Divorce Financial Tips From Mike Bean, CPA, CDFA
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Stock Option Language in Settlement Agreements
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Clients who work for public and for private companies, large and small, are often granted stock options and restricted stock units. Inevitably, these types of investments become a subject of contention in divorce situations for many reasons, not the least of which is because they are often misunderstood.
This lack of understanding of complex securities is further demonstrated in drafting the marital settlement agreement. Often, the language around Stock Options is vague, and many issues are not addressed at all. Areas to watch for include:
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Use of the generic term “Stock Options”. The agreement should include information on the specific type of stock option or restricted stock.
- Incentive Stock Option (ISO)
- Non-qualified Stock Option (NQSO)
- Restricted Stock (RS)
- Restricted Stock Unit (RSU)
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Specific information on the relevant individual “Grants” and the vesting schedule for each should be included.
- Address Transferability.
- If options can be transferred, specifics on how this transfer will happen should be spelled out. For example, will a QDRO be needed? Some plans are now requiring this for NQSO’s.
- If options cannot be transferred, and the employee’s spouse will hold shares for the ex-spouse, the agreement should include language that gives the non-employee spouse the “right, power and authority” to compel the employee spouse to exercise their shares; or, alternatively, reserving all such rights to the option holder.
- Include specifics on how the non-employee spouse’s request to sell will be handled (i.e. in writing, 30 day notice, time-frame for employee spouse to exercise, payment, etc.). The clearer the parameters, the better chance of avoiding disputes in the future.
- Consider including a clause that addresses dispute resolution options in carrying out the agreement.
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Read through and understand the Plan Document – An agreement cannot provide more than what the plan document allows for.
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Consider what will happen in the event of employee-spouse’s termination or death, company being sold, acquired or merged with another company or acceleration of vesting period.
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Taxes - Specify how taxes will be handled.
- Will they occur at the time of exercise, sale of shares, in the event of AMT, refunds or when additional taxes are due?
- Will there be a “true-up” after tax-returns have been filed?
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Property Division or Child Support - Clarify in the agreement's language.
- Future Grants - If applicable.
- If future grants are to be considered for child support – language should be clear on how this will be handled in the future. Consider including language such as: “If warranted new Child Support Guideline calculations may be run to incorporate updated income for both parties and if determined, revisions to Child Support may be appropriate”.
There are many moving parts to complex securities, and care is needed in drafting how they will be treated in a divorce settlement. Clear language that addresses these issues will help to avoid disputes in the future.
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Mike Bean, CPA, CDFA
provides divorce
financial planning
& litigation support
to attorneys,
their divorce clients,
& individuals
contemplating divorce.
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QUICK LINKS
Resources & Memberships
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Michael Bean is on the National Board of Directors for the
Association of Divorce Financial Planners (ADFP), and is an active member of the Institute of Divorce Financial Advisors (IDFA)
as well as the Georgia Society of Certified Public Accountants,
where he served on the Financial Literacy Committee.
He has been featured in Divorce Magazine, Business Radio X, and has been a recipient of Atlanta Magazine's Five Star Wealth Manager
"Best in Client Satisfaction" for three consecutive years.
Please call to discuss how his services might best assist your practice
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Michael Bean, CPA CDFA
Divorce Sense, LLC
2002 Summit Blvd NE, Ste. 300
Atlanta, GA 30319
phone: 770.790.5050
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