Ask A Lawyer: What Are My Options With Stock Options?

Question:

I want to know how to value options? I know this is a lot, but it’s driving me crazy. I am a small partner in a financial services firm sold in 2007. I can exercise an option beginning 2012. There is a minimum and maximum price to the option.

The minimum and maximum value differential is 4x. So it could be worth a little or worth a lot if the business grows a lot. This is a non-public company and the option value is based on a company revaluation (multiple of EBITDA) in the year I choose to exercise.

Since the sale in 2007, our business has fallen off the cliff due to the financial downturn, down 80%. Is it true that a court could decide the asset is worth the minimum and force me today to pay New Jersey half the value now based on a present value calculation? Or would they say – wait until 2012 and New Jersey gets half of whatever it is? Since the option is not a public company and I have to be employed to exercise, is it worth anything today? Am I forced to stay at the firm even if I do not wish to? Any help is much appreciated.

 

 

Answer:

Stock options which are vested and exercisable upon the date the marriage ended will most likely be viewed by the court as marital property and valued at the present valuation. The options will then be divided in an equitable manner with your spouse. Conversely, any stock options which are not exercisable or vested as of the date the marriage ended will most likely be deemed your separate property and considered an incentive for future employment.  Community property states are different, but you do not provide your location in you question; therefore, the above information may apply in your jurisdiction.

If your options are vested and exercisable, the court will probably want you to use the present valuation and split them equally with your wife.  However, as in your case, the options are not exercisable until 2012, and should be treated as an incentive for future employment.  They should remain your separate property and not be divided with your wife. This is done because you may not desire to stay with this company for three more years, and you cannot be required to do so.  As you are aware, the attorneys for both parties will negotiate the terms of the asset division plans and likely present different division plans to the Court, but the stock options should remain your separate property. 

 

Milandria King is a Senior Attorney in the Memphis, Tennessee office for Cordell & Cordell, P.C., admitted to practice law in the state of Tennessee. Additionally, Ms. King is admitted to practice before the Sixth Circuit Court of Appeals and before the United States District Court for the Western District of Tennessee. Her memberships include the American Bar Association, the Memphis Bar Association, the Tennessee Bar Association, as well as the Association for Women Attorneys.

Read more about Ms. King.

 

 

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