Dividing Employment Compensated Stock Options in Maryland Divorces

Divorce is rarely straightforward, but the process becomes even more complex when executive compensation packages are involved. Stock options, restricted stock units (“RSUs”), and other equity-based incentives often represent a substantial portion of a high-earning spouse’s compensation. These assets can be challenging to value, divide, or identify without experienced legal counsel.

At Leffler, Bayoumi & Oliver, LLC, we help clients untangle the complexities of dividing executive compensation in Maryland divorce proceedings with discretion, precision, and an eye toward preserving long-term financial stability.

Many executives receive some form of equity-based compensation, often as a way for employers to reward performance, retain talent, or incentivize future growth. Common types include:

• Restricted Stock Units (RSUs): A promise to deliver shares after meeting vesting requirements.
• Restricted Stock Awards: Actual stock ownership, subject to restrictions that lapse over time or upon meeting performance goals.
• Stock Options: The right to purchase shares at a fixed price, typically after a vesting period. These may be Incentive Stock Options (ISOs) or Non-Qualified Stock Options (NSOs).

Each has different vesting schedules, transferability limitations, and tax implications, all of which affect how it is treated in divorce.

Under Maryland law, marital property includes any asset acquired during the marriage, regardless of whose name is on the title. However, the analysis of stock options requires a closer look.

Key questions include:

• When were the options granted?
• What were they intended to compensate?
  • Past services? Marital efforts? Future performance?
• When will they vest?
• What is the vesting schedule based on? Time, performance, or both?

If the options or RSUs were granted as compensation for work performed during the marriage, they are likely to be considered marital property, even if they haven’t vested yet.

Vested vs. Unvested Stock Options

• Vested options are generally easier to classify and divide. If they were granted and vested during the marriage, they are clearly marital.
• Unvested options, on the other hand, can be more nuanced. Courts often examine whether the options were meant to reward past marital efforts or future, post-marital performance.

Maryland courts may treat unvested stock options as partially marital using a coverture formula. This formula prorates the marital portion based on the time the couple was married during the vesting period.

Restricted vs. Unrestricted Stock

• Restricted stock includes any equity with conditions or restrictions on transfer or sale, most commonly tied to time or performance milestones.
  • If those restrictions are tied to efforts made during the marriage, that portion may be considered marital.
  • The stock may be classified as non-marital if the restrictions relate to future performance.
• Unrestricted, fully vested, and transferable stock is typically subject to division like any other asset.

Methods of Division

There are several approaches to dividing executive stock options in divorce:

Present-Day Valuation and Buyout

The options are appraised, and the non-employee spouse is compensated through other marital assets or a cash payout.

Deferred Distribution

The non-employee spouse receives their share only if and when the options vest and are exercised in the future.

Coverture-Based Formula

A coverture-based calculation determines the marital share, which is then divided proportionally upon vesting. An example of a coverture-based formula: The non-employee spouse shall receive 50% of the options that vest in the future, multiplied by a fraction representing the number of months the parties were married during the vesting period.

Tax and Planning Considerations

Stock options may have significant tax implications when exercised. Additionally, many equity compensation plans restrict transferability. These issues require:

• Thoughtful settlement language
• Coordination with CPAs or forensic accountants
• Proactive tax planning to avoid unintended liability

Why Strategic Legal Counsel Matters

Dividing executive compensation in a Maryland divorce requires more than just familiarity with the law. It demands a deep understanding of financial strategy, tax implications, and how to structure settlements that protect both short- and long-term interests.

At Leffler, Bayoumi & Oliver, LLC, we partner with financial professionals to ensure our clients’ compensation packages are handled with the care they deserve.

If you or your spouse has equity compensation and you’re considering divorce, speak with a family law attorney who understands how to protect complex assets. Call us at 410-740-1180 or contact us to schedule a confidential consultation.