How Are Unvested Stock Options Considered In a New Jersey Divorce?
It depends upon the case. The lawyers at our law firm appreciate that the first requirement that a judge of the Family Part, Superior Court of New Jersey is to determine is if whether the stock options were given for efforts before, during, or after the marriage. In making this determination, our attorneys help the divorce judge to identify the reasons for which the options were given. Furthermore, a judge of any New Jersey Family Court may consult the employee’s stock option plan, testimony from the employee, or testimony from an expert witness.
In M.G. v. S.M., the court examined whether a portion of stock transferred to the Husband by his employer, due to vest after the date of the divorce complaint, should be subject to equitable distribution if its vesting was based on the Husband’s post-divorce employment efforts.
The parties were married in 1998, and in 2001 the Husband began his job as a principal consultant for a large multi-national corporation. As part of his employment, the Husband received stock awards that vested yearly and were contingent on his commitment to the job and his yearly performance. In July of 2014, the Husband filed for divorce. At this point, he had been granted eight stock awards, but only three had fully vested and the other five were due to vest post-divorce.
In the trial judge’s written decision following the final judgment of divorce, he stated that the Wife was entitled to equitable division of the stock awards, both vested and unvested, because they were awarded prior to the divorce. He stated that “The 2014 award, not the vesting of that award, created a marital asset…” He further determined that because this award was made in recognition of past job performance that took place during the marriage, it is subject to equitable distribution. The judge cited the reasoning in the Pascale v. Pascale case, in which the Court determined that stocks which are awarded after the termination of a marriage, but “obtained as a result of efforts expended during the marriage,” are considered marital assets that are subject to equitable distribution.
In response, the Husband sought to modify the judgment in regard to the division of the stock awards. He argued that the judge had erred in applying the Pascale reasoning because that case dealt with stock options that were awarded due to prior job performance, and his stock options were awards for future job performance. In his argument, the Husband included language from the stock award agreement stating that the award was contingent on job performance and remaining employed with the company. The judge denied his motion, however, stating that the document offered by the Husband was not sufficient to overcome the reasoning of Pascale that stocks awarded before a divorce are marital assets, regardless of their vesting date.
On appeal, the Husband argues that the trial judge was incorrect because he ignored the Husband’s testimony that the stock’s vesting was dependent on post-divorce job performance. He further states again that the judge’s reliance on the reasoning in Pascale was incorrect because the cases are not the same. The facts in Pascale address a situation where the stock options relied on prior job performance, not post-divorce job performance.
The Appellate Division agreed with the Husband’s arguments on appeal. The court stated that this case did differ from Pascale, and the trial judge was incorrect in failing to recognize those differences. The Appellate Division determined that the correct analysis to follow was that of Baccanti v. Morton, a case with nearly identical facts to those here.
The Baccanti analysis (as discussed in the first paragraph) was the standard used by New Jersey Family Court judges and lawyers. Utilizing this analysis as a guideline, the Appellate Division held:
(1) Where a stock award was made during the marriage, and vests prior to the divorce, it is subject to equitable distribution.
(2) Where an award is made during the marriage for work performed during the marriage, but vests after the divorce, it is subject to equitable distribution.
(3) Where the award is made during the marriage, but vests following the divorce, it is presumed that the award is subject to equitable distribution unless there is a material dispute of fact regarding whether the stock is for future performance. The party who seeks to exclude the stocks from the distribution of assets holds the burden of proving the award was made for services performed outside of the marriage. Evidence is required to prove that the employer intended the stock to vest for future service, and not as an award for work already completed. This evidence should include testimony from the employed spouse; the stock plan; employer correspondence to the employed spouse about the award; and the employed spouse’s stock plan statements and vesting schedule.
The trial judge should have applied this standard, and if he had, would have reached a different conclusion. Ultimately, the Appellate Division held that the Husband had produced sufficient evidence to rebut the presumption that the stock awards were subject to equitable distribution. With the Husband’s testimony, the stock plan award correspondence, award and vesting schedules, and the stock plan itself, the court found it clear that the stock awards which were not yet vested were for future services and not attributable to the marriage. Thus, they were not subject to equitable distribution.
If you have questions about stock options and divorce, your inquiry is invited.