Stock Options in Divorce

While compensatory stock options are not considered property for general tax purposes, they are generally viewed as assets subject to equitable distribution in matrimonial situations. As a result, property settlements in a divorce often address stock options held by one of the spouses, and they generally provide for one of the following outcomes: option retention, option transfer, or assignment of option proceeds. Each of these alternatives has the potential to produce different tax results. For the option transfer approach, recent IRS actions have greatly simplified the tax consequences. This article discusses these alternatives and their attendant tax consequences.