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Divorce and High Tech Stock Awards: Don’t Let Yourself Be Shorted

by | Feb 10, 2022 | High-Asset Divorce |

A common legal issue that arises during a divorce when one spouse is employed by a high tech company is how to divide future stock awards, stock options or similar employee benefits. Clearly stock awards can be a valuable asset, sometimes adding up to millions of dollars. These benefits are provided to highly skilled employees by many IT companies like Microsoft, Amazon, Facebook and Twitter. For example, an employee stock award in any given year may be based on the revenue generated during the employee’s past five years of employment. If a divorce occurs in 2022, and the IT employee will get stock awards for five more years after the divorce, should these awards be split as community property? Or are they the separate property of the IT spouse?

Normally, community property law in Washington state provides that any asset acquired after a divorce is presumed to be the separate property of the spouse who acquires that asset. If a divorce order is entered in June of 2022, and the IT employee has been working for that company for more than five years, what stock awards for the next five years should be considered community property? And what stock awards will be considered the separate property of the IT spouse? Will all of it be the separate property of the IT employee, or should some of it be split by the divorce court because it is community property?

The divorce orders entered in such cases may make an award which is not fair and supported by the law. If you or your spouse receives stock awards or options, be careful. Many times, an inequitable result occurs because of a settlement or court order which incorrectly applies a well known Washington State Supreme Court case involving a Microsoft employee: In re Marriage of Short, 125 Wn.2d at 871. Mistakes are sometimes made even by experienced attorneys, mediators and Judges.

The general rules established in Short are still applied by Washington courts, but the facts in Short are factually very different from many divorce cases. Whether or not the employee stock award or option in your case is separate or community property depends on when these benefits were earned or awarded. Figuring out when an unvested employee stock award or option is community property requires applying the time rule, which is a formula for allocating stock options according to the employment services performed prior to and after the date the parties were living separate and apart.

The basic question is whether future unvested stock awards compensate the IT employee for past, present or future services. You should carefully investigate the circumstances underlying the grant each award. Was the right to awards or options earned during the marriage and before the parties began living apart? If so, should stock received for the next five years be split as community property, or is it the separate property of the IT employee?

Don’t let yourself be “Shorted” in your divorce. Our experienced attorneys at Clement Law Center will help you conduct the proper analysis for dividing stock awards, options, retirements and other high tech employee benefits.