McCabe, 410 Mass. 847, 850 n.7 (1991).
Even if the husband had raised the argument at trial, he offered no evidence to substantiate his assertion that his options were an incentive for future services. The record contains insufficient information for the judge to have determined the reason (or reasons) for which the options were granted. The husband neither provided the judge with his employee stock option plan nor testified as to the reasons the options were given to him.(14) Having failed to present any evidence on this issue, the husband could not meet his burden of proving that the options were given in whole or in part for future services to be performed after dissolution of the marriage and that at least a portion of them should not be included in the marital estate. Based on the evidence in the record, the judge did not err in concluding that the unvested options granted during the marriage could be included in the marital estate. See, e. g., Feathler v. Feathler, 33 Mass. App. Ct. 924, 924-925 (1992) (where husband failed to offer testimony for judge to calculate present value of pension, judge "cannot be faulted for fashioning an equitable division" based on information submitted by another witness). Once the judge determined that the options could be included in the marital estate, he had broad discretion in dividing them between the husband and wife. See Mahoney v. Mahoney, 425 Mass. 441, 443 (1997), citing Early v. Early, supra at 727, and cases cited. There was no abuse of discretion. We affirm the judgment of the Probate and Family Court.
(1) The husband also claims that the judge's memorandum of decision does not constitute the findings required by statute, because the judge stated that his memorandum served as his "rationale" in support of the judgment. The label given the findings is not important; what is important is that "a judge's findings clearly indicate that he has weighed all the statutory considerations." Bianco v. Bianco, 371 Mass. 420, 423 (1976).
(2) The judge divided only those unvested stock options that had been issued to the husband before December 16, 1997. Neither party has challenged this decision, and therefore our discussion of the husband's unvested stock options refers only to those options issued prior to this date.
The judge also awarded each spouse one-half of the husband's vested options. The husband does not challenge this division.
(3) The husband argues that granting stock options to employees has emerged only in the past ten to fifteen years, thus, he claims that "the [L]egislature did not contemplate the special nature of stock options when it passed [G. L. c. 208, § 34] in 1974." However, the phrase "including but not limited to, all vested and nonvested benefits, rights and funds accrued during the marriage" was added to the statute in 1990 when, as the husband points out, granting stock options to employees was becoming increasingly common. See St. 1990, c. 467.
The husband also maintains that his unvested stock options were not "accrued during the marriage" under G. L. c. 208, § 34, but he offers no suggestion as to what this phrase means. It appears that the husband would equate the word "accrue" with the word "vest" and that, because his options have not vested during the marriage, they cannot be included in the marital estate. The statute is not so limited. It permits judges to assign nonvested benefits, rights, and funds, which clearly indicates that vesting during the marriage is not a requirement.
(4) In addition, the judge can give the nonemployee spouse the power to exercise his or her shares of options through the employee spouse, regardless of whether the employee spouse ever exercises his or her shares once they have vested.
(5) Our conclusion that unvested stock options may be considered marital property is consistent with the majority of State courts that have addressed this issue. See, e. g, In re Marriage of Hug, 154 Cal. Aplicativo. 3d 780, 782-783 (1984); Bornemann v. Bornemann, 245 Conn. 508, 520 (1998); Batra v. Batra, 17 P.3d 889, 894 (Idaho Ct. App. 2001); Green v. Green, 64 Md. App. 122, 136 (1985); Davidson v. Davidson, 254 Neb. 656, 664 (1998); DeJesus v. DeJesus, 90 N. Y.2d 643, 650 (1997); Matter of the Marriage of Short, 125 Wash. 2d 865, 874 (1995). But see Hann v. Hann, 655 N. E.2d 566, 569 (Ind. Ct. App. 1995); Hall v. Hall, 88 N. C. App. 297, 307 (1987). See also Curtis, 15 J. Am. Acad. Matrimonial Law 411 (1998) (collecting cases).
(6) Although in some cases stock options may be given to an employee for future services that will be performed after dissolution of the marriage, the value of the employee to the employer, which caused the employer to reward the employee with stock options, may have come about as a result of the marital partnership. The nonemployee spouse may have contributed to the employee spouse's ability to achieve the position for which the options were given. Trial judges have discretion to consider the nonemployee spouse's contributions in obtaining the options.
(7) If the options were given for efforts expended before or during the marriage, they are part of the marital estate. See Rice v. Rice, supra at 400. If, however, the options were given for efforts to be expended after the marriage, in order to include them in the marital estate, the judge must determine whether the options were nonetheless given for efforts attributable to the marital partnership. See note 6, supra.
(8) We will not reverse the judge's decision unless clearly erroneous. See, e. g., Connolly v. Connolly, 400 Mass. 1002, 1003 (1987), citing Fox Tree v. Harte-Hanks Communications, Inc., 398 Mass. 845, 847 (1986). See also Mass. R. Dom. Rel. P. 52 (a) (2001).
(9) Of course, as discussed above, see note 7, supra, the judge also could find that the options should be deemed marital property despite the fact that they were given in part for services to be performed after dissolution of the marriage.
(10) For example, we hypothesize that an employee was given one hundred shares of unvested stock options; that they were issued three years before dissolution of the employee's marriage; and that they will vest two years after dissolution of the marriage. The time that the employee owned the options prior to dissolution of the marriage would be three years, and the time between the date the options were issued and the date that they vest would be five years (three years before dissolution plus two years after). The portion of the options that could be included in the marital estate would be three-fifths. The one hundred shares are then multiplied by three-fifths, which equals sixty. Therefore, sixty of the one hundred shares of unvested stock options may be subject to division between the spouses. The judge would then make an assignment of those sixty shares of stock options in accordance with G. L. c. 208, § 34. The remaining forty shares would not be included in the marital estate and thus would belong solely to the employee spouse.
(11) We emphasize that a time rule is applicable only when the party with the burden of proof has established that the unvested stock options were given in whole or in part for future services to be performed after dissolution of the marriage and the judge determines, based on the factors under G. L. c. 208, 34, that a portion of the options should not be included in the marital estate.
(12) Although the judge did not specifically deal with the possibility that the husband would exercise the options but not sell his shares, the implication in the judge's decision is that in such a situation the husband would be required to notify the wife that he has exercised his options but is not selling the stock (at least at that time) and allow her to sell her half of the shares.
(13) The husband testified that the unvested options should "stay with me since they are completely unvested."
(14) The wife, not the husband, offered testimony of a financial expert. The expert had reviewed the parties' financial documents contained in the record, but he did not have the benefit of the husband's stock option plan and thus could testify only in general terms as to when options vest, any restrictions on them, and the reasons for which they are granted.

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