Your Real Estate Options During Divorce (VIDEO)

The financial impact of divorce on the family is one of the leading concerns couples have entering the divorce process. For most families, the family home is their largest single investment. What are you options? Should you sell your home when you divorce? Should you keep it and co-own it? What about renting it out? This can be one of the larger and more important decisions you need to make.

Collaborative Family Law Group of San Diego member Justin Reckers, Justin A. Reckers, CFP, CDFA and CEO of WellSpring Divorce Advisors answered questions about issues focused on real estate concerns during divorce on this recent edition of the “Craig Sewing” YouTube video program.

Contact the Collaborative Family Law Group of San Diego at 858-472-4022 or visit our contact page to consult with one of our members to learn about your financial options during your divorce.

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.

Inaugural San Diego “Divorce Options” Workshop Offers Information, Choices

San Diego’s inaugural “Divorce Options” workshop on Oct. 22 brought the acclaimed program developed by Collaborative Practice California to individuals seeking information about their choices regarding divorce.

The San Diego Divorce Options team (L to R): Shawn Weber, Meredith Lewis, Frann Setzer, Anna Janda, Anna Addleman." width="800" height="589" /></a> The San Diego "Divorce Options team (L to R): Shawn Weber, Meredith Lewis, Frann Setzer, Anna Janda, Anna Addleman.

The San Diego “Divorce Options team (L to R): Shawn Weber, Meredith Lewis, Frann Setzer, Anna Janda, Anna Addleman.

Led by Collaborative Family Law Group of San Diego volunteers including attorney and Certified Family Law Specialist Shawn Weber, coach and Licensed Clinical Social Worker Anne Janda, and forensic accountant Anna M. Addleman, CPA, CDFA, CFF, CFE, the Divorce Options provided unbiased information about self-representation, mediation, collaborative divorce, and litigated divorce. The workshop addressed the legal, financial, family and personal issues of divorce in an informational and compassionate small group setting.

Also participating as panelists were attorney and Certified Family Law Specialist Frann Setzer, and attorney and Certified Divorce Financial Analyst Meredith Lewis.

The workshop reviewed the full range of choices couples have as they contemplate divorce, focusing on the non-adversarial, out-of-court options for attendees.

“We are so pleased members of the public were able to take advantage of this opportunity,” said Shawn Weber. “The truth is that the presenters learn just as much from the participants as they do from us. It’s helpful to hear what concerns them most, and what resources they are looking for whether from our organization or others in the community.”

Weber said the Divorce Options program is useful to anyone thinking about divorce or other relationship transitions including cohabiting couples with children or LGBT couples looking for a process aware and respectful of their unique needs. The next Divorce Options workshop is planned in January 2015.

Community groups and organizations can also inquire about bringing a free “Divorce Options” workshop to your location. Contact the Collaborative Family Law Group of San Diego for more information 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.

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

Collaborative Divorce Method Mirrors Reality, Replacing Fear With Relief

by Meredith G. Lewis, Esq
Certified Legal Specialist-Family Law
Certified Divorce Financial Analyst
Lewis, Warren & Setzer, LLP

For the first several years of my family law practice, I represented clients who were looking to the judicial system to make decisions regarding their children, finances and property.  These clients felt it appropriate to provide a judge who didn’t personally know anything about them with complete control over their future and that of their family.

A release of such control never seemed natural to me.

As I slowly transitioned my practice to only Alternate Dispute Resolution (“ADR”), I saw a much higher rate of satisfaction with the dissolution process among my clients.  Until 2013 my ADR practice focused mostly on mediation. At the suggestion of my friend and colleague  Shawn Weber, CFLS, I took the Collaborative training.

The training showed me that the Collaborative process and its outcome better reflected reality.  In the artificial environment of a courtroom, a judge is limited in his or her decisions by the Family Code and case law.  However, these code sections and court opinions often do not allow a judge to mirror reality.

I instantly realized during my first Collaborative case that it is a process which understands the needs of the parties.  The key moment of this realization was during the meeting addressing the issue of spousal support. Instead of plugging in numbers into a computer program to come up with an artificial support payment, we reviewed in detail each individual’s monthly budget, and allocated the combined net income appropriately.

This process insured each spouse’s necessary expenses were met, and even allowed some discretionary expenses to be covered.  The spousal support number was based on reality, and each person walked away from the meeting feeling confident he or she could financially survive post dissolution.

Best of all, their fear about the future was replaced by a sense of relief, which resulted in having control over how their lives would progress.

The team approach of the Collaborative dissolution was an invaluable tool for working with this family. As in any case, each had their own attorney for legal advice, but both also had the benefit of a financial expert providing knowledge and insight, and a mental health professional to address their emotions during the process. These are two key components which are often missing from the traditional divorce process.

The ultimate agreement and outcome of the case was one that in fact mirrored reality, allowing each individual to have control of his or her future – control that was never handed over to the impersonal judicial system.

Nine Tips for Deciding Fair Spousal Support

by Robin DeVito, Attorney at Law

One of the more difficult issues facing people getting divorced is the issue of spousal support. For both parties, questions generally focus on how much support will be, and how long is it paid.

There are three types of spousal support orders.

The first: Money is paid for spousal support for a period of time.

The second: Money is not being paid for support, but the recipient spouse may go into court to ask for support. This is commonly called the court reserve jurisdiction over the issue of spousal support.

Spousal support decisions during a divorceThe third: The right to ask for spousal support is terminated forever. This means that the spouse may never ask the court to order spousal support.

Through my experience as a family law attorney, I have created a list of nine tips that will help you navigate this tricky area of your divorce.

For the party requesting spousal support:

  1. Be realistic when listing your needs. Your needs are your monthly expenses. A financial specialist can assist in preparing a realistic list of expenses.
  2. Determine if there is anything you can do to increase your income instead of relying on help from support payments.
  3. Put together a plan for school or training to increase your income.
  4. Be realistic about the changes that will occur with both your household and that of your spouse.
  5. Remember that spousal support is not a number generated by a computer. While we have “rules of thumb” for the length of time support may be paid, there are a number of factors that come into play under the law to assist in the calculation of spousal support.

For the party being asked to pay spousal support:

  1. Be realistic as to the time it will take your spouse to become self-sufficient.
  2. Remember that forcing a spouse into a low paying job is counter-productive.

For both parties:

  1. Each party must fully disclose their income from all sources. A financial specialist can assist in the identification of income.
  2. The goal of each party should be self-sufficiency within a reasonable period of time. If it means paying more up front to allow the party requesting support to complete training or education to increase his or her long-term income opportunities, think about it. It makes sense.

Couples who pursue a Collaborative Divorce work with a financial specialist as part of their divorce team. If you need to work through spousal support issues, you may want to consider the Collaborative Process for your divorce.

Contact the Collaborative Family Law Group of San Diego to find out whether a Collaborative Divorce is right for you.