Pennsylvania divorce agreements stock options

The possibility has been raised that a vindictive option-holder might decline to exercise options when they vest, despite the possibility of realizing a profit, merely to spite his former spouse and to avoid sharing any profit with her. A possibility has also been raised that a recklessly speculative option-holder might decline to exercise options when they vest, despite the possibility of realizing a profit, due to a peculiarly optimistic hope that their market value will continue to rise until they expire so the options might produce an even greater profit.

On the basis of these theoretical possibilities, it has been urged that Mr. Fisher be required to exercise the options when they vest, or at the earliest date when they will yield a profit. We decline to order such a disposition. Unreasonable or spiteful spouses are not altogether unknown to trial courts charged with adjudicating the multifarious issues arising under the divorce code.

Fisher will be able, so long as options acquired during her marriage may yet be exercised, to petition the court if she has evidence that Mr. Fisher has violated 23 Pa. The theoretical possibility of such vicissitudes does not justify the court to enjoin the option-holder to any specific future limitations on his rights, granted by Harley Davidson Corporation, with regard to exercise of the stock options.

On the basis of these considerations, the order of Superior Court is vacated and the case is remanded for further proceedings consistent with this opinion. I agree with the Majority that stock options earned during the marriage prior to separation are marital assets subject to equitable distribution.

I also agree that where possible, courts should distribute marital property at one time, thus precluding future proceedings, avoiding undue financial dependency between former spouses and enabling the parties to go on with their lives. Valuing stock options is an important step in this process because once a trial court determines what the options are worth, it can assign their value to the option-holding spouse's portion of the marital assets.

FISHER v. FISHER | FindLaw

It can then compensate the non-option-holding spouse by granting to him or her a corresponding amount of transferable marital property such as real estate, stocks and cash. Because such a resolution is not feasible in this case, I believe, as does the Majority, that the deferred distribution approach is appropriate.

Court Divided Property

However, I write separately to note that because we prefer immediate distribution whenever possible, our trial courts should be open minded when presented with expert testimony regarding ways to place a present value on unvested stock options. In the instant matter, the sole evidence provided to the trial court was that during the marriage, but prior to separation, Husband received 4, Harley-Davidson stock options that remained unexercised.

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This was a net figure without any consideration of taxes. Considering this too speculative, the trial court determined that the options had no ascertainable value. Therefore, the trial court noted that the expert's failure to consider the tax implications was irrelevant. Here, the trial court rejected what has been called the intrinsic value method. The Supreme Court of Nebraska in Davidson v. Davidson, Neb. This method has been applied in In re Marriage of Hug, Cal. Richardson, Ark. The Majority appears to believe that the intrinsic value method is too speculative, and I agree.

In light of the fact that the only evidence presented to the trial court regarding the value of Husband's stock options was based on the intrinsic value method, the Majority correctly holds that a deferred distribution must be ordered in this case. I write separately to emphasize that as a general rule courts are not necessarily confronted with a simple choice of either the intrinsic value method or deferred distribution. There are other more sound and sophisticated ways to value stock options, and if expert testimony is provided to support valuations, it is within the province of the trial court as fact finder to accept or reject such testimony.

One way to determine the value of stock options is the discount to present value method.

Dividing employee stock options in a divorce

In a recent decision, Hansel v. Holyfield, So. As explained in Wendt v. Wendt, WL Conn. As an example, the Wendt court cited to an unpublished New York decision, affirmed without opinion in Evans v.


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Snyder, A. Although there are no published appellate decisions from Pennsylvania courts applying the discount to present method value to stock options, it has long been applied for determining the present value of the marital portion of a pension. In DeMasi v. DeMasi, Pa. Find husband's life expectancy at the time of separation and subtract his normal retirement age to determine the expected number of months of pension benefits. Discount the value at age 65 to present value accounting for mortality, disability and termination.

When expert witnesses calculate the present value of stock options based on application of similar principles, I believe that it is within the discretion of the trial court to order immediate distribution of the asset. Another well-known model for valuing stock options is the Black-Scholes valuation method.

Fisher Black and Myron Scholes, the developers of the model, won Nobel Prizes in economics following the development of the model. Shareholders Litigation, A. Although a Connecticut trial court has opined that the Black Scholes method is inappropriate for evaluating stock options in a marital context, Chammah v.

Chammah, WL Conn. I have discussed discounting to present value and the Black Scholes model simply to illustrate that there are alternatives to the unacceptably speculative intrinsic value method employed by Wife's expert in this case. Regrettably, because the record is void of any testimony supporting another method of valuation, I am compelled to agree with the Majority that deferred distribution is appropriate in this matter.

This is unfortunate, because it means that the parties' mutual financial dependence continues after the termination of their marriage. However, I reiterate that if parties provide the trial court with expert testimony that cogently sets forth how a present value can be assigned to stock options, it is within the court's discretion to accept that testimony and order immediate distribution of the marital assets.

I agree with Mr. Justice Saylor's Concurring and Dissenting Opinion that the question of whether particular stock options represent marital property should depend on the characteristics of the stock option plan at issue, and, thus, must be decided by the trial court in light of the particular stock option plan. I write separately, however, to address the issue of how those stock option plans that are found to be marital property by the trial court, but mature after separation and equitable distribution, should be valued and distributed. Fisher, should only be able to receive her marital share of the options' value when the holding spouse exercises the options.

Given this property interest, the non-holding spouse should, in my view, clearly have some say as to when the options are exercised. I would therefore find that the non-holding spouse should have the choice of whether or not she wishes to receive her marital share of the options' value when those options mature. If the non-holding spouse chooses not to receive her marital share of the options' value on the date of maturity, the non-holding spouse must then wait until the holding spouse exercises the options in order to receive her marital share of the value.

See 23 Pa. For example, a non-holding spouse may believe that the value of the options will not increase subsequent to the date of maturity. Thus, that spouse would likely choose to receive her marital share of the options' value at that time. At the same time, if the non-holding spouse believes that the options' value will increase after maturity, she would likely want to hold on to the property interest in the options until the holding spouse exercises the options.


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  • Equitable Distribution.

If, however, the non-holding spouse chooses to wait until the options are exercised, the holding spouse can then exercise the options at his discretion. Allowing the non-holding spouse to chose to value the options on either the date of maturity or the date of exercising serves the dual purpose of acknowledging the holding spouse's property interest in the options and avoiding protracted litigation and court involvement.

By limiting the non-holding spouse's choice of valuation to either the date of maturity or the date of exercising, the non-holding spouse is, for example, precluded from seeking her share of the options in increments, e. Such protracted and on-going litigation would unduly burden both the holding spouse and the court system. In sum, I join the Majority in reversing the Superior Court's order since I believe that stock options can be marital property, but I dissent from the Majority's formula for distributing those options that are found to be marital property. I join the majority's decision to reverse the Superior Court's order, as I agree that employer-provided stock options can be marital property.

Since stock option plans diverge widely among employers, however, I am not prepared to follow the categorical approach urged by the parties, namely, that all stock options must either be marital property or not. Rather, in my view, the determination of whether, and to what extent, particular stock options represent marital property should depend upon the characteristics of the plan in question, and, thus, must necessarily be made by the trial courts in the first instance in light of the particular circumstances presented.

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Property Division

MacAleer, A. See, e. DeJesus, 90 N. As noted in MacAleer, this form of fact-specific assessment is necessary to effectuate economic justice between the parties and assure a fair and just determination and settlement of their property rights. See MacAleer, A. I read the majority's legal holding-that stock options earned during the marriage prior to separation must be considered marital assets-as being consistent with the above and with MacAleer.

Indeed, because the parties took a categorical approach to the issue before the master, in the trial court and on appeal, the record contains scant evidence from which the precise nature of the options could be determined. MacAleer expressly notes that it does not purport to address those instances where a stock option represents both compensation for past services and consideration for future services, see id.

Supreme Court of Pennsylvania.

Therefore, where, as here, the parties overlook the possibility of a case-specific inquiry and thus do not provide the requisite advocacy, I would merely remand with directions to the trial court to determine whether and to what extent the stock options at issue were earned during the marriage and prior to separation. Finally, with regard to the valuation, I agree with the majority's general approach in evaluating the particular circumstances of the case to select the method most suitable to achieve a just and fair result between the parties.

In this opinion, the term is used in the same sense. Berrington, Pa. Since the Superior Court decision in this case citing Marchlen, this court reversed Marchlen on other grounds. See Pa.


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Profit is defined as the market value of the stock purchased, less the purchase price and any applicable financing costs. The question has been raised of what should be done if Mr. Fisher allows options to expire without being exercised though he could have realized a profit on them. This, too, is a speculative possibility not presented by the facts of record. Should such a contingency arise, we are confident that the trial court is competent to render an equitable decision based on the evidence presented to the court.

Prior to maturing, a stock option cannot be exercised.