Property distribution in divorce is difficult even in simple estates, but complications abound for those with more complex mixes of assets. These high-asset divorce cases often require review of financial portfolios, including stock options.

Stock options are often used to lure key employees into high-level positions. A stock option is a contract that allows the holder to purchase a specified amount of stock for a certain price within a set time period. Stock options can be provided as an additional form of compensation and offer an incentive not only to continue working for the company, but also to remain loyal, according to Forbes.

This type of asset is present in many upper-level employees’ portfolios, is usually considered property within divorce determinations and often comes into play in high-asset divorce proceedings.

Knowing Your Assets: Types of Stock Options and Associated Tax Implications

If a stock option is vested, or belongs to the spouse, and is forfeited only when the option expires, it is subject to property-division determinations in divorce. Within this category there are two broad types of stock options: nonqualified and qualified. Qualified or incentive stock options — known as ISOs — receive special tax treatment, often not taxed until the stock is sold and taxed at a lower rate. This option is usually offered to those holding upper-level management positions.

Nonqualified plans are often given to employees and generally do not require the holders to pay taxes when granted. Income taxes are required, however, after stock is purchased pursuant to the option on the difference between the grant price and the stock market value.

One difficult decision is determining when to exercise the stock option. Conventional wisdom often guides the holder to wait until the option is about to expire to maximize potential gain. However, valid reasons to exercise earlier include:

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Photo of Michelle O'Neil Michelle O'Neil

Michelle May O’Neil has 27 years’ experience representing small business owners, professionals, and individuals in litigation related to family law matters such as divorce, child custody, and complex property division. Described by one lawyer as “a lethal combination of sweet-and-salty”, Ms. O’Neil exudes…

Michelle May O’Neil has 27 years’ experience representing small business owners, professionals, and individuals in litigation related to family law matters such as divorce, child custody, and complex property division. Described by one lawyer as “a lethal combination of sweet-and-salty”, Ms. O’Neil exudes genuine compassion for her client’s difficulties, yet she can be relentless when in pursuit of a client’s goals. One judge said of Ms. O’Neil, “She cannot be out-gunned, out-briefed, or out-lawyered!”

Family Law Specialist

Ms. O’Neil became a board-certified family law specialist by the Texas Board of Legal Specialization in 1997 and has maintained her certification since that time. While representing clients in litigation before the trial court is an important part of her practice, Ms. O’Neil also handles appellate matters in the trial court, courts of appeals and Texas Supreme Court. Lawyers frequently consult with Ms. O’Neil on their litigation cases about specialized legal issues requiring particularized attention both at the trial court and appellate levels. This gives her a unique perspective and depth of perception that benefits both her litigation and appellate clients.

Top Lawyers in Texas and America

Ms. O’Neil has been named to the list of Texas SuperLawyers for many years, 2011-2018, a peer-voted honor given to only about 5% of the lawyers in the state of Texas. In 2014-2018, Ms. O’Neil received the special honor of being named by Texas SuperLawyers as one of the Top 50 Women Lawyers in Texas, Top 100 Lawyers in Texas, and Top 100 Lawyers in DFW. She was named one of the Best Lawyers in America for 2016 and received an “A-V” peer review rating by Martindale-Hubbell Legal Directories for the highest quality legal ability and ethical standards.

Author and Speaker

A noted author, Ms. O’Neil released her second book Basics of Texas Divorce Law in November 2010, with a second edition released in 2013, and a third edition expected in 2015.  Her first book, All About Texas Law and Kids, was published in September 2009 by Texas Lawyer Press. In 2012, Ms. O’Neil co-authored the booklets What You Need To Know About Common Law Marriage In Texas and Social Study Evaluations.  The State Bar of Texas and other providers of continuing education for attorneys frequently enlist Ms. O’Neil to provide instruction to attorneys on topics of her expertise in the family law arena.