Classification of Unvested Stock Options and Deferred Compensation for Equitable Division on Divorce
Question: Do unvested stock options and deferred compensation constitute marital assets that are subject to equitable division on divorce?
Answer and Discussion: As to deferred compensation, definitely. As to unvested stock options, the answer seems a bit less clear. Under Georgia law, insofar as acquired during a marriage, retirement benefits, whether vested or unvested, are marital assets subject to claims for alimony and equitable division of property. Courtney v. Courtney, 256 Ga. 97, 98-99, 344 S.E.2d 421 (1986); see also Taylor v. Taylor, 283 Ga. 63(1), 656 S.E.2d 828 (2008) (holding that “[t]he law is well-settled that retirement benefits acquired during the marriage are marital property subject to equitable division … This is true of both vested and unvested benefits”) (citations omitted); and Andrews v. Whitaker, 265 Ga. 76, 77, 453 S.E.2d 735 (1995) (holding that husband’s retirement benefits which constituted deferred compensation for services rendered during the term of his employment and during the course of the parties’ marriage were subject to equitable division).
In Courtney, a husband who worked for the FBI during his marriage obtained a retirement plan, the benefits of which had not yet vested at the time of the parties’ divorce. The Georgia Supreme Court held that the unvested retirement benefits were an important asset of the marital relationship. The Court also rejected the husband’s claim that his unvested retirement benefits were too speculative to be subject to equitable property division, finding that “a retirement plan, while admittedly unvested, is nevertheless an important contractual right, which will become a reality upon satisfaction of certain conditions.” Id., at 98. In so holding, the Court indicated that factors which a finder of fact should consider in apportioning unvested retirement benefits on divorce: “We point out here that the actual contributions of the spouse who is not earning the retirement benefits, the number of years of the marriage in which such contributions were made, the degree to which there has been reliance on the expectation of these future benefits, and other factual variables are matters of evidence for and argument to the fact-finder for consideration in apportioning this marital asset.” Id.
No published Georgia appellate decision has yet addressed whether stock options which have not yet vested at the time of divorce constitute marital assets. Cases construing stock options which vested during the marriage -- whether or not those options were awarded to a spouse before or during the marriage – deem the vested options as marital assets if and to the extent that the vesting directly resulted from the parties’ labor and investments during the marriage. See Newman v. Patton, 286 Ga. 805, 692 S.E.2d 322, 323-324(1) (2010); and Payson v. Payson, 274 Ga. 231, 232(1), 552 S.E.2d 839 (2001). If previously awarded stock options vested during the marriage because of efforts made by either spouse during the course of the marriage, then they constitute marital assets; otherwise, they constitute the spouse’s separate property. Newman, supra, 692 S.E.2d at 324(1). Additionally, to the extent that stock options vesting during the marriage appreciated in value due to the individual or joint efforts of the spouses, as opposed to appreciating due to market forces, the options represent marital assets. Newman, 692 S.E.2d at 324(1); Payson, supra, 274 Ga. at 232(1). To analyze the cause of vesting of a stock option, a court will consider multiple factors, including whether marital or premarital funds were used to exercise the options, and the employer's purpose for granting the option (i.e., for past, present or future service). Newman, 692 S.E.2d at 324(1).