Executive compensation is complicated. When you’re divorcing from a man who’s been an executive, and is compensated accordingly, you really need a financial pro on your side.
That would be me. I’m a CPA, a CERTIFIED FINANCIAL PLANNER™ professional, and a Certified Divorce Financial Analyst® professional.
I couldn’t resist naming this article about your “options for options”; I’m a sucker for puns like that.
But the real name of this article should be: “Do not try this at home.”
Let me explain.
First off, a stock option refers to the owner’s ability (option) to purchase shares in the company, at a future date, at a price that’s fixed now.
(See? It’s already starting to get eye-glazing.)
In other words, if an executive is able to drive up the price of his company thanks to his performance, he gets rewarded by buying the shares, in the future, at what will by then be a bargain price. Get it?
Stock options, by the way, are generally regarded as icing, when it comes to executive compensation. That whole notion of helping to drive up the value of, say, a publicly-traded corporation, is a big ask; there’s no guarantee that the exec will end up “in the money,” as they say—that is, able to make a huge windfall thanks to an advantageously-priced purchase.
Here’s how this affects you, in divorce. Stock options can be issued as compensation for past performance. Or they can be issued as an incentive for future performance.
“Past,” as in “during the marriage.” And “future,” as in “post-divorce.”
Now let’s say that you, as the divorcing wife, have the option to partake in your spouse’s options. Is that even an automatic “yes”?
Nope. It’s not.
Let me phrase it this way: Would you want to participate in the potential upside/payout… at the risk of getting absolutely nothing? Or would you prefer to be bought out now, at what might be a lower price?
Here’s another question: Let’s say that stock price goes up at, oh, five percent a year. How does that translate to what you would get? What are the tax implications? Would it be worth it? You need sophisticated software—and expertise—to model these kinds of scenarios. Let me do that for you.
Again: Don’t try this at home.
Even your attorney won’t want to touch this. Did you know, for example, that there’s “restricted stock,” and “restricted stock units,” and that they’re very different? Ditto for “qualified” vs. “nonqualified” options. There are the SERP (Supplemental Executive Retirement Plan) rules, which stipulate when someone can sell stock in a publicly-traded company, without breaking the law for insider trading. There’s the fact that stock options expire ten years after they’re issued—creating a ticking clock for the maximum potential payout.
Then there’s the whole “vesting” schedule, typically, in tranches; in other words, at the time of your divorce, some of those options may be vested, some may not, some may be partially vested. Who’s going to untangle all of those numbers?
Do not try this at home.
Let me make this easy for you. Let me translate it for you in simple terms and easy-to-understand choices based on your own preferences and situation.
Contact me today. Let’s get you on the path to post-divorce positivity.