Stock Options and Restricted Stock In Divorce

by Thea Glazer, CFP®, CDFA™, MS Accounting
Glazer Financial Advisors

When dividing property in a divorce settlement, stock options and restricted stock may be thea-glazer-photopart of the marital estate. This brief overview provides a basic understanding of the factors you need to take into consideration. It does not go into all the many tax and technical issues that are aspects of equity compensation. Seeking professional guidance for your specific circumstances is always a good idea.

Many companies grant their employees equity compensation in addition to their salaries, commissions and cash bonuses. Equity compensation is non-cash compensation representing a form of ownership interest in a company. Among the most common are employee stock options and restricted stock or restricted stock units. In divorce, stock options and restricted stock are property to be divided. The employee’s separate shares are often also considered as income in the calculations of support.

Employee Stock Options (ESOs)

An employee stock option is the right given to an employee to purchase a specified number of shares of the employer’s stock for a specified price and for a specified time. There are two types of ESOs, Incentive Stock Options (ISOs) and Nonqualified Stock Options (NQs). The primary difference is that ISOs have an advantageous tax treatment explained below.

Stock options have a Grant Date, Exercise Price, Vesting Schedule and Expiration date. Example: Company ABC grants John Smith 3,000 nonqualified options on January 4, 2015 at a grant price of $10.50, a four-year annual vesting schedule and an expiration date of January 4, 2025. That means that John can exercise (buy) the 750 shares of stock annually on January 4 from 2016 through 2019. He does not have to exercise any shares until January 3, 2025. If he doesn’t exercise by the date of expiration, they will expire and be worthless.

Taxation of stock options

Nonqualified stock options are taxed at the time of exercise as ordinary income. The amount taxed is the difference between the grant price and the fair market price. Most companies sell enough shares to cover the withholding tax and release the net shares or proceeds if the shares were simultaneously sold. If the shares are held once exercised and sold later, there may be capital gains tax as well. Unless shares are about to expire, most people exercise and sell simultaneously.

Incentive stock options are not taxed when they are exercised. If the shares are held for at least one year from exercise and two years from grant date, the gain is taxed at the advantageous long term capital gains rate.

Restricted Stock (RS) and Restricted Stock Units (RSUs)

Unlike stock options, restricted stock and restricted stock units are actual stock. There is usually no purchase price and, if there is, it is very, very nominal (one cent). Holders of restricted stock have voting rights while holders of restricted stock units do not. Restricted stock units cannot be “underwater” which happens to options when the grant price exceeds the fair market price so they are much less risky. Grants of restricted stock usually have about one-third as many shares as do options. Restricted stock grants have a grant date and vesting schedule. There is no expiration date and usually no grant price.

Taxation of restricted stock

Once a share of restricted stock vests, it is released. Upon release, the fair market value less any purchase price is taxed as ordinary income. Most companies sell enough shares to cover the withholding taxes and release the net shares. There is no decision making needed by the employee like there is regarding when to exercise options. Once restricted stock vests, it is automatically released. Many employees continue to hold the net shares until a time they need the cash, feel the stock has reached a good selling price or want to diversify their portfolios.

Transferability of stock options and restricted stock

Some plans allow NQs to be transferred to the former spouse of the employee, but the majority do not. It is very rare to see ISOs transferable. If they are transferred, they may lose their status as ISOs and fall under the tax rules for NQs.

RS and RSUs are not transferable.

For non-transferable shares of options or restricted stock, the employee holds the shares on behalf of the nonemployee spouse and exercises on his/her behalf or transfers released shares. There are IRS acceptable ways to allocate the taxation so the nonemployee spouse is taxed at his/her rate rather than that of the employee.

Division of equity compensation in divorce

Both stock options and restricted stock shares are divided by formulas. The most commonly used ones are Nelson and Hug.

The Nelson formula is Date of grant to date of separation ÷ Date of grant to date of exercise or release

The Hug formula is Date of hire to date of separation ÷ Date of hire to date of exercise or release

The reason the grants were awarded determines which formula is applicable.

Valuation of stock options and restricted stock

It is rare to value the options rather than to divide the shares. That is because the value is constantly changing so it is imprecise at best. In order to correctly value the options, the following factors are the elements of a complex formula, the Black-Scholes formula:

  • Grant price
  • Grant date
  • Date of expiration
  • Vesting schedule
  • Current stock price
  • Volatility of the stock price

Sometimes valuing the options is the only way to effectuate the property division by offsetting another asset. However, dividing the shares divides both the risk and reward to both spouses. I believe it is preferable when possible.

Collaborative Divorce Offers Flexibility

In collaborative or mediated cases, there is far more flexibility in dividing assets. Unequal divisions are also acceptable if the parties agree and have reasons to do so. In court, such flexibility is not nearly as possible. This is another great reason to consider alternative dispute resolution such as collaborative divorce to allow you to make the best decision possible for your circumstances, rather than a decision forced upon you by a judge.

Is Mediation or Litigation the Right Choice for My Divorce?

Julia Garwood, Family Law attorney and Certified Family Law Specialist, San Diego, Collaboartive Family Law Group of San Diego

by Julia Garwood, Attorney at Lawjulia-garwood-photo
Family Law, Mediation and Collaborative Divorce
Garwood Family Law and Mediation

When heading toward the end of a marriage, many people ask what the difference is between divorce mediation and litigation. And beyond that, which one is right for them. There are numerous differences between divorce mediation and litigation, however the primary three include cost, decision-making and privacy.

Cost

Mediation is often much less expensive. Litigation can cost as much as six times the amount as mediation.

Decision-Making

A judge makes all the decisions in the case of litigation. This includes decisions about your children, division of property, alimony and even pets. However, through mediation, you and your spouse make the decisions together.

Level of Privacy

Mediation occurs in a private conference room and details never have to be disclosed publicly. Because of the public nature of the courtroom, when your divorce is litigated, all information is public record. That means all the details, including your finances and “dirty laundry,” are available to the public.

In order to help you decide whether mediation or litigation is right for you and your personal situation, below is a list of frequent situations when mediation and litigation are used.

Mediation is often used when:

  • You and your spouse mutually have decided to get a divorce.
  • You and your spouse can have a rational conversation in the same room.
  • You both realize that divorce is happening and you’re able to rationally approach the outcome.
  • You’re both willing to try to agree on issues like alimony, child custody, division of assets and child support.
  • Cost is a factor and you and your spouse want to incur as few costs as possible.
  • You both want to be active decision makers regarding the details of your divorce and don’t want to leave the final decisions for a judge to make.

Litigation is often used when:

  • One or both of you aren’t open to mediation.
  • One or both of you have difficulty conducting reasonable conversations.
  • There is a history of domestic violence or child abuse during the marriage.
  • Either you or your spouse has a drug or alcohol problem, impeding rational thinking and decision-making.
  • One or both of you is stalling or gathering information on the other spouse and don’t have any intention to settle. Sometimes spouses agree to mediation to stall the process or to gather information for later use against the other spouse during litigation.

While we’ve included some basic guidelines above, every situation is different. Consulting with a divorce attorney who is trained in Collaborative Family Law and/or a Certified Family Law Specialist including members of professional associations such as the Collaborative Family Law Group of San Diego, is the best avenue.

Discover Your Divorce Options at Workshop Oct. 22

Lessen the stress of divorce by learning about your alternatives 


September 26, 2014
Media Contact: Gayle Lynn Falkenthal, APR
619-997-2495 or gayle@falconvalleygroup.com

(SAN DIEGO) – Divorce is difficult and stressful even under the best of circumstances. It can be especially hard if you have children or economic difficulties. Divorce affects people from all walks of life, and no two situations are alike.

It is possible despite challenges to preserve the emotional and financial resources of the family while respecting everyone’s needs during a divorce. Learn about your alternatives at “Divorce Options.” The first “Divorce Options” workshop in San Diego takes place on Wednesday, October 22, from 5:30 p.m. to 8:30 p.m. at the Hacienda Building, located at 12625 High Bluff Drive, Suite 111 in San Diego.

Divorce Options provides unbiased information about self-representation, mediation, collaborative divorce, and litigated divorce. The workshop deals with the legal, financial, family and personal issues of divorce in an informational and compassionate small group setting.

Led by volunteer attorneys, financial specialists, and mental health professionals who are members of the Collaborative Family Law Group of San Diego, the workshop will cover the full range of choices couples have as they contemplate divorce, focusing on the non-adversarial, out-of-court options.

“Divorce Options presents a unique opportunity for the public to learn about resources they can draw on to plan an effective transition that respects the needs and interests of all family members,” said Shawn Weber, attorney and Collaborative Family Law Group of San Diego member.  “It puts you in control of your own divorce instead of someone else who doesn’t know you or your family circumstances.”

Weber said the Divorce Options program is useful to anyone thinking about divorce or other relationship transitions including co-habitating couples with children or LGBT couples looking for a process aware and respectful of their unique needs.

Topics include:

  • Litigation, mediation and collaboration – the risks and the benefits of each process
  • Legal, financial, psychological and social issues of divorce
  • How to talk about divorce with your children
  • Guidance from divorce experts

By learning about divorce and the different process options available you can maximize your ability to make good decisions during the difficult and challenging time. Divorce Options is a workshop designed to help couples take the next step, no matter where they are in the process. It identifies strategies to help you stay out of court, and helps you identify the social, emotional, legal, and financial issues that are most pressing for you. There is no solicitation of business. The cost is $45 for materials. The materials fee is waived for mental health professionals to attend.

Questions? Call Divorce Options at (858) 472-4022 or email at sandiegodivorceoptions@gmail.com

About the Collaborative Family Law Group of San Diego

CFLG San Diego’s members work together to learn, practice, and promote collaborative processes for problem solving and the peaceful resolution of family law issues, with an eye toward preserving the emotional, as well as the financial, assets of the family. Its goal is to transform the resolution of family law issues through respectful, collaborative processes that protect the integrity and health of family relationships and eliminate the need for families to resort to litigation.

CFLGSD is online at www.collaborativefamilylawsandiego.com, and on LinkedIn.

Choose Your Filing Options Wisely in a Military Divorce

Military families and divorce

Military families and divorce

One-quarter of all active duty United States Navy and United States Marine Corps personnel are based in San Diego County. Add the large number of veterans, retirees, reservists and National Guard, and the significant influence of the military is apparent.

When you are a civilian facing divorce, you file in the state where you live. If you are a member of the military, it isn’t always that simple. In the military community it is common for a couple to be from one state, married in a second state, living in a third state and own property in a fourth state.

Further complicating matters, the couple may have recently been moved by the military to the state where they live and they may not have been there long enough to establish residency.

How does a military couple decide where to file their divorce and does it matter which state they choose? Family law attorney Mark Sullivan of Raleigh, North Carolina provides some helpful guidelines in this article for Military.com.  Sullivan is the author of a guide for lawyers called “The Military Divorce Handbook.”

Whatever your decision, Collaborative divorce remains an excellent option for military families to avoid the negative effects of divorce on the family, particularly where children are involved.

 

 

 

More Women Are Paying Child Support and Spousal Support

When a female celebrity making big money paid out spousal support, it made headlines: Jennifer Lopez, Jane Fonda, Janet Jackson, Jessica Simpson. Now the trend is trickling down.

Jennifer Lopez is among many high earning women celebrities who have paid out spousal support. Photo: Fox/American Idol

Women are breaking professional and societal barriers at a tremendous rate today. Women professionals, entrepreneurs, military and organizational leaders are no longer considered unusual.

Just as gender stereotypes are breaking down in other areas of American life, they are breaking down in divorce outcomes. If the wife makes more money than her husband, she faces the real – and fair – possibility of paying spousal support. If a spouse of either gender gave up a career or worked less hours to be the primary parent, it doesn’t matter whether this was mom or dad, the stay-at-home spouse is likely to receive spousal support, and possibly child support if he or she continues to have primary or in some cases even shared custody.

In circumstances that are atypical of the norm, using the Collaborative Divorce approach to seek a fair and equitable outcome without preconceived assumptions can be a wise choice.

Read more here about this family law trend in a column published this week in Communities Digital News by CFLG San Diego member Myra Chack Fleischer, lead counsel with Fleischer and Ravreby in San Diego.
 

 

Five Tips For Successfully Negotiating Your Divorce

by Michele Sacks Lowenstein, Attorney, California State Bar Certified Family Law Specialist, Lowenstein Brown, A.P.L.C.

Trying to negotiate a divorce in a conference room with either a mediator or two attorneys is hard work. However, the result can be worthwhile if you bear in mind that you are a parent forever and the story of your divorce will, ultimately, be your child’s story as well.

An important component of successful negotiation is the use of language during these negotiations. Words express how we think about and see life. The words we use are symbolic of our perspective on life. Some people may wonder why the use of language factors so heavily into these negotiations. In my experience most people going through a divorce don’t want to end up in court. They do, however, want to feel that they have been heard by the other person and efforts were made on both sides to address each party’s issues and concerns.

Consider that when people have filed for divorce they are already at a point where they are unable to communicate effectively and are probably unable to communicate effectively about anything. Participating in divorce negotiations requires people to do something they probably haven’t done in a long time; they must listen to each other in a new way where they no longer jump to conclusions about what the other person is saying.

It’s not easy. In fact, it is hard. However, it can be done. And, it can be done successfully so long as each party is aware that they can each frequently press the other’s “hot button” without even meaning to do so.

So, here are five tips for the successful discussion and negotiation of a divorce.

1.         Stay Away From Polarizing Language.

Using the terms “custody” and “visitation,” while accurate, tends to draw battle lines. Expressing the child sharing plan in terms of “I want to have custody and I want you to have visitation” will certainly cause the other parent to begin to focus on the terms “custody and visitation.” The focus, in fact, should be on a parenting plan that works for the child and not on the terms. Parents who focus on working out the times the child will be spending with each of them rather than arguing over the terms “custody and visitation” will be more successful in their negotiations. And, being more successful in the negotiating process means that these parents will ultimately be more successful in their co-parenting post divorce. Ultimately, the parents are more likely to stay out of court, which causes less stress to the children and to them. So, everyone comes out ahead.

2.         Frame the Issues in a Non-Combative Manner. 

I have been in a number of negotiations where we have reached an impasse on an issue and have decided to move onto another issue. Unfortunately, someone may say “We can fight about that later,” when the non-combative way of phrasing this is “We’ll put this on our list to discuss later.” It may seem small, but framing issues in terms of having to be fought out later rather than discussing them makes a huge difference in the mindset of the parties who are experiencing the divorce. People have already had their share of “fights” and don’t need to be gearing up for another one.

3.         Engage in Interest Based Negotiations Instead of Position Based Negotiations.

Positional based negotiations are adversarial as the “other side” or “opposing party” is seen as an opponent. (Again, labels play a large part here). Reluctantly, a concession will be given. Reluctance leads to resentment and this, of course, results in either the negotiations breaking down or the parties litigating issues in the future. Also telling someone that you are not going to change your position is not conducive to reaching resolution as it only causes each party to dig in their heels. Interest based negotiations seek to find an outcome that is mutually acceptable to both parties. Of course, neither party can generally meet all of their goals and objectives but it is important that each party work  with his or her professional team to set forth realistic goals and objectives and see if a solution can be fashioned which will benefit both parties.

4.         Don’t Refer to Your Soon to Ex in the Third Person.

Sometimes a person will refer to his or her spouse as “he” or “she” rather than using the other person’s name. While it is understandable that doing this is part of venting anger and frustration, referring to someone in the third person as if they aren’t even the room only serves to create additional conflict because that person will feel they are being diminished. People who feel their feelings are being diminished are not likely to be able to act in a constructive fashion to resolve issues.

This  applies especially to lawyers who tend do this or, even worse, refer to the parties possessively as in “your client” or “my client.” This is very de-personalizing.

5.         Don’t Curse, Please.

It should be evident that using four letter words during a business meeting is unprofessional and disrespectful. However, it is amazing how many people actually do swear during negotiations. Using curse words will not bring resolution to any issues but will only serve to cause people to focus on the fact that “them is fightin’ words.” Learning how to express oneself not only allows for improved communication but also provides for a better understanding of one’s own feelings.

As Margaret Thatcher once said: “Watch your thoughts for they become words. Watch your words for they become actions. Watch your actions for they become habits. Watch your habits for they become your character. And watch your character for it becomes your destiny. What we think, we become.” Good advice for everyone.

 

Developing Diversity in Divorce Goal of Statewide Conference April 25-27

CPCal working to meet the needs of the modern family

Contact: Gayle Lynn Falkenthal, APR
619-997-2495 or gayle@falconvalleygroup.com

 

(SAN DIEGO) – Collaborative Divorce professionals throughout California will focus on broadening the reach of the Collaborative model to an increasingly diverse array of families at its statewide conference April 25-27 in San Francisco, California.

A team of ten members from the Collaborative Family Law Group of San Diego will take a leadership role in the conference, including attorneys, financial specialists, and mental health practitioners. They include Julie Mack, attorney/mediator and President of CFLG San Diego; attorneys Adryenn Canton, Hildy Fentin, Julia M. Garwood, Meredith Lewis, Frann Setzer, Nancy Taylor, Colleen Warren, and Shawn Weber; and financial advisor Ginita Wall.

“Our model offers a way to meet the needs of non-traditional families in the legal system,” said Mack. “It allows for flexible, respectful solutions to common family law challenges involving marriage and divorce. We strive to address the legal and psychological factors affecting a wide range of families.

“The Collaborative Family Law Group of San Diego is eager to let people know we offer them a range of choices for legal, financial, and mental health services all with the ultimate goal in mind of preserving the health and well-being of the family, however the family model is defined for them. The Collaborative model is especially well suited to addressing issues that aren’t always typical and often prove challenging in the court system.

“We urge families struggling to address these issues to give the Collaborative Process a chance. Even if they are skeptics, they have nothing to lose by giving our alternative a try,” said Mack.

The collaborative process is being used in divorce and family law, domestic partnerships, same sex marriages, employment law, probate law, construction and real property law, malpractice, and other civil law areas.

The Collaborative Family Law Group of San Diego (CFLG San Diego) is a non-profit group of legal, financial, and mental health professionals trained in the Collaborative Process offering an alternative to litigated divorce.

CFLG San Diego’s members work together to learn, practice, and promote collaborative processes for problem solving and the peaceful resolution of family law issues, with an eye toward preserving the emotional, as well as the financial, assets of the family. Its goal is to transform the resolution of family law issues through respectful, collaborative processes that protect the integrity and health of family relationships and eliminate the need for families to resort to litigation.

CFLG is online at www.collaborativefamilylawsandiego.com, and LinkedIn.

 

 

Divorce (Without The Court): Reasons To Choose Collaborative Divorce

The Collaborative Law Institute of Texas recently held its annual conference in Dallas. As part of the conference, a panel of collaborative divorce practitioners participated in a discussion on KERA Public Radio in North Texas. It is an illuminating discussion we found worth sharing with you. The discussion identifies three main reasons people seek a Collaborative Divorce.

Please listen to the discussion at this link. Do you agree with the reasons presented in the discussion? What is your experience? Share your thoughts in the comments section.

How Divorce Affects Your Health

by Craig B. Grether, Ph.D.  
Clinical Psychologist, Collaborative Coach and Past-President of the Collaborative Family Law Group of San Diego

The Stress Effect

Divorce ends what was supposed to be our most intimate life-long relationship. It is one of the top ten stressors on all life event stress scales, ranking close to the loss of a loved one and serving a jail term.

The stress of marital separation and divorce can be acute, (short-term) or chronic, (long-term: greater than six months). The health problems from separation and divorce are both psychological and physical. These effects are more severe for people who separate and divorce in their 30s and 40s and less severe in older adults.

Short-term effects may include:

(1) Difficulty sleeping
(2) Loss of appetite
(3) Inability to concentrate
(4) Digestive problems
(5) Decreased immune system functioning
(6) Increased secretion of cortisol (a stress hormone)
(7) Elevated systolic and diastolic blood pressure (hypertension in men)
(8) Smoking relapse among prior smokers
(9) Increased alcohol use/abuse
(10) First time cannabis use

Most adults are resilient and cope successfully with the stress of divorce and the short-term effects.

However, almost 20% of divorcing adults experience long-term effects without recovery four years post-divorce. In addition to the short-term effects, the long-term effects may include clinical depression and an increase in the number of diagnosed medical illnesses.

The incidence of psychological and medical illnesses are more prevalent for divorced people of all ages compared to those who are continuously married. Divorced men and women have the same overall number of health problems but men’s problems are more medically severe compared to women, while women have more psychological health problems.

A Healthy Divorce

Divorce does not have to take such a toll on the psychological and physical health of the divorcing adult. In the Collaborative Divorce process, the negative health effects of divorce can be reduced by working with Collaborative Divorce coaches.  These are specially trained licensed mental health professionals who provide a variety of coping strategies, some derived from behavioral medicine, to address the health effects of divorce.

These strategies include:

(1) Direct physiological regulation through mindful meditation and relaxation techniques
(2) Cognitive (mental) refocusing and reinterpretation of life stressors
(3) Reaffirming personal values and redirection of life energies
(4) Healthful life restructuring including exercise and proper nutrition
(5) Social support outreach to family, friends and community

For divorcing adults with children, a Child Specialist, another licensed mental health professional, is available to support the children and be their voice throughout the divorce process.

Collaborative attorneys can help reduce the stress on divorcing adults by ensuring that clients will not have to endure the cost and stress of legal proceedings and litigation. Financial specialists complete the Collaborative Team by empowering clients intellectually through an understanding of their current and future financial status.

Contact the Collaborative Family Law Group of San Diego at (858) 472-4022 with your questions about the Collaborative Divorce Process.

What to Expect When You Have Filed for Divorce

San Diego Family Law Attorney Nancy Taylor

by Nancy A. TaylorSan Diego Family Law Attorney Nancy Taylor, Esq. Hargreaves & Taylor, LLP
California State Bar Certified Family Law Specialist
Member of the American Academy of Matrimonial Lawyers

As soon as your friends and family find out you have filed for divorce, the first thing they will want to do is tell you their horror stories and/or how you and your attorney should be handling your case.  They mean well, but the problem with their divorce stories is this: every case is different. You can’t expect to have the same outcome they experienced.

Based on years of working with divorcing couples with no two of them alike, there are a few things divorces have in common.

  1. Trust that what your attorney is telling you is more than likely closer to the reality you will experience.
  2. As much as you might want to discuss your case in detail with those who love you, these conversations may result in your second guessing yourself and the advice of your counsel.
  3. Going through a divorce is not something you want to handle on your own. It can become one of the most difficult journeys of your life. Instead of seeking advice from friends or using your attorney as a therapist, seek the advice of a mental health professional who is trained to assist you in this situation. It will cost you a lot less in the long run.
  4. There are NO stupid questions!  Experiencing anxiety is not uncommon and can easily be caused by the unknown.  Always ask questions of your attorney so that you know what to expect. The more you know, the less anxious you will become.
  5. If you have children it can be best for them to learn about your divorce together as a family. Go to a family therapist with your spouse to discuss the best way to address the divorce process with your children.
  6. Recognize the process will not be resolved overnight.  It takes a minimum of six months at the earliest to become divorced. The six month time clock starts ticking once your spouse has been served with the Summons and Petition for Dissolution.
  7. Getting divorced takes work and just doesn’t magically happen. In order to be divorced at the end of the six month period, you and your spouse must have either entered into a full written agreement or have gone to trial, with your Judgment of  Dissolution having been filed.
  8. The best way to work with your attorney is to be as organized as possible.  The more thorough you can be in providing them with the information they request, the more time and cost effective for you. Handing over a pile of papers, expecting your attorney to go through and organize it can be costly and a waste of your hard-earned money.

One well-tested way to avoid many of these conflicts and pitfalls is to proceed with a Collaborative Divorce.  In the Collaborative Divorce process, each spouse will have an attorney guide him or her through the legal process; a coach/child specialist to help guide them emotionally; and a neutral financial specialist to gather, organize and prepare a report outlining the marital estate.  It is an enlightened process that will allow for every one’s Happily Ever After, even if that means not living together under the same roof.