Often Parties are faced with difficult issues related to the division of
property. One of the more vexing property settlement issues is dividing
marital assets that have not yet vested.
Since the property rights have not vested
and are not owned, do they have a value?
Both Minnesota and Wisconsin Appellate
Courts have wrestled with this issue frequently in the past. As a
result, there is no longer any doubt that even unvested property rights,
whether stock options or pensions, are considered marital and may be
divided as part of a divorce proceeding.
In the 1987 case of
Salstrom v. Salstrom, Minnesota courts specifically addressed the
issue of unvested stock options. In that case, the Court noted that
stock options exercisable after the date of the divorce are similar to
vested pension plans and concluded that these options "are an economic
resource acquired during the marriage constituting a marital asset." It
is also recognized that unvested stock options have both marital and
non-marital aspects which must be apportioned. There is a marital value
to the options since the options were granted during the marriage. There
is also a non-marital element since they are likely to vest after the
marriage has been dissolved and are earned, in part, through the
continued labor of the employee spouse after the divorce.
To determine the relative
marital value and non-marital values of stock options, Minnesota Courts
have looked to the same methods that are used for valuing unvested
pension interests. The Minnesota Supreme Court outlined a method of
division for vested but unmatured benefits in the case Taylor v.
Taylor, 329 N.W.2d 795 (Minn.1983). In that case, the Court stated
that nonvested pensions need not be treated any differently than vested
but unmatured pension rights or benefits: both contain contingencies on
the actual payment of pension benefits.
Looking at cases across
the nation, there are two possible methods for dividing unvested assets,
including stock options. Under one method, the divorce Court retains
jurisdiction to apportion the unvested benefit at some point in the
future only if and when that benefit is paid. This is the approach
suggested in the California case In re Brown, 15 Cal.3d 838, 126
Cal. Rptr. 633; 544 P.2d 561 (1976), and echoed in similar decisions in
other states such as In re Marriage of Hunt, 397 N.E.2d 511, 519
(1979), an Illinois decision.
A second, and more
preferable method, is to divide the unvested benefit based on a
percentage formula. This is particularly appropriate where it is
difficult to place a present value on the pension or profit sharing
interest due to uncertainties regarding vesting or maturation. Under
this method the trial court in its discretion may award each spouse an
appropriate percentage of the pension to be paid "if, as and when" the
pension becomes payable. The formula used to determine the respective
non-martial and marital interest in the benefit by taking the total
number of years over which the benefit is earned and using that number
as the denominator. The numerator is the number of years over which the
benefit accumulated during the marriage marriage.
Even in this second
method of division, the trial court, retains jurisdiction over the
division of unvested benefits.
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