Stock options not shareable in divorce

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A recent case from Massachusetts shows that being as clear as possible with your attorney about your wishes when negotiating a separation agreement will help you greatly should a dispute arise later on.

In that case, a divorcing couple negotiated a separation agreement that merged into their divorce agreement under which the husband, a corporate executive, was to pay his wife $900 per week in alimony and $334 a week in child support.

The agreement also said that should the husband receive “any manner of bonus” from his employer, he would share 31 percent of it with his ex-wife — 15 percent as alimony and 16 percent as child support. But the agreement did not spell out what would be considered a “bonus.”

Following the divorce, the husband took a new job where his compensation consisted of a salary, a bonus of up to 40 percent of his salary and stock options. Under his employment agreement, his options would vest early should the company be sold or merged.

The company was subsequently sold. The husband was terminated and exercised his stock options, worth $1 million.

The wife demanded to share in the options, characterizing them as a “bonus.”

The husband, however, insisted that they did not qualify as a bonus because they were not a performance-based reward. He also pointed out that when they were negotiating the separation agreement, he repeatedly rebuffed the wife’s attempt to count potential stock options earned post-separation as part of any shareable bonus, insisting he would only pay alimony and support on cash bonuses.

The Massachusetts Appeals Court agreed with the husband, noting that the term “bonus” can mean many things, but the intent of the parties is what governs, and the husband had made his intent clear. Still, the court found that the husband would still owe a portion of the proceeds as child support, since the obligation to pay child support isn’t something that can be negotiated away.

If you’re interested in learning about how the courts might handle such an issue in your state, talk to a family lawyer where you live.

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