Stock and equity awards, like options, phantom stocks, restricted stock and stock appreciation rights, are a form of deferred compensation in Tennessee, collectively known as executive compensation. Companies issue them to CEOs to encourage and appreciate them for meeting performance goals. During a divorce, a judge might order the division of these awards between divorcing couples. This can be a bit complicated, given their nature.
Tennessee divorce laws
According to the 2010 Tennessee Code Sec. 36-4-121, all assets acquired by either spouse during the marriage are subject to division in a divorce. This includes executive compensation like stock options and restricted stocks. Spouses can divide their assets voluntarily on their own. Still, the court holds the power to make alterations and intervene in cases where spouses cannot agree upon a resolution.
The family court considers various factors when dividing these types of awards, such as their purpose for granting (incentive or appreciation), their potential value, how long couples have held them, etc. Generally speaking, couples must divide anything acquired after the wedding date equitably. This could be 50-50, 65-35 or 90-10, depending on your unique marital circumstances.
Valuing and dividing executive compensation
What makes executive compensation unique is that it is not immediately available. Value and accessibility can vary significantly depending on the company’s performance. That’s why divorcing spouses in Tennessee must consider the total value of executive awards and their potential value — something called “future appreciation” — when determining a fair split.
Courts may use stock option analysis or capital gains analysis to determine the basis for division to calculate each spouse’s portion of executive compensation. Other methods like percentage of ownership or even deferred payment plans are also viable options to divide these assets equitably.
Other division options
You can divide the executive compensation as per the court’s determination of what’s fair. However, some companies may not be willing to split the awards, or you may not be able to access them right away. In that case, parties can opt for alternate compensation methods such as a buy-out, offset or cash settlement.
Division of executive compensation in Tennessee divorces can be complex, requiring valuations, analysis and negotiation. It is wise to understand the laws and clearly understand how the state divides these assets to protect your legal rights and ensure a fair settlement. It is also important to remember that you can always opt for alternate compensation methods if there are any complications with splitting the executive awards.
