Share options and divorce

Shares and share options frequently rear their metaphorical heads in divorce  situations and how to value them so as to divide the assets fairly between husband and wife can be a major challenge.

Shares are usually a little easier to handle than share options. The value of a share, whatever it might be, already belongs to the owner. If a company is quoted the value of the share can be determined from readily published information. Quoted shares go up and down in price and it is simply a matter of the solicitor keeping abreast of the current share prices. The shares can be readily transferred between husband and wife, or sold. If a company is private the company’s accountant can be expected to provide a share valuation or, alternatively, an independent accountant can be instructed to do the job. The shares cannot be traded on the quoted market and may not be transferable between spouses, so solicitors commonly look at other arrangements, such as a sale of a shareholding to fellow shareholders or the raising of a loan on the strength of the shares to compensate the non-owning spouse.

Options are more of a challenge. A share option is the right to buy shares on a date in the future at a price which is set when the share option is handed out. At the date the option is granted the option appears on the face of it to be worthless. The person receiving it must usually comply with certain conditions for the option to convert into shares, such as remaining employed by the company for a period of years and, if the share price at the future date is less than the price fixed when the option was handed out the shares are not worth purchasing. They become worthless. The question then is whether such an asset can fairly attract a value in divorce proceedings and if so, how it should be valued.

Share options are capable of valuation and solicitors can work out (with specialist help) a potential value for options at the point of divorce. For some unquoted companies there is an informal market in shares from which the owning spouse can derive a benefit. This benefit can determine the value. For quoted shares a Black-Scholes or similar valuation may be done, An alternative to valuing share options is to agree that if the options mature with a value and proportion of that value will be passed to the non-owning spouse at that point.

The information provided in this article applies equally to civil partners and the dissolution of civil partnerships.

Solicitors Ipswich Suffolk – for more information on our range of legal services, please contact us