Full question:
Does a spouse have the right to any portion of unexercised stock options when splitting assets during a divorce? Also, what right does a spouse have to a company 401k?
- Category: Divorce
- Subcategory: Property Settlements
- Date:
- State: California
Answer:
In California, community property includes assets acquired during marriage, which means that unexercised stock options may be subject to division during a divorce. If stock options were granted during the marriage, some may be considered community property, even if they have not yet vested. The courts typically apply one of several time-rule formulas to determine how much of the options belong to the non-employee spouse. The Hug formula is used when options reward past services, while the Nelson formula applies when options incentivize future performance. The longer the time until the options vest after separation, the less likely they are to be deemed community property.
Regarding a 401k, any contributions made during the marriage are also considered community property and are subject to division. The court can either reserve jurisdiction to award a share of the benefits when they are paid or calculate the present value of the plan for a cash-out. A Qualified Domestic Relations Order (QDRO) is often necessary to enforce these divisions, ensuring compliance from the employer.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.