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Unvested Stock Options as Non-Marital Property
© 2004 National Legal Research Group, Inc.
FLORIDA: Ruberg v. Ruberg, 858 So. 2d 1147 (Fla. Dist. Ct. App. 2003).
Unvested stock options are marital property to the extent that they are consideration for marital efforts, and nonmarital property to the extent that they are consideration for postdivorce efforts. On the facts, where the options vested in monthly amounts and were granted to encourage future employee performance, they were primarily compensation for postdivorce efforts, and they were properly treated as nonmarital property.
Upon the divorce of the parties, the trial court awarded marital assets of $1,126,971 to the wife. The order of distribution also provided for an equal division of 675,301 shares of stock in the corporation for which the husband had worked during the marriage. The court, however, found that another 299,370 shares of stock options and 170,482 shares of restricted stock in the same corporation were unvested. Because these benefits were compensation for postdivorce service, and because they vested monthly as they were earned, the court held that they were nonmarital property. The wife appealed.
The court of appeal affirmed. Under Fla. Stat. Ann. 61.075(5)(a)(4), marital assets are defined so as to include all vested and nonvested benefits, rights, and funds accrued during the marriage in deferred compensation plans and programs. Deferred compensation consists of funds already earned but for which payment is deferred. For equitable distribution purposes, a deferred compensation account is considered marital property to the extent it consists of contributions from funds earned during the marriage. Stock options and restricted shares may be given as deferred compensation for past services, but they may also be given as compensation for present or future services.
The trial court found that the stock options and restricted shares of stock at issue herein constituted incentives that looked to future labor and performance from the husband. The court of appeal relied on the language in the plan documents and the agreements entered into by the husband and his employer. Those documents emphasized that the purpose in authorizing the issuance of stock options and restricted shares to employees was to attract and retain the best personnel and to provide an incentive in addition to salary to encourage the employees to exert their maximum efforts toward the success of the company. The options were to vest in specified monthly increments, and that vesting would cease to continue upon any termination of employment. The court stated that it agreed with various cases from a number of jurisdictions which hold that the status of such unvested stock options turns on the factual issue of each case as to whether they were primarily awarded as compensation for past services or as an incentive for future services. Acknowledging that there is an element of compensation for future services in all option grants that are subject to vesting contingent on continued employment, it recognized that this does not mean that all options are awarded for future services and are thus not deferred compensation. The issue, stated the court, is whether at the time the grant is made the primary purpose of the grant is to provide compensation for past services or for future services. Here, the record supported the determination by the trial court that the stock options and restricted shares that remained unvested as of the filing date of the dissolution petition, which is the cut-off date for defining marital assets, constituted compensation for future services and, thus, such assets were separate and nonmarital in nature and not subject to distribution as marital property.
Finally, the court noted that the options at issue vested monthly as they were earned, rather than vesting all at once at the end of a period of months or years. Thus, the court found no need to apply a coverture fraction similar to the fraction used to classify unvested retirement benefits.
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