When going through a divorce, there are a few main assets that immediately come to mind like the marital home, bank accounts, vehicles, etc. While these are a few of the most popular assets, one that people don’t always think of right away are stock options.
In Maryland, the state recognizes stock options as marital property as long as they were granted during the marriage. Since Maryland is an equitable distribution state, they are subject to the equitable distribution process, similar to a 401K. This is true whether the stocks are vested or non-vested.
So what will the courts look at when it comes to the division of stocks? One factor they will consider is when the stocks were exercised by the spouse whose name the stocks are under. After the court determines if the stocks are marital, a value will be assigned to them. In Maryland, the most popular method in determining the value of stocks is the Intrinsic Value Method. Using this method, the option stock price is subtracted from the current stock price and then multiplied by the quantity of options in the spouse’s name.
After the stocks are valued, it is time to determine how the stocks will be divided between the divorcing spouses. One of the most popular and simplest ways is to grant the other spouse an asset of equal value to the amount they would have received from the stock option. For example, if the stock option is valued at $60,000, the other spouse would be entitled to $30,000 of that stock. In order to simplify things when it comes to tax purposes, the spouse whose name is not listed under the stock can accept a different asset(s) also valued at $30,000. They could also choose to receive the $30,000 is cash value if the other spouse has that available to distribute.
There are also tax implications associated with stock options during divorce. Once the value of the stock is acknowledged, it is subject to income taxes. The tax implications of the stock vary based on a few different factors. These include the type of option, how it is exercised and the value of the option. It is also important to note that the tax burden of the stock cannot be transferred from spouse to spouse. Since the tax implications associated with stock options are rather complicated, it is important to consult with your attorney or a CPA before you transfer any stocks.
The attorneys at Petrelli Previtera are here to guide you through the divorce process step-by-step. If you are ready to move forward with your divorce, schedule a consultation with one of our attorneys so we can help you move on to the next exciting phase of your life.