Divisão Estoque Opções Em Um Divórcio

OPÇÕES DE AÇÕES E OUTROS BENEFÍCIOS RESTRITOS COMO PROPRIEDADE DIVISIVA EM AÇÕES DE DIVÓRCIO 1997 National Legal Research Group, Inc. Era uma vez, quando o mundo era jovem, os empregadores atraíram empregados com apenas um tipo de benefício: salário. Os empregados qualificados e desejáveis ​​receberam salários mais altos e os empregados menos desejáveis ​​receberam salários mais baixos. Quando os salários eram o principal meio pelo qual todos os empregados eram compensados, não havia necessidade de os tribunais tratarem qualquer outro benefício como propriedade conjugal. Assim, há muito pouca jurisprudência pré-1940 de qualquer estado, mesmo jurisdições de propriedade comunitária, que tratou qualquer benefício adicional de emprego como propriedade divisível. Com o passar do tempo, essa estrutura de compensação simples começou a quebrar. Um sistema baseado em salários funcionou bem para compensar os empregados atuais, mas não deu aos funcionários qualquer segurança de aposentadoria. Como os funcionários começaram a viver mais e se aposentando em idades precoce, eles vieram a colocar mais ênfase na segurança da aposentadoria. Assim, os empregadores começaram a oferecer benefícios de aposentadoria como compensação adicional para atrair e reter empregados. A população aposentada era bastante pequena, no entanto, e consistia principalmente de ex-funcionários de longa duração que haviam prestado um serviço substancial à empresa. Assim, a maioria das pensões durante os anos 50 e 60 foi generosa em quantidade, e carecia de onerosas exigências de aquisição. Muitos estados não tinham sistemas de divisão de propriedade em vigor na época, mas aqueles estados que tinham sistemas semelhantes reagiram às mudanças tratando os benefícios de aposentadoria como propriedade divisível. Ver geralmente Brett R. Turner, Distribuição Equitativa da Propriedade 1.01, 6.09 (2d ed. 1994 Supp. 1996). Ao longo dos últimos vinte anos, como a geração baby boom atingiu o local de trabalho em plena força e os empregadores começaram a se preparar para a aposentadoria baby boomers eventual, o número de métodos disponíveis para compensar os empregados tem crescido explosivamente. Uma série de fatores têm impulsionado esta explosão. Benefícios de aposentadoria tradicionais são menos eficazes para, como a idade da população, os empregadores têm cortado em seus pacotes de benefícios de aposentadoria. Esses cortes foram paralelos a outras mudanças, mais divulgadas, em programas públicos, como a Previdência Social. Em face desses cortes no plano de aposentadoria, os empregadores optaram por um grande número de outros programas de benefício complementar, oferecendo tanto pré-aposentadoria quanto benefícios pós-aposentadoria. A complexidade dos programas de benefícios individuais também aumentou muito, alimentada pela crescente complexidade do Código Tributário e pela adição da Lei de Segurança de Reforma dos Empregados (ERISA), um novo regime legal igualmente complicado que regula os benefícios de aposentadoria. Por último, os empregadores simplesmente se tornaram mais sofisticados no desenvolvimento de planos de benefício complementar que correspondem às necessidades individuais da empresa para os desejos de funcionários específicos. Voltamos a nossa atenção nesta questão para o que pode muito bem ser o benefício mais rápido crescimento do emprego em cargos de nível de gestão: a concessão de opções de ações. Opções de ações oferecem algumas das mesmas vantagens que os planos de aposentadoria tradicionais, como estoques corporativos podem ser usados ​​para gerar um fluxo de renda que irá apoiar o empregado após a aposentadoria. Além disso, e talvez mais importante, as opções de ações dão ao empregado uma participação no bem-estar do empregador, motivando assim o funcionário a um melhor desempenho. Como esse benefício aumenta gradualmente ao longo do tempo, o funcionário também é incentivado a permanecer com a empresa por mais tempo, um benefício que é importante em um mundo sem precedentes de mobilidade profissional. Devido a essas vantagens, muitos empregadores oferecem planos de opções de ações cujo valor econômico real está perto do valor declarado de seus empregados salários formais. A crescente disponibilidade, variedade e complexidade dos planos de opções de ações representaram grandes desafios para os tribunais em casos de divórcio. Este artigo dependerá indiscriminadamente de casos decididos sob sistemas de distribuição e sistemas de propriedade de comunidade. Os princípios jurídicos aqui em causa não variam entre os dois tipos de sistemas, e os tribunais seguindo um sistema muitas vezes se basearam na jurisprudência decidida no âmbito do outro. Embora reconheçamos que alguns dos casos referenciados foram decididos em jurisdições de propriedade comunitária, a consideração subjacente comum à avaliação do plano de ações e disputas de distribuição eqüitativa são bastante semelhantes. DeJesus v. DeJesus, No. 161, 1997. Ny.153, 17 (versus lei) (N. Y. 31 de Outubro de 1997). Como os benefícios de aposentadoria, opções de ações são freqüentemente estabelecidas em linguagem técnica que é assustadora para o não especialista. Com o risco de começar com o óbvio, é útil ter uma definição clara dos vários tipos diferentes de opções que são comumente oferecidos. Uma opção conservada em estoque é um contrato que dê ao proprietário o direito de comprar o estoque em uma determinada companhia (geralmente o empregador dos proprietários) para um determinado preço indicado. Ver geralmente Richardson v. Richardson, 280 Arca 498, 659 S. W.2d 510 (1983) In re Miller, 915 P.2d 1314 (Col. 1996). Como o valor da maioria das ações aumenta com o tempo, enquanto o preço da opção permanece constante, o valor econômico real de uma opção de compra de ações aumenta ao longo do tempo. Nos últimos anos, com o crescimento constante no mercado de ações, o valor de algumas opções de ações pode ser imensa. O preço indicado no contrato de opção é geralmente conhecido como o preço da opção. Algumas opções definem o preço baixo para fornecer um benefício imediato. Outras opções definir o preço ao valor de mercado para incentivar o empregado para ajudar a empresa a crescer. Ainda outras opções definir o preço acima do valor de mercado para proporcionar um bônus para o desempenho extraordinário. A maioria das opções de ações deve ser exercida dentro de um período de tempo definido. Se a opção pode ser exercida imediatamente após a concessão, é conhecida como uma opção imediata. Se a opção não puder ser exercida até que algum período de tempo passe após a sua concessão, a opção é conhecida como opção diferida. Opções diferidas são mais comuns, como o empregado é dado um incentivo mais forte para permanecer com a empresa por um longo período de tempo. Assim como os benefícios de aposentadoria, as opções de ações também podem ser classificadas como adquiridas ou não. Uma opção adquirida é aquela que o empregado está autorizado a manter, mesmo que ele ou ela saia da empresa antes da opção ser exercida. Em re Miller, 915 P.2d 1314 (Col. 1996). Uma opção adquirida que se tornou exercível é por vezes conhecida como uma opção amadurecida. Todas as opções amadurecidas são adquiridas, mas uma opção adquirida não amadurece até que o empregado possa exercê-la. Uma opção não adquirida é aquela que o empregado perde se ele ou ela deixa a empresa antes da opção é exercida. Identidade. A 1317-18 In re Short, 125 Lav. 2d 865, 890 P.2d 12 (1995). Algumas opções unvested são perdidas se o empregado deixa o empregador antes que a opção é exercitada realmente outro é perdido somente se o empregado deixa o empregador antes que a opção se torne exercível. As opções também podem ser classificadas como restritas ou irrestritas. No sentido mais lato, uma opção restrita é aquela que não pode ser imediatamente exercida. Algumas opções restritas não são adquiridas, mas uma opção adquirida diferida também é restrita antes que ela se torne exercível. Num sentido mais restrito, uma opção restrita é aquela que deve ser devolvida ao empregador se o empregado deixar a empresa. Este uso mais estreito é muito semelhante ao conceito de uma opção não-vencido. A distinção-chave, no entanto, é que uma opção unvested nunca é realmente de propriedade, enquanto uma opção restrita é propriedade, mas deve ser devolvido. Esta distinção é semelhante à diferença na lei de propriedade real entre um restante não investido e um restante que é investido, mas sujeito a desinvestimento. Em termos econômicos, a diferença entre os benefícios restritos e os não-adquiridos é mínima, ea maioria dos tribunais trata os termos como intercambiáveis. III. CLASSIFICAÇÃO DAS OPÇÕES DE VALORES MOBILIÁRIOS Como mencionado acima, as opções de ações maduras são opções que o cônjuge proprietário possui sem reservas. Como os benefícios de aposentadoria adquiridos, as opções de ações vencidas amadurecidas são um substituto do salário: O funcionário receberia um salário mais alto, ou talvez maiores benefícios de aposentadoria, se as opções não fossem oferecidas. Ver Green v. Green, 64 Md App. 122, 494 A.2d 721 (1985) Callahan v. Callahan, 142 N. J. Super. 325, 361 A.2d 561 (Divisão Ch., 1976). Embora algumas opções adquiridas não sejam transferíveis, muitos tipos de opções adquiridas são compradas e vendidas regularmente em mercados de valores mobiliários. Ver Richardson v. Richardson, 280 Arca 498, 659 S. W.2d 510 (1983) In re Hoak, 364 N. W.2d 185 (Iowa 1985). Além disso, opções vencido não pode ser um substituto para o futuro salário, uma vez que o empregado possui as opções absolutamente, mesmo se o empregado não fornece serviços futuros para o empregador. Como as opções de ações vencidas amadurecidas são um substituto para o salário passado adicional, elas são construtivamente compradas com esse salário, e elas têm a mesma classificação. Assim, quando as opções de ações vencidas amadurecidas são recebidas durante o casamento, elas são propriedade conjugal, mesmo que não sejam exercidas até que as partes se divorciem. (V. Richardson v. Richardson Pascale v. Pascale, 140 NJ 583, 660 A.2d 485 (1995) (as opções concedidas à esposa como recompensa por seus serviços anteriores durante o casamento eram propriedades conjugais) Demler v. Demler, 836 SW 2d 696 (Aplicação de Tex. 1992) Donohue v. Donohue, N ° 2675-96-2 (Va. Ct. App. 8 de Julho de 1997) (parecer não publicado). Uma opção adquirida pode ser propriedade conjugal, mesmo que não possa ser vendida ou transferida de outra forma. Veja Richardson v. Richardson. Uma restrição de transferência impede que o proprietário perceba imediatamente o valor da opção, mas ainda é provável que o proprietário acabará por receber algum benefício da opção. A falta de transferência imediata não impediu os tribunais de tratarem muitos outros tipos de benefícios como bens matrimoniais, incluindo os mais notáveis ​​benefícios de aposentadoria adquiridos e não adquiridos. Ver Callahan v. Callahan (observando semelhança geral entre benefícios de aposentadoria e opções de ações e sugerindo que elas devem ser governadas por regras semelhantes de classificação e divisão). Serviços Futuros. Os tribunais têm sido geralmente céticos em relação a reivindicações de que opções de ações adquiridas foram adquiridas em troca de serviços futuros. Por exemplo, em Pascale v. Pascale, a esposa recebeu um segundo conjunto de opções em conexão com uma promoção substancial. A esposa argumentou que estas opções eram a consideração para esforços futuros, mas o tribunal discordou. O problema com seu argumento era que as opções não dependem de qualquer maneira sobre a qualidade dos serviços futuros de fato, a esposa teria mantido estas opções, mesmo se ela sair no dia seguinte à sua emissão. Como o proprietário tem um direito imediato e irrevogável à propriedade absoluta de uma opção adquirida, é difícil argumentar que a opção é a contrapartida de serviços futuros. IV. CLASSIFICAÇÃO DE OPÇÕES DE AÇÕES NÃO REVENDIDAS Como opções adquiridas, opções não vividas são claramente um substituto de salário, como o empregado teria recebido um salário mais alto se não houvesse opções de ações disponíveis. Unvested opções reverter para o empregador, no entanto, se o empregado deixa o empregador antes do tempo de vesting. Assim, as opções não serão concedidas a menos que o empregado preste serviços substanciais. Na verdade, toda a razão para a adjudicação de opções não-vencido é incentivar o funcionário a permanecer com a empresa até que as opções vencimento. Veja In re Hug, 154 Cal. Aplicativo. 3d 780, 201 Cal. Rptr. 676 (1984) In re Miller, 915 P.2d 1314 (Col. 1996). Como as opções não utilizadas são um substituto para o futuro em vez do salário passado, elas são mais difíceis de classificar do que as opções adquiridas. A maioria de estados tratam opções unvested em uma maneira análoga ao tratamento de benefícios unvested da aposentadoria. Uma vez que a opção é a contrapartida de serviços futuros, a sua classificação deve depender se as partes foram casadas durante os anos em que os serviços foram prestados. O interesse conjugal é, portanto, determinado por uma fração igual ao número total de anos no período de aquisição de direitos durante o qual as partes foram casadas, dividido pelo período de aquisição total. Por exemplo, se a opção for concedida em cinco anos, e as partes se divorciassem depois de dois anos, dois quintos ou 40 das opções seriam propriedade conjugal. O mesmo princípio geral aplica-se a opções não adquiridas adquiridas antes do casamento. Por exemplo, se as opções são adquiridas em seis anos, e as partes se casaram após o quarto ano (e seu casamento durou mais de dois anos), dois sextos ou 33 das opções seria propriedade conjugal. Para casos específicos, adotando a fórmula acima para classificar as opções de ações não vividas, ver In re Isaacs, 260 Ill. App. 3d 423, 632 N. E.2d 228 (1994) In re Frederick, 218 Ill. App. Saldro, Salstrom, 404 NW2d 848 (Pedido de Pedido de Min. 1987) DeJesus v. DeJesus, No. 161, 1997. NY.153 (versus lei) (NY, 31 de Outubro , 1997) (erro ao tratar as opções não vencidas como bens conjugais apenas porque as opções foram recebidas durante o casamento, onde era necessário um serviço pós-matrimonial substancial para que as opções pudessem ser adquiridas). 17, 934 P.2d 612 (1996) e Dietz v. Dietz, 17 Va. App. 203, 436 S. E.2d 463 (1993). Cf. Chen v. Chen, 142 Wis. 2d 7, 416 NW2d 661 (1987) (aprovando a fórmula em teoria, mas encontrando os fatos insuficientes para aplicá-la) Em re Miller, 915 P.2d 1314 (Colo. Klingenberg v. Klingenberg, 342 Md. 315, 675 A.2d 551 (1996) (opções de compra de ações seriam propriedade marital apenas para o Kapfer v. Kapfer, 187 W. Va. 396, 419 SE2d 464 (1992) (as opções de compra de ações podem constituir provisões para bens imóveis conjugais Com instrução para classificar por analogia com os casos de benefícios de aposentadoria). Uma decisão aplica uma abordagem diferente para a classificação de vários conjuntos de opções não utilizadas. Em In Short, 125 Wash. 2d 865, 890 P.2d 12 (1995), o marido recebeu subsídios regulares de opções de ações. O tribunal reconheceu que as opções eram a contrapartida de serviços futuros, mas sustentava que cada conjunto de opções era apenas para os serviços prestados durante o período anterior à concessão seguinte. O tribunal atingiu esse resultado mesmo que o período de aquisição das opções fosse maior do que o período entre as diversas subvenções. Assim, o tribunal deu um caráter híbrido apenas ao conjunto de opções adquiridas durante o ano do divórcio. Todos os conjuntos de opções além desse conjunto foram inteiramente compensação para esforços pós-marital e, portanto, propriedade separada. Carga da Prova. O ônus da prova na aplicação da fórmula acima recai sobre a parte que procura demonstrar que as opções são propriedade parcialmente separada. Este ponto é um resultado lógico da regra tradicional de que todos os bens são bens conjugais, a menos que se prove que são propriedade separada. Assim, quando o registro não contém evidência suficiente para calcular o interesse separado, as opções devem ser tratadas como propriedade inteiramente marital. Ver DeJesus v. DeJesus, No. 161, 1997. Ny.153, 26 (versus lei) (N. Y. 31 de Outubro de 1997) Chen v. Chen, 142 Wis. 2d 7, 416 N. W.2d 661 (1987). Regras de Minoria. Na grande maioria das jurisdições, o mero fato de um benefício não ser adquirido não impede automaticamente o tribunal de dividi-lo. Em uma pequena minoria de estados, no entanto, o tribunal não pode dividir qualquer benefício não vencido. O resultado dessa regra é tornar todas as opções de ações não-vencidas propriedade separada. Ver Hall v. Hall, 88 N. C. App. 297, 363 SE2d 189 (1987) (onde o Estado divide apenas as pensões adquiridas, não contingentes, as opções são divisíveis apenas se forem exercíveis ou inalienáveis ​​a partir da data do divórcio) Hann v. Hann, 655 NE2d 566 (Ind. App. 1995). Esses casos são obviamente de pouco valor persuasivo em estados que adotam uma abordagem mais moderna para a classificação de benefícios não adquiridos. Além disso, um caso se afasta do consenso geral no extremo oposto do espectro, sustentando que as opções de ações não adquiridas são completamente adquiridas assim que o cônjuge proprietário recebe o título legal, independentemente de quaisquer contingências futuras. Smith v. Smith, 682 S. W.2d 834 (Pedido de Mo. 1984). Smith é completamente inconsistente com a tendência uniforme nacional de classificar as opções de ações não adquiridas da mesma maneira que as pensões não investidas. Além disso, há um poderoso argumento de que Smith não é mais uma boa lei à luz de Hoffmann v. Hoffmann, 676 S. W.d. 817 (Mo. 1984). Hoffmann inverteu uma longa linha de processos judiciais intermediários que sustentam que a propriedade é adquirida quando o título legal é recebido, adotando em vez disso a regra geral nacional de que a propriedade é adquirida gradualmente à medida que o preço de compra é pago ou seu valor econômico real é criado de outra forma. Smith lê muito bem as decisões que Hoffmann inverteu, ea lógica usada em decisões de outros estados é essencialmente a mesma lógica usada em Hoffmann. À luz deste fato, Smith é autoridade altamente questionável. Opções não aproveitadas e serviços anteriores Para complicar ainda mais a imagem, não é possível assumir automaticamente que todas as opções não utilizadas são puramente compensação para serviços futuros. Como todas as opções não-adquiridas são perdidas se o empregado não fornecer serviços futuros, as opções não-adquiridas parecem estar relacionadas apenas a serviços futuros. Mas a propriedade separada inclui somente aqueles benefícios que são realmente compensação para esforços nonmarital, e não aqueles benefícios que parecem ser ou são rotulados como tais benefícios. Por exemplo, quando o marido vende o seu negócio na véspera do divórcio por metade do seu valor de mercado e assina ao mesmo tempo um lucrativo acordo de consultoria que impõe poucos direitos reais, o tribunal pode tratar parte da contrapartida do acordo de consultoria Como propriedade conjugal. A propriedade separada maridos inclui apenas a consideração real para serviços pós-marital de consultoria, eo tribunal não está vinculado pela discriminação declarada de consideração entre os dois acordos. O mesmo princípio geral aplica-se às opções de compra de ações. Em In Short, 125 Wash. 2d 865, 890 P.2d 12 (1995), o marido deixou seu empregador e começou a trabalhar para a Microsoft Corporation. Ele recebeu um conjunto de opções de ações restritas imediatamente como compensação para aceitar o emprego, e ele recebeu vários outros conjuntos para incentivá-lo a permanecer com a empresa no futuro. O tribunal adotou uma regra de duas partes para classificar as opções de compra de ações não vencidas: opções de ações de empregados não-vencidas concedidas durante o casamento para serviços de emprego atuais. São adquiridos quando concedidos. As opções de ações de empregados não-adquiridas concedidas para futuros serviços de emprego são adquiridas ao longo do tempo à medida que as opções de ações ganham. 890 P.2d at 16. Aplicando esta regra aos fatos, o tribunal considerou que o primeiro conjunto de opções de compra de ações era de propriedade comunitária. Todos os outros conjuntos de opções foram considerados para serviços futuros e foram classificados de acordo com o momento em que os serviços foram recebidos. Assim, o mero fato de uma opção de compra de ações não ser concedida a menos que o serviço futuro seja fornecido não significa necessariamente que toda a opção É a consideração pelos serviços futuros. Pelo contrário, se o objectivo da opção fosse, em parte, compensar os serviços anteriores ou se o valor da opção for excessivo em comparação com os serviços futuros efectivamente prestados, é possível que parte da opção seja a contrapartida de serviços passados Serviços. Nesse caso, a consideração por serviços passados ​​seria classificada de acordo com o fato de as partes se casarem quando os serviços foram prestados, sob os mesmos princípios que controlam a classificação das opções adquiridas. A consideração para serviços futuros seria dividida de acordo com a fração que é tipicamente usada para opções não-vencidas. A Short Decision aplicou regras de classificação completamente diferentes às opções adquiridas em troca de serviços anteriores e futuros. Outra abordagem possível quando parte das opções são a consideração por serviços passados ​​é aplicar a fórmula tradicional para pensões não-vencidas, mas expandir o período de tempo para trás no passado. Em In re Hug, 154 Cal. Aplicativo. 3d 780, 201 Cal. Rptr. 676 (1984), o marido mudou de posição na midcareer. Pouco depois que o marido fez a mudança, seu novo empregador deu-lhe uma série de opções de ações restritas. Alguns anos depois, as partes se divorciaram. O tribunal considerou que as opções foram concedidas em parte como um substituto para a aposentadoria e outros benefícios marginais perdidos pelo marido quando ele deixou seu primeiro empregador, e em parte como compensação adicional para os maridos anos iniciais com a empresa, quando sua capacidade de pagar uma indemnização Em forma de salário era limitado. O tribunal também considerou, no entanto, que as opções foram destinadas como compensação para os maridos continuou serviço futuro com a empresa. Equilibrando essas múltiplas finalidades, o tribunal aplicou a fórmula tradicional, mas incluiu o período de serviço dos maridos com a empresa. Assim, a participação da comunidade foi igual ao tempo gasto com o segundo empregador durante o casamento, dividido pelo tempo total entre a data de emprego ea data em que as opções poderiam primeiro ser exercidas. O tribunal multiplicou esta fração pelo total de opções de propriedade e dividiu a participação comunitária em espécie entre as partes. Ver também Gárcia v. Mayer, 122 N. M. 57, 920 P.2d 522 (Aplicação Ct. 1996) (reconhecendo a possibilidade de repartição tipo Hug, mas finalmente encontrando a questão não apresentada sobre os fatos). Em DeJesus v. DeJesus, No. 161, 1997.NY.153 (versus lei) (N. Y. 31 de outubro de 1997), o mais alto tribunal de Nova York reverteu uma participação que as opções de ações não recebidas recebidas durante o casamento eram propriedade inteiramente marital. As opções eram em parte compensação para serviços pós-marital, o tribunal considerou, e eram assim propriedade parcialmente separada. Para orientar o tribunal de primeira instância, o tribunal apresentou a seguinte lista de fatores a serem considerados na distinção entre a compensação por serviços passados ​​e futuros: Reconhecemos, como outros tribunais, que qualquer lista de considerações pertinentes poderia ser apenas ilustrativa e não exaustiva ) Citação omitida. Entretanto, fatores relevantes incluem se os planos de ações são oferecidos como um bônus ou como uma alternativa ao salário fixo, se o valor ou quantidade das ações dos funcionários está vinculado ao desempenho futuro e se o plano está sendo usado para atrair pessoal chave de outros Empresas. DeJesus, 1997.NY.153, 27. Esta lista de fatores pode ser expandida para incluir não apenas se o valor da quantidade de ações depende do desempenho futuro, mas também se ele depende do desempenho passado. Por exemplo, se uma série de funcionários no mesmo nível receberem opções, mas aqueles com melhor desempenho passado receberão prêmios maiores, esse fato seria alguma indicação de que as opções são pelo menos parcialmente compensação por esforços prévios. Em casos isolados, as opções de ações podem Ser considerado para algo diferente de serviços passados ​​ou futuros fornecidos. Por exemplo, em In Isaacs, 260 Ill. App. 3d 423, 632 N. E.2d 228 (1994), a mulher foi premiada com algumas opções de ações como compensação pela queda no valor de certas ações. Porque o estoque era propriedade marital, o tribunal considerou que as opções conservadas em estoque eram igualmente conjugal, mesmo que fossem contingent em cima de seu emprego continuado com a companhia. Preocupações com a Política. Os casos acima são claramente corretos, considerando que as opções não utilizadas podem ser consideradas para serviços passados. O mero fato de uma opção depender de serviços futuros não significa que seu valor total seja uma compensação por esses serviços. Pelo contrário, em especial quando o número de opções concedidas depende de serviços anteriores ou quando o valor das opções é superior a um incentivo razoável para a prestação dos serviços em causa, as opções podem ser em parte consideradas por serviços anteriores. É igualmente errado, no entanto, tratar uma opção não adquirida como exclusivamente a consideração por serviços anteriores. Quando uma opção é unvested, o proprietário deve executar serviços futuros substanciais para receber a opção. Se esses serviços não forem fornecidos, a opção desaparecerá. Na verdade, o próprio propósito de impor restrições às ações não-investidas é encorajar esforços futuros. Este fato não significa que as opções unvested são somente consideração para serviços futuros, mas significa que as opções unvested são em parte consideração para serviços futuros. Em alternativa, deve ser um caso muito raro em que as opções não utilizadas são consideradas apenas para serviços passados. Infelizmente, alguns dos casos atribuem importância insuficiente aos serviços futuros ao classificar as opções não utilizadas. Por exemplo, em Goodwyne v. Goodwyne, 639 So. 2d 1210 (La Ct. App. 1994), o tribunal considerou que as opções não-vencido eram inteiramente consideração por serviços passados. Esta exploração ignorou o facto indiscutível de que as opções investidas apenas após o emprego futuro. Este requisito não era suficiente para tornar as opções inteiramente propriedade separada, mas certamente a necessidade de serviços futuros deveria ter resultado em pelo menos algum interesse separado. Da mesma forma, em In Isaacs, 260 Ill. App. (1994), em que a esposa adquiriu opções de ações como compensação pelo declínio de valor de certas ações matrimoniais, o tribunal considerou muito bem que existia um forte interesse marital. No entanto, as decisões futuras devem continuar a reconhecer a possibilidade de um interesse conjugal parcial em ações não vencido, mas quando os termos da opção exigem continuidade do emprego pós-divórcio , Deve haver um interesse separado parcial também. A fórmula padrão estabelecida no início desta seção, modificada por casos como Hug e Short, é um bom método para alocar esse tipo de opção de forma justa entre as propriedades conjugais e separadas. Highly Unvested Stock Options Em In re Miller, 915 P.2d 1314 (Col. 1996), o tribunal fez uma distinção entre as opções de ações que são propriedade sujeita a restrições futuras e opções de ações que nunca são verdadeiramente de propriedade. Uma opção entraria na primeira categoria se desse ao empregado um direito legalmente exigível de comprar o estoque ao preço da opção, mas permitiu o exercício desse direito somente se determinadas condições (por exemplo, o emprego continuado por um período de tempo) fossem atendidas. Uma opção entraria na segunda classe se desse ao empregado nenhum direito executável, como uma opção que o empregador poderia revogar à vontade. A corte indicou que o primeiro tipo de opção poderia ser parte ou completamente propriedade marital, mas que o segundo tipo de opção era uma expectativa inaplicável. Nenhum outro caso jamais tentou estabelecer qualquer distinção entre os diferentes tipos de pensões não-venci - das, e a opinião de Millers sobre este ponto não foi bem fundamentada. A finalidade da distribuição equitativa é alocar justamente entre as partes toda a propriedade que é um fruto dos esforços maritais. Se o empregador tem um direito incondicional de rescindir um plano de opção de compra de ações não tem nenhum efeito sobre esta finalidade. Se o cônjuge empregado nunca exerce uma opção, então não há frutos a serem divididos, eo cônjuge não proprietário não deve receber nada. Mas se a opção realmente é exercida, e se a opção era realmente pelo menos em parte compensação para esforços maritais, então deve haver um interesse marital nos lucros resultantes. O mero facto de a opção não poder ter sido exercida, ou mesmo de ser altamente provável que a opção não seria exercida, é irrelevante. Se a opção nunca realmente foi exercida, os lucros devem ser divididos entre as partes. Miller pode ser contrastado com um caso de Louisiana, Goodwyne v. Goodwyne, 639 So. 2d 1210 (Pedido de La., 1994). Na data da classificação em Goodwyne, o marido não possuía opções de ações. Após a data de classificação, o marido recebeu opções em compensação por esforços anteriores. A corte teve pouco problema segurando que estas opções eram propriedade de comunidade. Goodwyne é um caso mais extremo do que a situação antecipada por Miller, pois nessa situação o empregado possuía uma opção (embora uma opção altamente inviável) no momento do divórcio. Em Goodwyne, o marido não possuía qualquer opção na data do divórcio e, no entanto, o tribunal ainda considerava que havia um interesse conjugal nas opções concedidas posteriormente como compensação pelos esforços conjugais. Goodwyne está correto, e o dicta em Miller está errado. Ninguém deve ser obrigado a pagar reais dólares atuais para qualquer interesse conjugal em uma opção de ações altamente unvested marital propriedade, mas se a opção é realmente exercido os lucros devem ser divididos entre os cônjuges. Este é precisamente o mesmo princípio usado no Colorado, Louisiana e muitos outros estados para dividir todos os tipos de benefícios de aposentadoria não vencido. Como as opções de ações são semelhantes em muitos aspectos aos benefícios de aposentadoria, elas podem estar sujeitas a quaisquer regras especiais de direito que normalmente se aplicam à classificação e divisão de pensões. Ver Dietz v. Dietz, 17 Va. App. Klingenberg v. Klingenberg, 342 Md. 315, 675 (1993) (as opções de ações não vencidas estão sujeitas à lei, desde que o cônjuge não proprietário não possa receber mais do que 50 da parcela conjugal de qualquer aposentadoria ou outros benefícios de compensação diferida) A.2d 551 (1996) (no estado que normalmente realiza distribuição eqüitativa por meio de concessão monetária, as opções de ações estão sujeitas à lei, estabelecendo que o tribunal pode transferir o título para benefícios de compensação diferida entre as partes). V. VALORIZAÇÃO E DIVISÃO DE OPÇÕES Em teoria, a avaliação de opções de compra de ações é uma simples questão de subtrair o preço da opção do valor de mercado das ações envolvidas. Ver Richardson v. Richardson, 280 Arca 498, 659 S. W.2d 510 (1983) Green v. Green, 64 Md. App. 122, 494 A.2d 721 (1985). O tribunal também pode subtrair dos lucros quaisquer impostos que seriam incorridos quando as opções foram exercidas. Goodwyne v. Goodwyne, 639 Assim. 2d 1210 (Pedido de LaCto. 1994) Everett v. Everett, 195 Mich. App. 50, 489 N. W.2d 111 (1992). Esta subtracção está presumivelmente sujeita à regra normal de que as consequências fiscais devem ser comprovadas com razoável certeza. Ver geralmente Brett R. Turner, Distribuição Equitativa da Propriedade 8.10 (2d ed. 1994 Supp. 1996). Na prática, a avaliação das opções de compra de ações é muito mais complicada, porque o valor justo de mercado não é conhecido até que a opção seja exercida. Esta incerteza é semelhante à incerteza que prevalece na avaliação dos benefícios de aposentadoria, onde os termos completos de quaisquer benefícios dos empregados não serão conhecidos até a data real de aposentadoria. No contexto da pensão, a maioria dos estados dá ao juízo a discrição do tribunal para adotar um dos dois métodos de avaliação e divisão. If the court uses the immediate offset approach, the pension is valued using the best projections available on the date of the hearing, and the nonowning spouse is awarded cash or other property equal in value to his or her interest. If the court uses the deferred distribution approach, the nonowning spouse is awarded a specific percentage of each benefit payment actually received by the owning spouse. This method avoids a difficult valuation issue, and it ensures that neither party will receive an unjust windfall if the actual facts develop differently than an experts projections. The spouses must continue to deal with one another for many years to come, however, and there is an increased risk of future litigation. See generallyBrett R. Turner, Equitable Distribution of Property 6.11-6.12 (2d ed. 1994 Supp. 1996). The same two general methods apply to the valuation and division of stock options. A majority of the cases make a deferred distribution, ordering the owning spouse to pay the nonowning spouse a certain percentage of any future profit from exercising the option. See In re Hug, 154 Cal. App. 3d 780, 201 Cal. Rptr. 676 (1984) In re Isaacs, 260 Ill. App. 3d 423, 632 N. E.2d 228 (1994) In re Moody, 119 Ill. App. 3d 1043, 457 N. E.2d 1023 (1983) (noting specifically that husbands financial and health circumstances made it unlikely that the options would ever be exercised) Green v. Green, 64 Md. App. 122, 494 A.2d 721 (1985) Callahan v. Callahan, 142 N. J. Super. 325, 361 A.2d 561 (Ch. Div. 1976) (ordering the husband to hold the wifes share of the options in constructive trust for her benefit). Most of these cases establish the percentage at the time of divorce, but a few cases hold that the court can reserve jurisdiction to establish the percentage at the time the option is exercised. Ver, p. Moody. This difference in approach is similar to the difference between the deferred distribution and reserved jurisdiction methods of dividing retirement benefits. See Turner, supra, 6.11. The division must be based upon profit (value less option price) and not absolute value, of course, as the owning spouse is entitled to credit for any postmarital funds used to exercise the option. A similar but somewhat simpler option is to divide the options themselves between the parties, although some stock option plans prohibit this option by limiting the ownership of options to employees. If the court does not divide the options in kind, it cannot order the owning spouse to exercise the options it can only provide that the profit be allocated in a specific manner. Green v. Green. A minority of cases make an immediate distribution, valuing the option at the current value of the stock minus the option price. See Richardson v. Richardson, 280 Ark. 498, 659 S. W.2d 510 (1983) In re Hoak, 364 N. W.2d 185 (Iowa 1985) (considering options as one factor in dividing marital estate, without making a specific offsetting award) Green v. Green. VI. PREEMPTIVE STOCK OPTIONS A preemptive stock option gives the owner the right to purchase stock at a certain price, if the present owner attempts to convey his stock to a third party. Preemptive options are commonly contained in certain types of buy-sell agreements, and their purpose is ordinarily to ensure that the stock of a small corporation remains in the hands of a small group of approved owners. Can a preemptive stock option constitute marital property The court held to the contrary in Ross v. Ross, 90 Md. App. 176, 600 A.2d 891 (1992). The present owner of the stock in Ross had no apparent intention to sell his shares, and the court held that the preemptive option was too speculative to be given a reasonable value. Indeed, it was entirely possible that the current owner would never sell his shares. It is possible that a different result might be reached where there is evidence that the present owner will sell his shares in the immediate future, but no reported case has yet considered this situation. VII. OTHER RESTRICTED BENEFITS Stock options are the most common type of non-pension property which employers award as a fringe benefit of employment. Some employers, however, will use tangible assets, bank accounts, and other types of property as a device to attract and retain employees. These other benefits are generally classified by analogy to the stock option cases. Thus, where the employee is given absolute ownership of tangible property a situation similar to the granting of vested stock options the property is generally treated as consideration for prior services. Ver, p. In re Rickard, 818 S. W.2d 711 (Mo. Ct. App. 1991) (funds were withdrawn by husband from partnership account) Sclafani v. Sclafani, 178 A. D.2d 830, 577 N. Y.S.2d 711 (1991) (gifts of stock from employer were consideration for past services and were thus marital property) Lawing v. Lawing, 81 N. C. App. 159, 344 S. E.2d 100 (1986) (stock in husbands individual name was purchased with corporate funds) Marshall v. Marshall, 735 S. W.2d 587 (Tex. App. 1987) (partnership property was used to pay husbands individual income taxes community property jurisdiction). A harder situation is presented when the benefits are restricted in some manner. The most common type of restriction provides that an employee must work for the employer for a certain amount of time in order to receive full ownership of the property involved. In Mestayer v. Williams, 569 So. 2d 1102 (La. Ct. App. 1990), a stock plan gave selected key employees a chance to purchase a limited amount of stock for an artificially low price. The stock could not be conveyed or pledged, however, and if the employee left the company during his lifetime before normal retirement age he had to return the stock to the company at the original purchase price. If the employee remained with the company, however, the company would waive the transfer restrictions on 10 of the employees stock each year, so that he would own all of the stock after ten years of employment. A company document clearly stated that the purpose of the plan was to reward employees for staying with the firm: It is intended by management that the Plan, by offering such employees an ownership interest in the Company, will offer incentives in addition to those of current compensation and future pensions which will encourage valuable employees to continue in the service of the Company and its subsidiaries. Id. at 1103.The husband in Mestayer made purchases under the plan during the marriage, but he was divorced less than ten years later, before the restrictions had expired upon all of the stock. The trial court held that the incentive plan constituted compensation to the employee, just like a pension, insurance package, or other fringe benefit. Accordingly, it was entirely community property. The Louisiana Court of Appeal affirmed the trial courts decision. The court found the case before it to be clearly distinguishable from those situations presenting deferred disbursement or delay in vesting of rights. Id. at 1106. While the restrictions upon the stock were substantial, the court held, the existence of the restrictions does not affect ownership. The restrictions merely qualify the privilege of dealing with the stock. Id. There was accordingly no difference between the plan at issue and a plan in which the shareholder must offer his stock to the corporation or to other shareholders before he can offer it to a third party. Because the restricted shares at issue were awarded to the husband during the existence of the community, they were entirely community property. Id. at 1107 (emphasis added) see also Vollmer v. Vollmer, 187 Mich. App. 688, 468 N. W.2d 236 (1990) (likewise holding that restricted shares received during the marriage were marital property placing no importance whatsoever upon the restrictions). The Mestayer decision ignored the economic reality of the situation. To begin with, the court entirely misconstrued the basic nature of the restrictions involved. The purpose of those restrictions was to deny the employee effective ownership of the stock until the designated time for waiver arrived. The restrictions filled this purpose well, preventing any transfer, conveyance, or pledging of the stock while the restrictions applied. The first-purchase restrictions referred to by the court are entirely different, because they limit only the right to convey the stock to certain people and not the right to convey the stock at all. Unless the husband had dividend or voting rights (a fact not stated in the courts opinion), he received absolutely no substantial benefit from the stock while it was restricted. He owned it in theory, but it gave him absolutely no real economic benefit. A better approach to the classification of restricted benefits is to look at the economic substance of the transaction. In In re Joiner, 766 S. W.2d 263 (Tex. App. 1988), the court faced an incentive plan similar to the plan in Mestayer. On his fifth anniversary with his employer, the husband received a substantial interest in a profit-sharing plan. If he should leave the company, however, he would not receive the entire interest. Instead, he would receive only the amount which had vested. The benefits vested at a rate of 20 per year, beginning on the employees sixth anniversary. The parties in Joiner were married after the sixth year of the husbands employment, and they remained married throughout the plans duration. The court had little trouble holding that 80 of the entire plan was community property, even though the husbands interest had been acquired in an unvested sense before the marriage. Thus, the court held that the benefits were acquired gradually as the restrictions lapsed and not all at once when nominal legal title was obtained. Likewise, in ONeal v. ONeal, 55 Ark. App. 57, 929 S. W.2d 725 (1996), the husband accepted new employment after the parties separation. As an incentive to accept this position, the husbands new employer gave him 35,000. If the husband should leave the employer with less than four years of service, however, he would be required to pay back 25 of the 35,000 for each year of service less than four. The court perceptively realized that this benefit was in substance a loan, 25 of which was forgiven for each year of service. The funds were therefore acquired after the marriage, as consideration for future services. ONeal showed a commendable willingness to look at the economic reality of the situation rather than at the nominal fact of title ownership. Where the restriction involves something other than future services, the court must determine how much real burden the restriction places upon the employee. Where the restriction is minimal, the benefit is effectively vested and is therefore compensation for prior services. For instance, in Guinn v. Guinn, 35 Ark. App. 199, 816 S. W.2d 629 (1991), the husbands employer gave him a major needs account which he could use after the marriage to pay for real estate, automobiles, or further education. The restriction on use did not significantly reduce the value of the benefit, since almost everyone purchases a home or a car or pursues education at some point. The funds in the account were therefore acquired when they were added to the account and not when they were withdrawn from it. VIII. PERCENTAGE DIVISION Can the court award the nonowning spouse a smaller share of the marital interest in stock options than in other divisible property In Callahan v. Callahan, 142 N. J. Super. 325, 361 A.2d 561 (Ch. Div. 1976), the court expressly awarded the wife only a 25 interest, which it noted was less than her percentage of other assets. The court specifically cited, first, the fact that the husband bore the risk that the stock options would have no value, and, second, the fact that the price of the stock might increase in value after the divorce because of the husbands postmarital efforts. On the first point, it is hard to see why the husband bore any degree of unfair risk. When options are divided on a deferred basis, as the options in Callahan essentially were, the nonowner receives only a set fraction of what the owner receives. The risk of loss is thus divided fairly between the parties. It would seem that a reduced division on account of risk should be made only when the court makes an immediate division of the present value of the options with an award of money or other property. On the second point, the courts logic makes sense. It could be argued, however, that the husbands post-marital efforts are already considered when the court computes the marital share under the standard formula discussed above for classifying unvested stock options. The retirement benefit cases are deeply divided as to whether the marital interest attaches to postdivorce increases caused by the owning spouses efforts, and there is no reason why the same split might not carry over into the stock option cases. At present, however, Callahan is the only case which addresses the issue. On the whole, the reported case law addressing stock options is well-reasoned. The hardest issues are those involving unvested options, and the courts have generally been sensitive to the need to allocate such options fairly between the marital and separate estates. Isolated decisions overstate the separate interest by refusing to divide such options or overstate the marital interest by attaching insufficient weight to vesting requirements. The great majority of decisions, however, have resolved the issues in a fair and consistent manner. The wide range of disparity between different option programs limits the degree of uniformity which one can expect as regards the final result of the cases, but the reasoning of the decisions is clear, and they can generally be applied to new fact situations without undue difficulty. This state of affairs is much better than the state which prevails in other problem areas of property division law. Methods for Dividing Stock Options in State Court Divorce Cases Provided by the National Legal Research Group Almost all states now agree that stock options are marital property to the extent that they were earned during the marriage. As a result, in most cases in which stock options are present, the court and the parties will need to find some way to transfer part of the value of the options to the non-owning spouse. Federal law has not made the process of division any easier indeed, a good case can be made that federal law has materially contributed to the problem. If federal law were to be clarified to permit direct assignment of stock options without prohibitively adverse tax consequences, division of stock options in state court divorce cases would be a much easier process. The primary purpose of this article is to discuss federal and state law on mechanics of dividing stock options between the parties. Before reaching this issue, however, we will briefly review the nature of stock options themselves, and then discuss the manner in which stock options are classified and divided. I. STOCK OPTIONS IN GENERAL A stock option is a legal right to purchase one share of stock for a specific price (the strike price), regardless of the price at which the stock is actually trading. The stock need not be publicly traded, but in most of the reported cases, a regular market does exist for the stock at issue. Under almost all stock option plans, an option given to the employee is unvested when it is received. It cannot be exercised it is lost if the employee stops working for the employer. After a specific period of time passes, the stock option vests. After vesting, the stock option can be exercised, and it is not lost if the employee leaves the company. Most vesting periods are in the two-to-five-year range. After a much longer period, often 10 years, the stock option expires and cannot be exercised. II. CLASSIFICATION OF STOCK OPTIONS Stock options fall into the general category of deferred compensation rights, a category which also includes such commonly discussed assets as retirement benefits, bonuses, and intellectual property rights. For purposes of property division, deferred compensation rights are generally acquired when they are earned, not when value is actually received. For example, if the husband earns retirement benefits during the marriage, the benefits so earned are marital property, even if no money is actually received until long after the marriage ends. Deferred compensation rights are most often classified by determining the period over which they are earned. A defined benefit retirement plan, for example, is usually acquired as compensation for a specific period of creditable service rendered to the employer. The amount received per month depends upon the total creditable service rendered, with some function of the employees highest annual salary often being worked into the formula as well. To determine the marital share, the court divides the total time married during the earning period by the total earning period. See In re Marriage of Benson, 545 N. W.2d 252 (Iowa 1996) Koziol v. Koziol, 10 Neb. App. 675, 636 N. W.2d 890 (2001) Workman v. Workman, 106 N. C. App. 562, 418 S. E.2d 269 (1992). See generally Brett R. Turner, Equitable Distribution of Property 6:25 (3d ed. 2005). Time married, in this context, means time between the date of commencement (almost always the date of marriage) and the date of classification. Id. The latter date varies by jurisdiction it is usually either the date of final separation, the date of filing, or the date of divorce. Id. Section 5:28. To take an example, assume that a military service member acquires retirement benefits as compensation for 30 years of military service. The divorce occurs in New York, where the date of classification is normally the date of filing. Of the 30 years, 12 occurred between the date of marriage and the filing of the divorce. The marital share of the pension is 1230, or 40. In the specific case of stock options, the earning period always includes the vesting period. The purpose of the vesting period is to encourage the employee to continue working for the employer that is why the employee loses unvested options if he voluntarily terminates his employment. See generally In re Marriage of Hug, 154 Cal. App. 3d 780, 201 Cal. Rptr. 676 (1984). When future employment is a condition of vesting, it is very difficult to argue that the option is not consideration for future service. The hard question in classifying stock options is whether the option is consideration for past service as well. Some unvested stock options are awarded pursuant to a regular plan which awards an equal amount of stock options to all employees at a given level, primarily as a device for encouraging them to remain with the company. These sorts of options are generally consideration only for future services. See In re Marriage of Harrison, 179 Cal. App. 3d 1216, 225 Cal. Rptr. 234 (1986) Wendt v. Wendt, 59 Conn. App. 656, 757 A.2d 1225 (2000) Hopfer v. Hopfer, 59 Conn. App. 452, 757 A.2d 673 (2000) (where husband started with employer only one month before the divorce) Otley v. Otley, 147 Md. App. 540, 810 A.2d 1 (2002) In re Marriage of Valence, 147 N. H. 663, 798 A.2d 35 (2002). See generally Turner, supra, 6:49. Under other option plans, however, more unvested options are awarded to employees who performed better in the past, or a committee may even have discretion to make extraordinary grants of unvested options to employees who made extraordinary contributions to the company. These options are consideration for both past and future services. Id. Section 6:49. A related fact situation occurs when options are used to attract an employee to switch employers. These options are normally used to attract employees only after they have substantial skills, so that the options are in a sense acquired with the skills. In addition, employees who make this sort of job change often lose unvested stock options with their previous employer, options which were at least partly earned through marital effort. The general rule is therefore that stock options to change jobs are also acquired in exchange for both past and future services. In re Marriage of Hug, 154 Cal. App. 3d 780, 201 Cal. Rptr. 676 (1984) Salstrom v. Salstrom, 404 N. W.2d 848 (Minn. Ct. App. 1987). III. DIVISION OF RETIREMENT BENEFITS Because deferred compensation rights are earned before they are received, their division poses unique problems. These problems first arose in the context of retirement benefits, and the law on division of other deferred compensation rights is generally a specific application of general rules established in the retirement benefits cases. In general, retirement benefits can be divided in two ways. Under the immediate offset method, the court determines a present value for the benefits. To do this, the court must measure the string of future payments which the employee is likely to receive discount those benefits by the likelihood that each benefit will not be received (e. g. by the likelihood of early death) and then reduce the benefits to present value. This is a difficult process which usually requires expert testimony. After determining a present value, the court multiplies that value by the marital share to determine the marital interest, and applies the statutory division factors to determine the nonowning spouses percentage interest in the marital share. The nonowning spouse then receives his or her interest in cash or other property, while the owning spouse receives the entire pension. Turner, supra, Section 6:31. Immediate offset requires significant expert testimony at the outset, so it is a more expensive method. It can be applied only when the marital estate has sufficient cash or other assets to permit payment of the offset. The accuracy of the method depends upon the accuracy of actuarial projections, which are almost never exactly accurate, so that one spouse or the other is bound to be hurt if both do not live to their exact life expectancies. But immediate offset allows the entire pension to be divided at the time of divorce, without requiring the parties to have an ongoing connection with each other for many years to come. After the divorce is over, it is by far the easiest method to implement. Under the deferred distribution method, the court does not need to determine a present value for the benefits at the time of divorce (although some states require the court to do so for other purposes). Instead, the court measures the marital share and determines the non-owning spouses equitable interest in that share. For example, if the marital interest is 40 and an equal division is equitable, the non-owning spouses interest would be 20. The court then orders the owning spouse to pay the non-owning spouse 20 of every future payment received from the retirement plan. Turner, supra, Sub Section 6:32-6:33. Because no present division is made, deferred distribution does not depend upon the accuracy of present value calculations or actuarial projections. The amount payable will be exactly correct, regardless of who dies when. But the parties must continue to deal with each other for many years to come, and the non-owning spouse must bear the burden of enforcing the obligation if the owning spouse refuses to pay. There are also a variety of innocent and not-so-innocent ways in which the future events can influence the distribution. To take just one example, many defined benefit plans are encountering significant financial problems, which may ultimately reduce the amount payable. If the loss arises from market conditions, it should be shared but what if the owning spouse was CEO of the company and failed, negligently or even deliberately, to fund the plan sufficiently after the divorce Deferred distribution creates a significant potential for future litigation it does not lead to a clean break between the parties. The administrative problems of deferred distribution are less severe where the plan administrator can be directed to provide benefits directly to the non-owning spouse, Turner, supra, 6:18-6:20, or perhaps even to make the non-owning spouse an independent participant in the plan. Id. Section 6:34. Most private retirement plans are regulated by federal law, and there was initially some concern that federal law might not permit direct assignment of pension rights. The federal government eliminated this uncertainty in 1984 by making major modifications to ERISA, the federal statute governing retirement plans. The modified statute allows direct assignment of benefits only if the assignment is made in a qualified domestic relations order (QDRO). A domestic relations order (DRO) is an order of the state court, made under the law of domestic relations, directing the plan administrator to assign benefits to a former spouse (the alternate payee). 29 U. S.C. Section 1056(d)(3)(A) (Westlaw 2006). It must contain certain basic identifying information, and more importantly it can only divide those benefits which are actually available to the employee under the plan. After the state court makes a DRO, the DRO is then submitted to the plan administrator, who determines whether the order meets the requirements of ERISA. If the administrator determines that the order meets those requirements, the order is qualified and the administrator must follow it. If the order is rejected, it is not qualified, and federal law prevents its enforcement. The administrators decision can then be reviewed in either state or federal court. See generally Turner, supra Section 6:18-6:19. IV. DIRECT TRANSFER OF STOCK OPTIONS Federal Tax Treatment Before discussing the mechanics of dividing stock options, it is necessary to make a brief digression into federal income tax law. That law has had a significant impact upon the process by which stock options are divided. As a general rule, when an employer pays compensation to an employee, two tax consequences follow. The compensation is taxed as income to the employee, and it is treated as a business expense of the employer. This general rule applies to property as well as to direct salary. For instance, if an employer gives a share of stock to an employee, the value of the share is taxable income to the employee, and a business expense deduction for the employer. In the specific case of stock options, the tax treatment is different. When stock options are granted under a qualified plan, no income is recognized when the option itself is awarded or exercised, and the employer receives no business expense deduction. I. R.C. Section 421(a). The employee is liable for tax only when the share of stock acquired with the option is sold, and the tax can be paid with proceeds from the sale of the stock itself. Federal law recognizes two different types of qualified stock option plans: incentive stock option plans under I. R.C. 422, and employee stock purchase plans under I. R.C. 423. If a stock option plan does not meet the requirements for either type of qualified plan, it is said to be a nonqualified plan. Stock options given under such a plan are treated as income to the employee, and an equivalent business expense deduction is permitted for the employer. These rules take effect at the time when the option is granted if the value of the option can readily be determined otherwise, they take effect when the option is exercised. I. R.C. Section 83 Amelia Legutki, Mertens Law of Federal Income Taxation 6.01 (Westlaw 2006) hereinafter Mertens. When a share of stock acquired with a stock option is sold, the employee recognizes income equal to the sale price minus his or her basis in the stock. If the stock option plan was qualified, the employees basis is the amount paid under the option. If the plan was unqualified, the employees basis is the amount paid, plus any amount previously recognized as income ordinarily, the value of the option when awarded. If the option was held for a minimum period of time, the income is taxed at capital gains rates otherwise, it is taxed at normal tax rates. Mertens Section 6.01. Federal Securities Law Just as the easiest method to implement deferred distribution of stock options is direct assignment of benefits through a QDRO, the easiest method to implement deferred distribution of stock options is direct transfers of the options themselves. Like all publicly traded securities, stock options are regulated by the Securities and Exchange Commission (SEC). Before 1996, former SEC Rule 16b-3 positively prohibited any direct transfer of stock options. Annual Review of Federal Securities Regulation, 52 Bus. Law. 759, 766 (1997). Thus, direct assignment was not a permissible method for implementing a state court division of marital property. In 1996, the SEC revised Rule 16b-3 to remove the prohibition on direct transfer. 17 C. F.R. Section 240.16b-3 (Westlaw 2006). It also adopted Rule 16a-12, 17 C. F.R. 240.16a-12 (Westlaw 2006), which provides that certain transfers meeting the ERISA definition of a DRO (qualified or otherwise) need not be reported. If an express rule provides that direct transfers need not be reported, those transfers are obviously no longer barred by the SEC. Thus, after 1996, federal securities law no longer prohibits direct assignment of stock options. If stock options were regulated by ERISA, federal law would require plan administrators to permit direct transfer of stock options by means of QDROs. But stock option plans are clearly not within ERISA. ERISA applies only to benefit plans, which are subdivided into welfare plans and retirement plans. 29 U. S.C. 1002(3) (Westlaw 2006). Since a stock option is not a benefit payable only upon retirement, a stock option plan is not retirement plan. The definition of welfare plans includes plans intended to provide medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, 29 U. S.C. 1002(1)(A) a list which conspicuously excludes stock options. Employee stock option plans are generally not covered under the Employee Retirement Income Security Act (ERISA), as they are not considered welfare or retirement plans. Matthew T. Bodie, Aligning Incentives with Equity: Employee Stock Options and Rule 10b-5, 88 Iowa L. Rev. 539, 547 (2003). See generally Oatway v. American International Group, Inc. 325 F.3d 184, 187 (3d Cir. 2003) (most courts have uniformly held that an incentive stock option plan is not an ERISA plan citing the cases). Thus, the QDRO provisions of ERISA do not apply to stock option plans. Federal Tax Law One might think that the decision by the SEC to tolerate divorce-related transfers would make such transfers permissible. Unfortunately, the SEC is only one of the federal agencies with the power to limit divorce-related transfers. The IRS, and federal tax law in general, continue to make direct transfer difficult. The core of the problem is in the requirements for the two different forms of qualified stock option plans. The requirements for an incentive stock option plan provide: (b) Incentive stock option. For purposes of this part, the term incentive stock option means an option granted to an individual for any reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation, to purchase stock of any of such corporations, but only if (5) such option by its terms is not transferable by such individual otherwise than by will or the laws of descent and distribution, and is exercisable, during his lifetime, only by him. I. R.C. Section 422(b)(5) (emphasis added). The requirements for an employee stock purchase plan provide: (b) Employee stock purchase plan. For purposes of this part, the term employee stock purchase plan means a plan which meets the following requirements. (9) under the terms of the plan, such option is not transferable by such individual otherwise than by will or the laws of descent and distribution, and is exercisable, during his lifetime, only by him. I. R.C. 423(b)(9) (emphasis added). Thus, both forms of qualified stock option plans provide that any stock option awarded can be exercised only by the employee. There is no exception permitting exercise by a spouse, present or former. It should be stressed that neither of the above-quoted statutes absolutely prevents a stock option plan from allowing transfer of stock options. The federal courts have refused to construe either statute to prevent transfer absolutely, in the same manner as the antiassignment provision of ERISA. Por exemplo. DeNadai v. Preferred Capital Markets, Inc. 272 B. R. 21, 40 (D. Mass. 2001) (DeNadai fails to point to any evidence that Congress intended I. R.C. 422(b)(5) to serve as a general exemption from creditor process). This refusal is highly consistent with the fact that such transfers are implicitly permitted by SEC Rule 16a-12. The effect of Sub Scetion 422(b)(5) and 423(b)(9) is not to prohibit direct transfers under a DRO, but rather to change the tax treatment of options which are so transferred. It is highly desirable to employees that stock options awarded under a qualified plan be taxed under the special rules set forth in Section 421(a). The above language suggests, at a minimum, that any option exercised by a nonemployee loses the favorable tax treatment it would otherwise enjoy. It would be taxed as income when received or exercised, not when the share of stock acquired was sold. If a plan is already nonqualified, the conditions set forth in Sub Section 422 and 423 do not apply to begin with, and there is apparently no reason why federal tax law would require or even suggest that the options not be transferable. Revenue Ruling 2002-22 Concerns regarding the tax treatment of stock options directly transferred from one spouse to the other were strengthened by the IRS decision in Rev. Rul. 2002-22, 2002-1 C. B. 849. This ruling focused primarily upon whether direct transfers of stock options are a taxable event. The general rule is that divorce-related transfers generally are not such an event, I. R.C. 1041, but the IRS had previously made informal statements that it might try to argue that transfers of stock options were somehow outside 1041. Rev. Rul. 2002-22 recedes from these suggestions, and constitutes an admission by the IRS that the general principles of Section 1041 apply. But the ruling comes loaded with provisos and qualifications. The overall effect of the qualifications is to remove a significant portion of the practical benefit of the admission. The fact pattern directly addressed in the ruling arose from a divorce-related transfer of stock options awarded under a nonqualified plan. The Service ruled that Section 1041 applied: The term property is not defined in Section 1041. However, there is no indication that Congress intended property to have a restricted meaning under 1041. To the contrary, Congress indicated that 1041 should apply broadly to transfers of many types of property, including those that involve a right to receive ordinary income that has accrued in an economic sense (such as interests in trusts and annuities). Id. at 1491. Accordingly, stock options and unfunded deferred compensation rights may constitute property within the meaning of 1041. The greater problem for the taxpayers was not the applicability of Section 1041, but rather the common-law assignment-of-income doctrine. Under that doctrine, income is ordinarily taxed to the person who earns it, and that the incidence of income taxation may not be shifted by anticipatory assignments. Id. See generally Lucas v. Earl, 281 U. S. 111 (1930). If the doctrine applied, the husband would be liable for the entire tax due, regardless of the anticipatory assignment to the wife. But the assignment-of-income concept is fundamentally incompatible with Section 1041, which was intended to allow unlimited tax-free transfers of property between spouses incident to divorce: Applying the assignment of income doctrine in divorce cases to tax the transferor spouse when the transferee spouse ultimately receives income from the property transferred in the divorce would frustrate the purpose of Section 1041 with respect to divorcing spouses. That tax treatment would impose substantial burdens on marital property settlements involving such property and thwart the purpose of allowing divorcing spouses to sever their ownership interests in property with as little tax intrusion as possible. Further, there is no indication that Congress intended 1041 to alter the principle established in the pre-1041 cases such as Meisner that the application of the assignment of income doctrine generally is inappropriate in the context of divorce. Rev. Rul. 2002-22. The Service therefore ruled that nonqualified options could be transferred between divorcing spouses without any change in tax consequences. The problem with Rev. Rul. 2002-22 began when the Service departed from the facts presented and addressed qualified stock options: The same conclusion would apply in a case in which an employee transfers a statutory stock option (such as those governed by Section 422 or 423(b)) contrary to its terms to a spouse or former spouse in connection with divorce. The option would be disqualified as a statutory stock option, see Sub Section 422(b)(5) and 423(b)(9), and treated in the same manner as other nonstatutory stock options. Section 424(c)(4), which provides that a Section 1041(a) transfer of stock acquired on the exercise of a statutory stock option is not a disqualifying disposition, does not apply to a transfer of the stock option. See H. R. Rep. No. 795, 100th Cong. 2d Sess. 378 (1988) (noting that the purpose of the amendment made to Section 424(c) is to clarify that the transfer of stock acquired pursuant to the exercise of an incentive stock option between spouses or incident to divorce is tax free). Id. (emphasis added). Thus, the Service expressly confirmed that a qualified option becomes a nonqualified stock option when transferred by a DRO, because Sub Section 422(b)(5) and 423(b)(9) (both quoted previously in this article) expressly forbid any transfer of a qualified stock option, even one made incident to divorce. This conclusion is not changed by Section 1041, which provides that transfers incident to divorce are not taxable events, because the problem is not that the transfer itself is taxable. The problem is that the transfer strips the option of the preferential tax treatment given to qualified options, because Sub Section 422(b)(5) and 423(b)(9) make absolute nontransferability a condition upon qualified status. As a result, while Rev. Rul. 2002-22 benefits holders of nonqualified options, it provides very cold comfort to holders of qualified options. Moreover, the Service added a second troublesome condition to its ruling: This ruling does not apply to transfers of property between spouses other than in connection with divorce. This ruling also does not apply to transfers of nonstatutory stock options, unfunded deferred compensation rights, or other future income rights to the extent such options or rights are unvested at the time of transfer or to the extent that the transferors rights to such income are subject to substantial contingencies at the time of the transfer. See Kochansky v. Commissioner, 92 F.3d 957 (9th Cir. 1996). Id. (emphasis added). On its face, therefore, the ruling applies only to vested stock options. It is very possible that the Service might attempt to apply different rules when unvested stock options are transferred. Moreover, the nature of those different rules is logically suggested by the case cited, Kochansky v. Commissioner, 92 F.3d 957 (9th Cir. 1996), which held under the assignment-of-income doctrine that an attorney was liable for all tax due on a contingent fee, even though part of the fee had been assigned to his spouse pursuant to divorce. In short, the Service is holding the door open for arguing that the employee must pay all tax due upon an unvested stock option, regardless of any deferred distribution to a former spouse. See David S. Rosettenstein, Options on Divorce: Taxation, Compensation Accountability, and the Need to Look for Holistic Solutions, 37 Fam. L. Q. 203, 207 n.13 (2003) (It is not clear what purpose the reference to Kochansky serves if it is not to leave the door open to an assignment of income analysis, however inappropriate that analysis may be) see also id. at 207 n.19 (The ruling would seem to reserve the Services ability to adopt an assignment of income analysis to any unvested options transferred to the non-employee spouse). Moreover, it is also worth noting that the central issue in Kochansky, the effect of the wifes community property rights on the result, was not addressed because it was not preserved in the court below. That procedural ruling fundamentally limits the precedential value of Kochansky, for it is very possible that the result would have been different if the issue had been preserved. Indeed, the Service itself admits earlier in Rev. Rul. 2002-22 that the application of the assignment of income doctrine generally is inappropriate in the context of divorce. By citing Kochansky in spite of these points, the Service undercuts the power of its own admission that the assignment-of-income doctrine is inconsistent with the policy behind Section 1041, and leaves reasonable taxpayers with no way to predict the tax consequences of a very desirable method of division the direct transfer of unvested qualified stock options from one spouse to the other incident to divorce. What is doubly frustrating is that a fair resolution of the entire issue should not be overly difficult. As a court-created rule, the assignment-of-income doctrine is clearly secondary to Section 1041. That statute requires, implicitly if not explicitly, that transfers of property incident to divorce trigger no adverse federal tax consequences. There is no basis for applying the assignment-of-income doctrine to any divorce-related transfer, regardless of whether the options at issue are vested or unvested. For exactly the same reason, it is wrong to allow divorce-related transfers of any stock option to result in loss of qualified status. Whatever Congress had in mind when enacting Sub Section 422(b)(5) and 423(b)(9), it did not intend those sections to apply to divorce-related transfers. The consistent trend in all areas of federal tax and securities law over the past 20 years has been to allow divorce-related transfers with no greater tax consequences than would have been present if divorce had not occurred. The statutes admittedly do not contain any express exception for divorce-related transfers, and there may be some merit to the argument that the remedy must be statutory. But that fact does not make reform any less necessary. I. R.C. Sub Section 422(b)(5) and 423(b)(9) should be amended to permit divorce-related transfers of stock options without loss of qualified status. Stock options also represent a contract, and thus fall within the ambit of state common law. Bodie, supra, 88 Iowa L. Rev. at 547. State law applying to stock options is not superseded by ERISA, for as noted previously, ERISA does not apply to stock option plans. Since the distinction between qualified and nonqualified plans is purely a matter of income tax law qualified plans are eligible for more favorable tax treatment the qualified or nonqualified status of the plan has no effect upon state law. State court opinions dividing stock options have frequently observed that the great majority of all stock option plans prohibit direct assignment. See Jensen v. Jensen, 824 So. 2d 315, 321 (Fla. 1st Dist. Ct. App. 2002) (Both expert witnesses in this case testified that the unvested stock options could be neither valued nor transferred) Otley v. Otley, 147 Md. App. 540, 557, 810 A.2d 1, 11 (2002) (The difficulty of establishing a present value and the fact that the options themselves are usually not divisible or transferable make the deferred distribution approach desirable) Fisher v. Fisher, 564 Pa. 586, 593, 769 A.2d 1165, 1170 (2001). Nothing in federal law requires that state courts enforce prohibitions on assignment. The issue is therefore purely one of state contract law. While there are no reported state court cases discussing restrictions on the transfer of stock options, there are reported cases discussing contractual restriction on the transfer of actual shares of stock. The general rule is that these restrictions are binding, but that they are narrowly construed. For example, a restriction upon voluntary transfer, or even upon transfer generally, does not apply to involuntary transfer: We hold that a transfer of stock ordered by the court in a marriage dissolution proceeding is an involuntary transfer not prohibited under a corporations general restriction against transfers unless the restriction expressly prohibits involuntary transfers. Ordinarily, for drafting purposes, we think use of the phrase involuntary transfers would be deemed to encompass divorce court transfers. No such phrase was used here, however and the general language is inadequate to prohibit the courts transfer of the F-L stock. Castonguay v. Castonguay, 306 N. W.2d 143, 146 (Minn. 1981). The agreement requires a shareholder who wishes to sell, assign, encumber or otherwise dispose of the corporations stock other than as expressly provided for in the agreement to obtain the written consent of the other shareholders. The agreement contains no express provision regarding the interspousal transfer of shares incident to equitable distribution. The spouse has neither joined in the agreement nor has she waived her interest in the stock. We are not prepared to cut off the marital interest of a spouse under these circumstances. We hold that, under the rule of strict construction, a restriction on the transfer of stock does not apply to interspousal transfers of stock which is marital property absent an express provision prohibiting such transfers. Bryan-Barber Realty, Inc. v. Fryar, 120 N. C. App. 178, 181-82, 461 S. E.2d 29, 31-32 (1995) see also In re Marriage of Devick, 315 Ill. App. 3d 908, 920, 735 N. E.2d 153, 162 (2000) (Strictly construing the restrictive provision of the affiliate agreements, we determine that the restriction is applicable only to voluntary transfers and not to transfers by operation of law, such as by court order). The reasoning of these cases is similar to the reasoning of the federal district court in DeNadai v. Preferred Capital Markets, Inc. 272 B. R. 21 (D. Mass. 2001), which held that the tax law transfer restriction in I. R.C. Section 422(b)(5) did not prevent involuntary assignment to creditors. One fact not considered in some of the stock transfer cases is the presence of a bona fide reason to limit transferability. If the IRS continues to take the position that any transfer of stock options under a qualified plan destroys the qualified status of the option transferred, there is a good reason for most plans to limit transfers. Federal tax law on this point is unfortunate, but it must be lived with until it changes. But even this situation is not unknown in the state court cases. In McGinnis v. McGinnis, 920 S. W.2d 68 (Ky. Ct. App. 1995), a shareholders agreement provided that if any person obtains an attachment or other legal or equitable interest in any of the Shares owned by an employee, the corporation would have an option to purchase those shares. Id. at 75. The court held that this provision did not on its face absolutely prevent a divorce-related transfer. It noted, however, that the practical result of such a transfer might be the involuntary sale of the very asset being transferred, and suggested that the court and the parties must live with this fact. By similar reasoning, it seems likely that a state court would not be deterred from dividing stock options by the mere fact that the shares so transferred might lose their qualified status. It also seems likely, however, that the court would first give the parties every opportunity to agree upon a method of transfer which preserves the tax advantages of qualified status. V. OTHER METHODS FOR DIVIDING STOCK OPTIONS While federal law now permits direct transfer of stock options in at least some cases, direct transfer may cause prohibitively adverse tax consequences, and it may not be in the best interests of the parties for other reasons. Since direct transfer was not permitted at all before 1996, there is a reasonable body of case law discussing other division methods. On the facts of specific cases, these methods may reach results which are equal or even superior to the results of a direct transfer. Deferred Distribution of Profits The most common method for dividing stock options in actual practice is a deferred distribution of the profits. Under this method, the court determines the nonowning spouses interest in each set of options. It then orders the owning spouse to pay the nonowning spouse the stated percentage of all profits traceable to exercise of the option. It will normally be necessary to direct the owning spouse to withhold taxes from the payment, or otherwise adjust the parties rights to reflect the fact that the IRS will assess the relevant tax consequences entirely against the owning spouse. For cases making a deferred distribution of the profits of stock options, see In re Marriage of Frederick, 218 Ill. App. 3d 533, 578 N. E.2d 612 (1991) Frankel v. Frankel, 165 Md. App. 553, 585, 886 A.2d 136, 155 (2005) Otley v. Otley, 147 Md. App. 540, 559-60, 810 A.2d 1, 12 (2002) (The benefit subject to distribution, as we stated in Green and repeated earlier in this opinion, is the profit) Green v. Green, 64 Md. App. 122, 494 A.2d 721 (1985) Smith v. Smith, 682 S. W.2d 834 (Mo. Ct. App. 1984), overruled on other grounds, Gehm v. Gehm, 707 S. W.2d 491 (Mo. Ct. App. 1986) Fisher v. Fisher, 564 Pa. 586, 591, 769 A.2d 1165, 1169 (2001) (over a dissent which would give the nonowning spouse more control over when the options are exercised) and Chen v. Chen, 142 Wis. 2d 7, 15, 416 N. W.2d 661, 664 (Ct. App. 1987) (The trial court determined a percentage. and divided the profit from the stock option contracts accordingly). Deferred distribution of the profits works best when the parties expect to exercise the option within a fairly short period of time after it vests, and to sell the stock as soon as the option is exercised. If no limits are placed upon when the option will be exercised or when the resulting stock can be sold, the owning spouse could delay the exercise or sale longer than the nonowning spouse desires, or could exercise the option or sell the stock sooner than the nonowning spouse prefers. Because this method gives the nonowning spouse little control over the option and the resulting stock, it tends to work best when the owning spouse has superior financial expertise, and the nonowning spouse trusts the owning spouse to make a good decision in the financial interests of both parties. Since the parties are sharing the profit from each option, the owning spouse has a natural incentive to maximize both spouses profits, so long as the owning spouse can be trusted to behave in an economically rational manner. Another common method for dividing stock options is to make the nonowning spouse an equitable owner of a portion of the options. This method is normally implemented by directing the owning spouse to set aside a certain number of options for the benefit of the nonowning spouse. These options cannot be exercised by the owning spouse alone. Rather, the owning spouse is ordered to exercise these options only when requested to do so in writing by the nonowning spouse. The resulting stock can be either sold immediately, or promptly transferred to the nonowning spouse. It will ordinarily be necessary to have the nonowning spouse make a separate payment to hold the owning spouse harmless from tax consequences, as the owning spouse may be liable to the IRS for taxes on the nonowning spouses shares. In situations in which actual transfer of the options is not possible or is otherwise inadvisable, this method provides a reasonably close approximation of the same end result. For cases awarding equitable ownership of certain options to the nonowning spouse, see Keff v. Keff, 757 So. 2d 450 (Ala. Civ. App. 2000), and Callahan v. Callahan, 142 N. J. Super. 325, 361 A.2d 561 (Ch. Div. 1976). See also In re Marriage of Valence, 147 N. H. 663, 669, 798 A.2d 35, 39 (2002) (directing husband to exercise options as soon as possible, except that he could hold the options for the minimum period necessary to obtain favorable tax treatment, but allowing the wife to consent otherwise in writing, so that she could effectively make independent decisions). It may be possible to mix both the deferred division of profits and the equitable ownership approaches: The trial court ruled that the husband could exercise the options and then sell any or all of his shares if and when the options vest. If so, the judge determined that the husband must share with the wife one-half of the net gain (i. e. the gross proceeds less the purchase price and less the tax consequences to the husband) from the sale. If the husband decides not to exercise his vested options, the judge ordered that the husband notify the wife of his decision and allow her to exercise her share of the options through him. The wife would then be responsible for the tax consequences resulting from the sale of the shares. Baccanti v. Morton, 434 Mass. 787, 802, 752 N. E.2d 718, 731 (2001). Thus, the husband had the right to exercise the options and sell the stock immediately upon vesting, paying the wife her share of the profit. If he declined to exercise the options or sell the stock immediately, he was required to hold the stock for the wifes benefit, allowing her to exercise and sell her share of the options as she desired. The equitable ownership method suffers from most of the same advantages and disadvantages as a direct transfer. It gives the nonowning spouse control over when to exercise options and sell stock, which is a powerful benefit when both spouses are equally able to make good investment decisions. It limits the owning spouses ability to commit financial misconduct, although not as much as direct transfer, because the nonowning spouse still bears the risk that the owning spouse will disregard instructions. The greatest limitation is again the fact that some nonowning spouses will not have the financial skills to make good investment decisions, and will not in the press of other matters be sufficiently motivated to seek expert assistance. The ultimate form of equitable ownership is of course division in kind. Several state court decisions have stated that such division is preferable in situations in which it is permitted by the employer. See In re Marriage of Valence, 147 N. H. 663, 669, 798 A.2d 35, 39 (2002) Fisher v. Fisher, 564 Pa. 586, 593-94, 769 A.2d 1165, 1170 (2001). But both cases noted that transfer was not permitted on the facts. There may be some concern on the part of the courts that equitable ownership, short of an actual transfer of the stock options, may be too difficult to implement. In Fisher, for example, after holding that a direct transfer was preferable but impossible, the court ordered the direct distribution of profits, apparently out of concern that allowing the wife more choice regarding the exercise of the options would unduly limit the husbands rights. But the husbands rights would surely have been even more limited by a direct transfer, and the court held that such a transfer would be favored, if permitted by the plan. Another possibility is that the court was concerned that equitable ownership would be an administrative burden to the husband, who would be responsible for exercising the wifes stock options when requested to do so. But this burden must be balanced against the benefit of giving the wife control over when her share of the options is exercised. A constructive trust is not really an independent method for dividing stock options, but rather a useful device for facilitating enforcement of either deferred distribution of profits or equitable ownership. By providing that the owning spouse hold certain stock options in trust for the nonowning spouse (under equitable ownership) or for the benefit of both parties (under deferred distribution of profits), an order or agreement imposes upon the owning spouse a familiar set of duties. As a trustee, the owning spouse must use reasonable care to manage the options held in trust, perhaps even using the care that a prudent investor would use with his or her own property. There is also a developed body of law on trustee misconduct which can be invoked in the event that the owning spouse acts negligently or dishonestly. For cases expressly approving a constructive trust, see Jensen v. Jensen, 824 So. 2d 315, 321 (Fla. 1st Dist. Ct. App. 2002), and Callahan v. Callahan, 142 N. J. Super. 325, 361 A.2d 561 (Ch. Div. 1976). See also Banning v. Banning, 1996 WL 354930 (Ohio Ct. App. 1996) (trust permissible but not required). Constructive trust tends to work best with deferred distribution of profits, where the owning spouse is expected to use his or her best judgment for the benefit of both parties. Under equitable ownership, the owning spouse is required only to follow the nonowning spouses instructions, not to use independent judgment, and it is important to draft any constructive trust language with this limitation in mind. For a good example of language which clearly imposes no duty of independent judgment in making decisions, see Callahan, 142 N. J. Super. at 330-31, 361 A.2d at 564 (He shall exercise her share of the options only at her direction). Where a constructive trust is ordered, the trial court normally retains jurisdiction to supervise its implementation. See Jensen v. Jensen, 824 So. 2d 315, 321 (Fla. 1st Dist. Ct. App. 2002) (The trial court imposed a constructive trust upon appellant to keep half of the options for appellees benefit, expressly reserving jurisdiction to enforce the provisions of the trust). Indeed, continued supervision is generally necessary even where a constructive trust is not expressly ordered: Unreasonable or spiteful spouses are not altogether unknown to trial courts charged with adjudicating the multifarious issues arising under the divorce code. The court of common pleas will have jurisdiction over the equitable distribution of the Fishers marital assets until all of the assets have been distributed we have already determined that the stock options or their value cannot be distributed at the present time. Mrs. Fisher will be able, so long as options acquired during her marriage may yet be exercised, to petition the court if she has evidence that Mr. Fisher has violated 23 Pa. C.S. 3102(a)(6) (policy of effectuating economic justice between parties who are divorced) or otherwise deprived her, under principles of equity, of assets she is entitled to receive. Fisher v. Fisher, 564 Pa. 586, 593-94, 769 A.2d 1165, 1170 (2001). Tax Consequences Regardless of whether the court defers distribution of profits or provides for actual equitable ownership of options, the court must include a separate provision accounting for tax consequences. If the options themselves are not actually transferred, all of the tax consequences will be due to the owning spouse. That spouse is therefore entitled to withhold from any payment to the nonowning spouse the taxes due on the nonowning spouses share of the options. See Fountain v. Fountain, 148 N. C. App. 329, 340, 559 S. E.2d 25, 33 (2002) (court may choose to place conditions on the distribution, i. e. require. non-owner spouse to save owner spouse harmless from any tax liability incurred as a consequence of purchase) In re Marriage of Taraghi, 159 Or. App. 480, 494, 977 P.2d 453, 461 (1999) (trial court properly authorized husband to withhold taxes a sale of the stock upon exercise of the options is contemplated and husband will be taxed on the entire capital gain). Immediate offsets of stock options have been very rare in the reported cases. The fundamental problem is that an immediate offset requires a determination of the present value, and the present value of stock options is extraordinarily speculative. Indeed, it is often so speculative that the present value simply cannot be computed. See Jensen v. Jensen, 824 So. 2d 315, 321 (Fla. 1st Dist. Ct. App. 2002) (Both expert witnesses in this case testified that the unvested stock options could be neither valued nor transferred) In re Marriage of Frederick, 218 Ill. App. 3d 533, 541, 578 N. E.2d 612, 619 (1991) (The options could not be valued until such time as they were exercised) In re Marriage of Valence, 147 N. H. 663, 669, 798 A.2d 35, 39 (2002) (Unvested stock options have no present value) Fisher v. Fisher, 564 Pa. 586, 591, 769 A.2d 1165, 1169 (2001) (It is impossible to ascribe a meaningful value to the unvested stock options, primarily because it is absolutely impossible to predict with reliability what any stock will be worth on any future date). If the options are vested and there is a steady and stable market for the stock, it may be possible to reach a present value which both spouses can live with. If neither spouse is willing to accept the risk that future stock prices will not turn out as expected and this is a significant risk in the majority of all fact situations then it is necessary to use some form of deferred distribution. Some courts have avoided the need to predict future stock prices by using the value of the stock at the time of divorce, minus the strike price for the option. See Richardson v. Richardson, 280 Ark. 498, 659 S. W.2d 510 (1983) Wendt v. Wendt, 1998 WL 161165 (Conn. Super. Ct. 1998), judgment affd, 59 Conn. App. 656, 757 A.2d 1225 (2000) Knotts v. Knotts, 693 N. E.2d 962 (Ind. Ct. App. 1998) Fountain v. Fountain, 148 N. C. App. 329, 559 S. E.2d 25 (2002) Banning v. Banning, 1996 WL 354930 (Ohio Ct. App. 1996) Maritato v. Maritato, 275 Wis. 2d 252, 685 N. W.2d 379, 385 (Ct. App. 2004) (option has no value if market value is less than exercise price on date of valuation). The problem with this approach is that it depends too much upon short-term market fluctuations. For example, the same stock options might be worthless when market prices are at a low point (e. g. late 2001) and very valuable when the market is at a high point (e. g. late 1998). The better approach, and the majority rule, is to divide the profit made at the time when the option is exercised, using a coverture fraction to exclude value attributable to postdivorce efforts. One case makes an immediate offset using a valuation computed by an expert using the BlackScholes valuation model. Davidson v. Davidson, 254 Neb. 656, 578 N. W.2d 848 (1998). This model, which is based upon an entire series of factors, produces a better value for stock options than is obtained by subtracting the strike price from the market price on the date of valuation. But the method is not easily applied, and any value reached remains highly speculative. See generally Wendt Chammah v. Chammah, 1997 WL 414404 (Conn. Super. Ct. 1997) (both criticizing the BlackScholes method) see also Fountain (trial court had discretion to reject BlackScholes on the facts, as no specific valuation method is required not criticizing the method itself). A clear majority of the cases use some form of deferred distribution. Federal law clearly does not prohibit divorce-related transfers of stock options. Provisions prohibiting transfer are nevertheless common, because they are conditioned upon optimal tax treatment. But the only federal case to consider the issue, DeNadai, rejected the argument that the tax statutes are antiassignment provisions. ERISAs more express antiassignment and QDRO provisions are not relevant to the issue, as stock option plans are clearly outside ERISA. Nontransferability provisions included in stock option plans for tax reasons are enforceable under state law. But they will be construed very strictly, and they will not bind a divorce court unless their language is very clear. At a minimum, they probably must apply to involuntary transfers, and they might have to mention divorce-related transfers specifically. While it may be possible to force the employer to accept a direct transfer order in individual cases, this should be a remedy of last resort for qualified stock option plans. The IRS has clearly taken the position in Rev. Rul. 2002-22 that any direct transfer destroys the qualified status of the share so transferred, resulting in adverse tax treatment. There is also a clear possibility that the IRS will raise unforeseeable assignment-of-income doctrine arguments in response to direct transfers of unvested options. Until tax law is more settled, the direct transfer of qualified stock options poses significant tax risks. For vested nonqualified options, Rev. Rul. 2002-22 clearly opens the door to transfer without additional adverse side effects. Loss of favorable tax treatment is not an issue in this setting, as there is no such treatment to lose. Where state law permits, the direct transfer of nonqualified vested options may be a useful method of division. Even nonqualified options, however, are still risky to divide by direct transfer when they are unvested. Rev. Rul. 2002-22 clearly falls short of accepting that 1041 overrules the assignment-of-income doctrine in the context of unvested options. Since commentators have generally rejected the Services position on this point, it is hard to know exactly what arguments the Service would make, and there is a risk that individual transfers will become expensive test laboratories for new tax law theories. All of the tax law problems can be avoided to some extent by appropriate hold-harmless provisions in private settlement agreements. The problem is that there is no way to determine in advance the amount at issue (or the amount of attorneys fees necessary to fight the IRS to determine the amount at issue). At the very least, the extent of any award will have to be reduced to reflect the transferors deferred liability, assuming we have even the vaguest notion of what that might amount to. Rosettenstein, supra, 37 Fam. L. Q. at 207. To the great majority of litigants who prefer to avoid income tax quandaries, the clear message is to avoid any direct transfer of qualified stock options incident to divorce. Finally, as Rosettenstein notes, even if direct transfer is permitted and not accompanied by burdensome tax consequences, it should not immediately be assumed that direct transfer is necessarily in the interest of the nonowning spouse. Unlike retirement benefits, stock options generate maximum value only if they are competently managed by the holder. The option must be converted into stock at the right time, and the stock itself must be sold at the right time. In many situations, the employee spouse may have a better ability to identify the right time, so that the nonowning spouse may actually do better to receive only a share of the profits and not actual ownership of the options. Also relevant are the spouses personal tolerances for investment risk, their willingness to adopt tax law positions which might be challenged by the IRS, and the degree to which each trusts the other to manage a jointly held asset for mutual benefit. When all of these factors are considered, direct transfer may not always be the best division method, even in situations in which it is legally permitted. The state court cases generally prefer direct transfer as a division method wherever possible on the facts. Most of the cases find, however, that direct transfer is not permitted by the plan. The method most often used to divide stock options is a deferred distribution of profits. The second most common method is an immediate offset based upon the difference between the market value and the option strike price on the date of valuation. This method is overly simplistic, and tends to reach extreme results when market conditions are unusually high or low. A better method could be reached by relying less upon immediate market conditions, but any attempt to reduce stock options to present value is inherently speculative. Deferred distribution is clearly the better division method. A clear majority of the deferred distribution cases make a distribution of profits rather than awarding equitable ownership. This point makes an interesting contrast with the equally clear tendency to favor direct transfer where that is a feasible option on the facts. Minimizing the burden upon the owning spouse is clearly a very important factor the courts are consistently favoring division methods which limit postdivorce connections between divorcing spouses. The result is to leave the owning spouse with complete control over when the options are exercised, subject only to the general supervisory jurisdiction of the court to avoid clear instances of misconduct. Whether this approach avoids litigation will ultimately depend upon the behavior of owning spouses. If owning spouses abuse the control which the courts are tending to give them, awards of equitable ownership may become more popular. The Need for Reform State court decisions often suggest that direct transfer of stock options should be the primary method of division when such a transfer is legally permitted. No court or commentator in recent years has suggested any federal or state interest which benefits if divorce-related transfers are forbidden, and the consistent trend in federal law over the past two to three decades has been to allow divorce-related transfers. Federal law should be amended to recognize a QDRO-like device for transferring stock options, and to provide that such transfers do not result in the loss of qualified status for income tax purposes. Questions Call 1-877-770-2270Stock Options in Divorce One question that comes up in divorce cases is whether stock options can be divided between the spouses. The answer is that if the stock options are classified as marital or community property . they can be divided between the spouses. What Are Stock Options Stock options are a form of compensation to an employee. An employer may award stock options as compensation for past, present or future services or as an incentive to remain with the company. Uma opção de compra de ações é o direito de aceitar, sob certas condições e dentro de um período de tempo especificado, os empregadores oferecem para vender suas ações a um preço predeterminado. Characterization Because a stock option is the right to purchase stock at a designated time in the future, stock options granted during the marriage often cannot be exercised until some time after the divorce. The trend is to treat stock options as marital or community property regardless of when the right to exercise the options matures, as long as the options are granted as compensation for services performed during the marriage. In most states, characterization of a stock option as marital or nonmarital property depends on the purpose for which the option was granted and on the time of its acquisition in relation to the marriage. A stock option granted during the marriage as compensation for work performed during the marriage generally is marital property. However, a stock option granted during the marriage for work to be performed after the marriage is the employee spouses separate property. In some states, stock options granted during the marriage are always marital property, regardless of the purpose for which they were granted. Opções de Compra de Ações Não Alavancadas Algumas opções de ações não correspondem a serviços prestados inteiramente durante o casamento ou inteiramente após o casamento. Alguns estados concluíram que essas opções têm componentes conjugais e não-matrimoniais, e elas as distribuem entre ativos conjugais e ativos não-matrimoniais com base no momento em que são adquiridos. Other states have adopted a standard rule that applies to all unvested stock options. Some states consider stock options that are not exercisable at the end of a marriage as non-marital property. Other states have decided that stock plans granted during a marriage are wholly marital property. Valuing Unvested Stock Options Valuing unvested stock options is difficult because it is impossible to predict the future value of stock. The Pennsylvania Supreme Court has suggested three possible approaches: A deferred distribution approach, in which the trial court retains jurisdiction to distribute the options after they are exercised An immediate offset approach, in which the trial court establishes a present value for the options and distributes that value in accordance with each partys marital proportion An in kind approach, in which the trial court distributes the options themselves according to each partys marital proportion Evidence of Value Evidence of the value of the stock options must be presented to the trial court. The value is often measured by a pricing model, which takes into account the stock price, the exercise price, the maturity date, the prevailing interest rates, the volatility of the companys stock, and the companys dividend rate. Another acceptable method of valuing options is the intrinsic value method, which determines value by subtracting the option price from the fair market value of the stock. Questions for Your Attorney What are stock options Can I be awarded part of the stock options that my spouse acquired during our marriage What happens to stock options that are for services performed both during and after the marriage Talk to a Divorce attorney