New Illinois law regarding stock options

Prior to December 13, 2001, Illinois Courts were divided on whether or not stock options held by a husband or a wife at the time of a divorce should be declared a marital asset and divided between the parties. The party owning the stock options typically argued that, if the options were not vested or guaranteed, they were therefore speculative, and should not count as assets in the marital estate at the time of a divorce. The party not owning the stock options typically claimed that stock options owned by his or her spouse were a contractual right between the spouse and his employer. Therefore, value should be placed on this contractual right, and the other spouse should receive a fair share of the stock options, or alternatively, other assets to compensate.

For example, assume Fred and Wilma are getting divorced after Fred has worked at a stone crushing plant for ten years. When Fred first started working at this stone crushing plant, he signed a contract with his employer awarding him stock options entitling him to purchase 100,000 shares of stock at one dollar per share upon completion of fifteen years of employment. There would be no value to Fred’s stock options prior to his completion of 15 years of service at his employer.

Clearly after ten years of work at the stone crushing plant, Fred was not yet able to cash in on the stock options at the time of his divorce from Wilma. In the case, In Re the Marriage of Timothy Peters vs. Eileen Peters a case decided by the Illinois Appellate Court on December 13, 2001, the stock options Fred owns would be considered a marital asset, and the court is required to order a distribution of this marital asset in some fair and equitable manner.

Subsequent to the Peters case, the Illinois legislature enacted a new law, effective January 1, 2002 under Section 503(a)(3) of the Illinois Marriage and Dissolution of Marriage Act which states that all stock options granted to either spouse after the marriage and before a divorce shall be considered a marital asset, and therefore divided between the parties at the time of the divorce. The moral of the story is if your wife or husband has acquired stock options from his or employer during your marriage, be certain to ask your divorce attorney to have these stock options valued.