You or your spouse worked hard and it has finally paid off with the right to purchase stocks at a discount from your employer. When stock options are granted they typically provide an opportunity to purchase shares of stock in the future at a fixed price and can be highly valuable. The future date is called the “vesting date”. Typically, stock options vest over time, sometimes monthly (e.g. no cliff) and sometimes with a “cliff” which only start to vest after a prescribed period of time (for example: Stock options with a one year “cliff” will not begin to vest until after one year.) So, can unvested stock options be divided in divorce? What if the options vest after divorce?
Stock options earned during the marriage are divisible in divorce.
The seminal Michigan divorce case of Byington vs. Byington, 224 Mich. App. 103 (1997) provides that assets “earned during the marriage” are considered part of the marital estate. Therefore, stock options earned during marriage are marital property subject to division in divorce. This is true where the assets are received during the existence of the marriage, but also where the assets are received after the judgment of divorce. Therefore, stock options earned during the marriage, but received after divorce are also marital property.
What about unvested stock options?
Unvested stock options are stock that are not yet earned, while vested stock is earned. It makes sense then that stock options received during the marriage that vest after divorce are not subject to division as they are not “earned during the marriage”. However, this is not the case.
In Vollmer v. Vollmer, 187 Mich. App. 688 (1990), the Michigan Court of Appeals determined that unvested stock options are an “annuity”. The Vollmer Court providing:
The plain meaning of “annuity” includes (1) the annual payment of an allowance or income or (2) the right to receive this payment. See The American Heritage Dictionary of the English Language (1973), p. 54.Vollmer, citing the lexical definition of Annuity pursuant to the America Heritage Dictionary
After determining that an unvested stock option is an annuity, the court relied on Michigan Compiled Laws 552.18(2) in determining that the stock options are marital property subject to division.
(2) Any rights or contingent rights in and to unvested pension, annuity, or retirement benefits payable to or on behalf of a party on account of service credit accrued by the party during marriage may be considered part of the marital estate subject to award by the court under this chapter where just and equitable.(MCL 552.18(2), emphasis added)
Therefore, if stock options are acquired by reason of the marriage (e.g. during the course of the marriage) both the vested and unvested stock options may be considered marital property subject to division in a divorce.
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