All successful divorce lawyers, in California and every other state, are good at something. They may be good at instilling confidence in their clients. They may be good at listening or mediation or explaining complicated issues. But when you get into the high net worth divorce terrain where people invariably divorce with investments, you want a divorce lawyer who’s uncommonly knowledgeable about finances. Here is Amy Laughlin, Founder and Partner at Laughlin Legal Divorce & Family Law Group, a California high net worth and ultra high net worth divorce law firm, with her response to common questions.
Question #!: Are stocks marital property in California?
A: First of all, stocks are just another form of asset. We’re asked that question quite often, and I think it’s because stocks feel more intangible than, say, a car or a house or a collection of paintings. And though their value fluctuates more often than the value of a collection of paintings, stocks acquired during marriage using community funds are definitely marital property or what we call ‘community property’ in California.
Question #2: Do you have to split stocks in a divorce?
A: Yes, but depending upon where you’re getting divorced, how you split stocks in a divorce will vary. In a community property state like California, any asset that was acquired between the date of the marriage and the date of separation is community property, and it is literally split right down the middle, right to the share in this case. Of course, a couple may agree to split community assets differently, for example, one person gets the house and the other gets the stock. But should a couple not agree to an alternate split, the court will divide community stock evenly between the parties.
Question #3: I live in California. If I have unvested stock options in my divorce, is it treated the same as vested stocks?
A: A divorce with stock options is a little different–and there are different types of stock options. The most common stock options are Incentive Stock Options (“ISO’s”) and Non-qualified Stock Options (“NSO’s”). ISO’s are a benefit or alternate form of compensation offered by an employer to an employee giving them the right to buy company stock for a specific, typically discounted price. Its intention is to incentivize people to stay at the company. ISO’s qualify for special tax treatment under Internal Revenue Code (“IRC”), section 422 and can only be offered to employees. While NSO’s are similar, they do not qualify for special tax treatment and can be granted not only to employees, but also contractors, advisors, and directors.
In both cases, an individual receives an option to purchase stock. These options often vest over a period of time, to incentivize people to remain at the company. In other words, the employee won’t own 100% of the stock until they’re fully vested. Only those ISOs that are fully vested are considered community property and can be divided 50/50. Unvested stock options in divorce that are only partially vested, will be considered partially community and partially separate. And there are various means of division, either the Nelson formula or the Hug case. And that’s a whole complicated area, too.
Question #4: How do you handle dividing assets in a divorce with investments?
A: It depends upon what the investment is, but generally an investment acquired during marriage is considered community property. If there’s a way to divide it equally you can do that, you can trade it for other assets, or you can liquidate and split the cash. And by the way, any transfer of assets pursuant to a dissolution is nontaxable pursuant to IRC section 1041.
Question #5: Can you tell me how to split equity in a divorce in California?
A: There are different kinds of equity. The equity in a home acquired during marriage is considered community. If neither spouse wants to live in the house, you can sell it and split the equity. If one spouse wants to continue to live in the house, the other spouse who will not continue to live there needs to be made whole. So you can hire a neutral appraiser, agree upon the value of the house, subtract the existing mortgage to arrive at the equity in the house, and the spouse that’s staying, pays the other for their share of the equity. It gets complicated when both people want to retain the family home and sometimes that issue can go to trial.
Question #6: How about how to divide inherited stock?
A: You saved the only simple question for last! Any inheritance is considered separate property in California. So there is no dividing it.
For some of the best divorce with investments advice in California, look no further.
Laughlin Legal Divorce & Family Law Group is a collection of some of the most skilled high net worth and ultra high net worth divorce and property division attorneys and mediators in California. They’re also highly experienced with complex asset division. Laughlin Legal is trusted throughout California for their ability to skillfully help divorcing parties achieve a better outcome.
If you or someone you love is headed for a divorce, learn more about how the divorce services we offer can best represent you and your values. Call us now at 650.343.3486 to schedule a consultation with a Laughlin Legal divorce attorney. If you’d prefer, you can email us to set up your appointment. If we miss your call, we will respond promptly and call you back as soon as possible.
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