Options Issued After a Divorce Not Considered Marital Property

March 25, 2004 (PLANSPONSOR.com) - Stock options awarded the day after a divorcee cannot be considered marital property and therefore remain in sole possession of the optionee.

>Reversing a lower trial court’s opinion, an appeals court held 2,500 stock options awarded to Joseph Clance the day after his divorcee was finalized were improperly classified as marital property, because the actual options did not exist at the time of the marriage.   Thus, the trial court did not have the jurisdiction to divide the stock options between the former husband and wife, according to the opinion of the Missouri Court of Appeals for the Western District in Clance v. Clance .

>In the original ruling, the trial court held the stock options were “acquired” during the marriage because the “labor that led to the stock option award occurred during the marriage.”   Thus, the stock options granted December 13, 2000, the day after the dissolution of marriage became final, were to be considered marital property.

>On appeal, Mr. Clance used a three-pronged approach to why the options should not have been considered marital property.

  • The stock options were more in the nature of compensation for future work as opposed to compensation for work already completed.
  • The stock options were unvested and their potential for vesting was contingent upon many things including his continued employment.
  • The stock options were not in existence during the marriage and were, therefore, not “acquired” during the marriage.

>Examining the argument submitted by Mr. Clance, the appeals court found the first two arguments “unpersuasive.”   Speaking to the first claim, the appellate court turned to the language of the plan under which the stock options were granted, finding the plan does not say the grants are made for future work.   Rather, the plan state that certain employees “who are responsible for or contribute to the management, growth and profitability of the business” are eligible to receive options, which the appeals court interpreted as awarding employees for past performance.

>In disputing Mr. Clance’s second contention, the appeals court said the fact that options vest over a four-year period does not prevent them from being classified as marital property.   

>It was in the third argument – that the stock options could not have been “acquired” during the marriage because they did not exist until after the marriage was dissolved and, therefore, the stock options were improperly classified as marital property – that the appeals court found merit.

“The fact that Mr. Clance did not have an enforceable right to the stock options awarded on December 13 th is the determinative fact here because, without either party having an enforceable right to the stock options, the trial court did not have jurisdiction to divide them between the parties,” the appeals court said in the opinion.

>The appeals court admitted the ruling may seem harsh, hinging on only a two day window, “but this case of first impression simply happened to be the most extreme example possible in that all of the work performance leading to the stock option award occurred during the marriage, but the award was actually not made until after the divorce became final.”

The case isClance v.Clance, Mo. Ct. App., No. WD62273.