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Divvying up restricted stock and stock options during a divorce

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For many Illinoisans, getting a divorce is an emotional decision. But it is also a business decision. Because it is also a business decision, Illinoisans need to know about key financial terms and instruments. If not, they might not receive a fair property division.

Two less understood financial instruments are stock options and restricted stock. These financial instruments are best known for the huge payoffs they have created for young professionals who got in on the ground floor of companies like Facebook. But they are not limited to a few Silicon Valley start-ups.

What are they? A stock option is a right to buy the company's stock in the future at a preset price. The idea is that the preset price will be much lower than the company's stock price at that future point. If so, the person makes a handsome profit. A restricted stock is a share in the company that cannot be transferred until conditions are met. The conditions usually involve how long the employee must work at the company.

While stock options and restricted stock can be worth a lot of money, they can be hard for the other spouse to discover. That is because stock options and restricted stock won't show on a joint tax return or W-2s until the stock option has been exercised or the restricted stock vested.

For Illinoisans to make sure they get their fair share, they may have to do some digging. In fact, they may have to subpoena the human resources department of their spouse's employer.

Discovering the stock option or restricted stock exists is just the first step. From there, Illinoisans will need to both figure out the stock's worth and develop a plan for turning the stock into cash. Determining each can be quite complicated. A qualified financial planner often will be necessary.

Source: Forbes, "Dividing Stock Options And Restricted Stock In Divorce," Jeff Landers, March 19, 2014

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