Are Unvested Stock Options Marital Property in Missouri?
Yes, where they were granted during the marriage. Missouri settled this in 1984 on facts where most of the options could not be exercised yet, and the reasoning is that the option was already earned when it was granted.
That answer runs against most people’s instinct. An option you cannot exercise feels like something you might get rather than something you have. Missouri classifies it as something you have.
The unvested stock options divorce question is therefore not really about vesting at all. It is about when the grant happened. The chapter is public at the Missouri Revisor of Statutes and in the Chapter 452 index.
What Did Smith Decide About Unvested Stock Options?
That options maturing at future dates were marital property and divisible one half to each party.
In Smith v. Smith, 682 S.W.2d 834, the husband held options under two Anheuser-Busch plans, the 1981 Incentive Option Plan and the 1981 Non-Qualified Stock Option Plan. The Eastern District recorded that only two options were exercisable at the time of trial. The rest matured at varying dates in the future.
The court’s conclusion was straightforward. “The court held these options to be marital property, and distributed one-half to each party.”
The reasoning is what makes it usable. Distinguishing an option from a pension, the court wrote that “It has already been earned, while a pension is earned over the whole period of the worker’s employment.” And on the valuation objection, “The value is fixed, and is not subject to change except by market forces.”
One point of precision. Smith affirmed the trial court rather than laying down a rule that options must be split in half, so it is authority for the classification and not for the percentage.
So the fact that an option has not vested does not make it speculative in the way Missouri cares about. The employer has already committed. What remains is a condition on exercise rather than a question of whether anything was earned.
What About the Risk of Losing the Job?
The court treated that as a drafting problem rather than a classification problem.
Smith recorded the only contingency as the possibility that the husband would leave his employment before he could exercise, and held that it “has been adequately provided for by the court’s decree”.
Read that as an instruction. The forfeiture risk does not keep unvested options out of the estate. It is handled inside the award, by writing the decree so the non employee spouse’s share rises or falls with what actually happens.
Then What Makes an Option Separate Property?
Being granted outside the marriage, on either end.
Section 452.330.3 RSMo presumes that property acquired after the marriage and before a decree of legal separation or dissolution is marital, regardless of how title is held. That presumption is what puts a grant made during the marriage into the estate.
At the other end, Clance v. Clance, 127 S.W.3d 716 shows what falls outside. The decree was entered on December 12, 2000, and the employer granted 2,500 unexercised options the next day. The Western District held that to be acquired property “at least one party to the divorce must have some enforceable right to the item in question”, and that those options “were not marital property subject to division by the trial court.”
One day decided it. That is the cleanest illustration in Missouri of why the grant date is the fact that matters.
Our FAQ on how stock options are divided in a Missouri divorce covers the wider framework.
Does an Unvested Stock Options Divorce Rule Cover Premarital Grants?
Generally separate, and then the question becomes what happened to their value.
Section 452.330.2(5) RSMo excludes the increase in value of property acquired before the marriage, “unless marital assets including labor, have contributed to such increases and then only to the extent of such contributions.”
Where a premarital option gained value purely because the share price rose, that is ordinarily passive. Where it gained value because of work performed during the marriage, the analysis is different and it has its own proof requirements.
How Does an Unvested Stock Options Divorce Award Get Built?
Usually by an if and when received award, because most plans forbid transferring the option itself.
The Supreme Court of Missouri endorsed the deferred approach for retirement benefits in Kuchta v. Kuchta, 636 S.W.2d 663 , describing an award of “a certain portion of the retirement benefits to be paid to the non-working spouse if and when the working spouse retires and begins to receive them”, and holding that “the trial court must be given a broad discretion to design ‘some plan’ protecting the rights, and hopefully best interests, of the parties.”
Smith applied that flexibility to options. The decree required thirty days notice before an exercise, and gave the wife those thirty days to provide the cash to buy a one half interest on her behalf.
- A defined share. Which grants, and what percentage of each
- Notice. A stated period before any exercise, so the other spouse can act
- Funding. Who supplies the exercise price and by when
- Forfeiture. What happens if the options lapse or employment ends
- Reporting. An obligation to disclose grants, vesting and exercises until the award is exhausted, which is what makes an award under Section 452.325.5 RSMo enforceable in practice
The reporting obligation is the one people leave out. An if and when award with no duty to report is enforceable only by somebody who happens to find out.
The alternative is a present value offset, where a number is placed on the options now and the other spouse takes other property instead. That trades certainty for accuracy, and which is preferable depends on the estate rather than on a rule.
What Does an Unvested Stock Options Divorce Award Depend On?
Documents, and only documents. An unvested stock options divorce claim is proved on paper or not at all.
- Every grant agreement. Date, quantity, exercise price and vesting schedule
- The plan document. Transfer restrictions, forfeiture terms and any change of control acceleration
- Current statements. What is outstanding, what has vested and what has been exercised
- Marriage and decree dates. Which is the whole classification exercise once the grants are listed
Where the employer holds the only complete record, it usually comes through a non party subpoena rather than a request. Our FAQ on getting your spouse’s business records covers that route, and our FAQ on discovery in a divorce case covers the rest.
What Does This Not Decide?
Three things worth separating out.
It does not decide restricted stock units, which are a different instrument and which no published Missouri appellate decision appears to have addressed. Our FAQ on RSUs in a divorce covers that gap honestly.
It does not decide the share. Classification puts the options in the estate and Section 452.330.1 RSMo divides marital property “in such proportions as the court deems just”. Our FAQ on how marital property gets divided covers that.
And it does not decide the tax consequences. Transfers between spouses incident to a divorce run on Section 1041 of the Internal Revenue Code, and the exercise itself carries further consequences that belong with your tax advisor.
Who Can Help With Unvested Stock Options in a Missouri Divorce?
The instinct that an unvested option is not really yours is understandable, and in an unvested stock options divorce in Missouri it is wrong. Acting on that instinct, by treating a grant as somebody else’s problem, is how a material part of an estate gets left on the table.
Bardol Law Firm practices only family law, in St. Louis County, St. Louis City, St. Charles County and Jefferson County. We handle equity compensation on both sides of it, and the work is classification and drafting rather than accounting. Bring the plan document and every grant agreement. You can read more on our high net worth divorce page, our division of property page, and across the rest of our family law questions and answers.
You should not have to chase your attorney to find out whether an asset was even counted. Every client here has a named paralegal on the file, and we generally return calls within one business day.
Family Law, Simplified.
If either of you holds options, list every grant before anything gets negotiated. Contact Bardol Law Firm or call 314.918.0100.
This page is general information about Missouri law and is not legal advice. Every case turns on its own facts. The choice of a lawyer is an important decision and should not be based solely upon advertisements.