Unvested Options Are Marital Assets

One of the most contentious stock options issues is whether unvested options should be included in marital property in divorce settlements. In Fisher v. Fisher (Pa. No. 170, 4/25/01), the Pennsylvania Supreme Court ruled that they were. James and Patricia Fisher were married in 1984, separated in 1993, and divorced in 1994. Fisher was an executive at Harley-Davidson and had $71,000 in unvested options. Patricia Fisher contended that she should receive a share of these unvested options when exercised. A trial court sided with the husband, but the Supreme Court reversed the ruling. The court concluded that unvested options were similar to unvested pension rights, rights that other states had included in divorce settlements. The court ruled, with dissenting opinions, that the value of the options should be divided if and when they are exercised. Dissenting opinions argued that the options should be valued at the time of divorce using some kind of present value approach and, in a separate opinion, that the wife should have some say in whether and when the options are exercised.

An even more dramatic sets of facts occurred in Warner v. Warner (Mo. Ct. App., No. SC 58469, 4/24/01). In this case, Charles and Sandra Warner dissolved their marriage December 31, 1998. Charles Warner took a job at America Online Inc. during the marriage dissolution proceedings and received options as part of his compensation. Sandra Warner then petitioned the court for a share of the options. A trial court divided the options between her and her husband. He appealed, but the court concurred with the trial court. Charles Warner contended that his employment at AOL did not start until the trial in the proceedings had begun and, in any event that his options had not even started to vest. The court concluded that Missouri law made it clear that options obtained before dissolution were community property. The fact that they had not yet vested was outweighed by the fact that Charles Warner's previous work experience while married had made him a candidate to receive options.

The decision did not indicate what formula was to be used to divide the options.