Stock Options in Divorce: How They Are Valued and Divided

Wondering how to split stock options when a marriage ends? Couples in tech-heavy Washington often face this puzzle, and the answers rarely fit on a single spreadsheet.

At Jackman Law Firm, we have guided families through dividing complex assets since 2014, so we know the stakes are high and the rules feel anything but simple.

This article breaks down how stock options are labeled, valued, and shared in a divorce, giving you practical steps you can put to work right away.

Determining Separate vs. Community Property

Labeling an option as yours, mine, or ours comes first because every later decision flows from that label. Washington follows community property rules, yet timing, purpose, and vesting all weigh in before the court decides where an option belongs.

Community Property Considerations

Options granted while you are married generally fall into the community bucket. Courts look at the grant date, vesting schedule, and the work tied to each slice of the option grant.

• Grant during marriage, vest during marriage: fully community
• Grant during marriage, vest after separation: may still be community if linked to work performed while married
• Unvested options during marriage: Washington courts may divide them even before they vest

The takeaway is simple: do not assume an option is off-limits just because you cannot yet exercise it.

Separate Property Exceptions

Options granted before the wedding day or after a formal separation usually stay with the employee spouse. But there is a wrinkle. If the grant rewarded past work that happened while you were married, a slice of that post-separation grant can drift back into the community pool. Gathering employment contracts, equity award letters, and performance reviews helps the judge see what each grant truly rewarded.

Valuation Methods for Stock Options

After sorting separately from the community, the next hurdle is putting a dollar figure on the marital slice. Courts often weigh professional reports, though spouses can still reach their own number if both sides feel confident.

Intrinsic Value Method

This approach subtracts the strike price from the current trading price, then multiplies by the number of options in play. It works well when the company trades publicly, yet it ignores future market swings, job risk, and liquidity limits.

Black-Scholes Model

The Black-Scholes formula adds layers such as volatility, interest rates, and time to expiration. Because it leans on statistics, parties often hire a forensic accountant or valuation analyst to run the numbers. The output lands closer to what an investor might pay for the option on the open market.

Coverture Fraction

Think of this as the “time rule.” You divide the months the employee worked during the marriage by the total months in the vesting period. Multiply that fraction by the total value to isolate the community piece. This method shines when only part of an award was earned during the marriage.

Negotiated Agreement

Some couples sidestep formulas and pick a number they both accept. While this saves on professional fees, it carries risk if the stock later soars. Talk with a financial adviser before locking in a lump-sum value.

The table below compares the most common valuation tools:

Methods for Dividing Stock Options in Washington

Once a value lands on the table, the court or the parties decide how each spouse actually receives that value. Company plans, tax timing, and cash flow shape the choice.

Offsetting Assets

The employee keeps the options, and the other spouse trades them for assets of equal worth. For instance, if the marital share of the options totals $100,000, the non-employee spouse might receive $50,000 in home equity or retirement funds.

Deferred Distribution

Here, the employee holds the options in trust for both spouses. When each slice vests or gets exercised, the marital portion flows over to the non-employee spouse under a pre-set formula. A solid agreement should cover notice of job changes, early option exercises, and any company-driven repricing.

1. Create a written schedule showing the percentage owed at each vesting.
2. Require written notice before any exercise or sale.
3. State who pays withholding taxes and how the net proceeds are split.

Many lawyers add a constructive trust clause so the non-employee spouse can step in if the employee fails to share sale proceeds.

Direct Transfer (Less Common)

Some plans let options move outright to the other spouse, but many do not. If the employer blocks transfers, couples must pivot to one of the two methods above.

Tax Implications of Stock Option Division

Taxes can wipe out value if both sides overlook them. Incentive Stock Options (ISOs) may trigger alternative minimum tax rules while Non-Qualified Stock Options (NQSOs) count as ordinary income on exercise. The employee spouse usually faces the initial withholding, but the eventual capital gain or loss touches whoever sells the shares. Because tax law changes and company plans vary, many couples bring in a CPA to map the least painful path.

Need Assistance with Stock Options in Your Divorce? Contact Us

Since 2014, Jackman Law Firm has focused on winning fair outcomes for Washington families facing complex property issues. If stock options or other equity awards are on the line, you do not have to puzzle through grant letters alone. Call us at 206-558-5555 or reach out through our Contact Us page to set up a consultation. We stand ready to protect your interests and help you move forward with confidence.