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Posted On April 19, 2021

Divorcing a Millionaire

Multiple assets, financial holdings, and company stock plans can make divorcing a millionaire a complicated legal process.

Protecting Assets When Millions Are at Stake

Divorces are often tedious and complex, especially when couples have been married a long time or have acquired significant wealth during the marriage. For many couples, the division of marital assets and debts can be very complicated without divorce lawyers to guide them through the legal process to achieve a fair outcome for both spouses.

Divorcing a millionaire may be a complicated legal process because of the division of multiple real estate properties, complex financial holdings, and company-issued stock plans. Many high-powered executives employed by large corporations are given executive compensation packages like stock options and restricted stock plans to boost morale and retain the best employees long-term.

Stock Options

As an incentive for long-term employment, employers often give employees options to purchase company stock in the future, based on the stock’s “grant price,” the original purchase price. However, there is a catch that can complicate matters. Stock options and restricted stock plans have vesting periods. This means that the employee may not exercise them for a period of time, usually from one to five years.

The profits on stock options can be significant. For example, if the current market value of a stock is $4,000 per share, but the “grant price” was only $500 per share, the employee would only have to pay $500 per share, leaving a big profit gain of $3,500 per share.

When couples divorce, it is crucial to consider taxes when valuing assets and paying debts. Without experienced divorce lawyers to handle such financial matters, the tax consequences of exercising stock options could be disastrous when millions of dollars are involved.

Restricted Stock Plans

As the name implies, restricted stock plans have limitations. Like stock options, they can not be sold until shares are vested. Often referred to as “golden handcuffs,” restricted stock plans are forfeited if an employee leaves the company for any reason.  When a restricted stock plan is fully vested, the entire value becomes taxable at high-income tax rates.

Stock options and restricted stock plans are common among millionaire executives. The employee spouse must hold stock options or restricted stock in a constructive trust to benefit the non-employee spouse. When divorce is imminent, divorce lawyers can draft a settlement agreement that addresses taxes, non-disclosed income, and hidden profits from vested stock plans.

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