Divorce and Stock Options in Maryland: Division of Marital Property

Key Takeaways

• Stock options count as property because they give an employee an enforceable right to buy stock.
• Unvested options are split by a coverture fraction tied to work during the marriage.
• Courts may value options now or divide profits if and when they are exercised.
• Pensions, deferred compensation and RSUs may face similar timing rules.

Stock options a spouse receives from an employer during the marriage are at least partly marital property in Maryland, even if they cannot be exercised until years after the divorce. What matters is the date the options were granted, not when they vest or whose name is on the plan. Options granted before the wedding generally stay separate.

Are Stock Options Marital Property in Maryland?

Maryland law typically takes an expansive view of what is considered marital property. Under the law, marital property is anything that a spouse has acquired during the course of the marriage. A stock option meets this definition because it gives an employee an enforceable right to purchase stock at a certain price at a certain point in time. Stock options have value of their own, even if the exercise will not happen until well into the future. If the options were granted to a spouse at any point during the marriage, they are marital property that is subject to division in a divorce.

Vested vs. Unvested Options

Both vested and unvested options meet the legal definition of marital property. Unvested options are those that have been granted to an employee but cannot be exercised until a date in the future. Vested options are those that can already be exercised. Options that were obtained after the marriage and vested during the marriage are fully divisible in the divorce.

When it comes to unvested options, the court applies the coverture fraction: time worked after the grant and during the marriage, divided by time worked from the grant until vesting. The remaining share is the employee’s separate property because it is earned through work after the divorce.

RSUs, Deferred Comp, and Pensions

Restricted stock units, or RSUs, are company shares promised to an employee and delivered once they vest. Unlike options, they carry no purchase price, so they have value at vesting. Deferred compensation is pay earned now but received later, and Maryland courts have treated stock options as one form of it. Pensions pay retirement benefits based on years of service. Maryland law lets courts transfer interests in pensions and deferred compensation plans at divorce. For pensions, courts often use a coverture fraction comparing service during the marriage to total service. RSUs granted during the marriage may face similar timing analysis.

How Are Options Valued and Divided?

After a court identifies the marital share, it must decide whether to put a dollar figure on it. Maryland courts have described several approaches:

• Market value at divorce: The court subtracts the cost of exercising the options from the stock’s market value as of the divorce decree. This works best for vested options in publicly traded companies.
• Present value: An expert estimates what future profits are worth today, discounted for interest and the chance the options never vest. Courts have called this method speculative.
• If, as, and when: The non-employee spouse receives a set percentage of the profit only if and when the options are exercised.

The third method is common because unvested options are hard to value and often cannot be transferred. The shared profit is typically the stock’s value at exercise minus the option price and related costs.

What if Options Were Granted Before the Marriage?

Options that were granted before marriage are typically separate property that is not subject to division. If these options have increased in value, even that amount is not divisible in a divorce. However, this principle applies only to a passive increase that is not tied to an individual spouse’s effort. If the spouse’s work led to an increase in the value of the options, that amount would be subject to equitable distribution.

Maryland Divorce Lawyers at Oliveri & Larsen Can Help in Complex Situations

Whether you are dealing with stock options or any other type of difficult financial situation, you can count on the Maryland divorce lawyers at Oliveri & Larsen. Our experienced legal team will provide the assistance you need. Call us at 410-295-3000 or contact us online to schedule a consultation. We have offices in Annapolis, Maryland, and serve clients in the surrounding areas.