Unvested Stock Options Can Be Divided in Divorce

In Baccanti v. Morton (MA, No 08442, 8/13/01), the Massachusetts Supreme Judicial Court ruled that unvested options could be divided in a marital estate. The court concluded that a party's estate includes all "vested and nonvested benefits, rights, and funds." This would include stock options, even though they are not specifically mentioned in the law. It said that unvested stock options could be compared to unvested retirement benefits. It noted that options could be the most valuable asset in a marriage, and thus could not properly be excluded form a settlement. The key issue for the court to determine would be whether the options were granted for work before, during, or after the marriage. In addition, the court must find a way to value the options.

In this case, the court decided that rather than ascribing a current value to the options, it would provide that the value would be divided if and when the options were exercised. Which options to divide presented a trickier problem. The court noted that the majority of decisions in cases around the country on this conclude that the court should look at the contributions of the spouses in acquiring the options, rather than simply looking at whether the options were acquired during the marriage. A minority view holds that all options granted during the marriage should be marital property. The key difference here is that unvested options that will be partly earned after the marriage would not be evenly divided between the spouses under the majority view. The Massachusetts court differed from the majority view, however, in concluding that options granted prior to the marriage could also be included in certain cases, since they had become part of current marital property. In addition, in certain circumstances, such as long-term marriages, options that vest after the divorce could be considered marital property if the courts concluded that both parties had contributed to their acquisition. In general, awards given solely for future service would be excluded, however, but awards for current and past service would generally be included. Awards that vest after the divorce would be divided based on how many years they had been outstanding and how many years remain until vesting.

Here, the court ruled that the gain from the exercise of existing options would be divided equally when the shares were sold. If the husband does not exercise the options upon vesting, the wife would be allowed to exercise her half of them.