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27 October 2014

Employee share option plans – is your former partner entitled to a share?

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Share options are issued/offered to employees of corporations as part of their remuneration package or as employment related incentive programs.

Share option plans vary considerably (based on the employee’s company policy) – they require an employee to meet certain conditions before the employee obtains the right to exercise the option. The time at which the employee obtains that right is when the options may vest.

What is the nature of a party’s interest in such an employee share option plan in the family law context and what is the appropriate method of valuing such an interest held by a party?

Employee share options are treated  either as  property (to be divided if necessary) or as  financial  resource  (to be retained by the employee) in  family  law  property  proceedings. Even if they are treated as a financial resource, their existence is taken into account when assessing a just division of assets.

Valuing share options often requires expert valuation by an accountant as share option plan/s: –

–       may have vested, and can be exercised;

–       have vested but the employee has chosen not to exercise the options;

–       have not vested and cannot be exercised by the employee.

If you have share options you are under an obligation to disclose them. If you are uncertain as to whether your former spouse has been granted employee share option, or some other kind of equity based incentive from their employer, it is necessary that such options or incentives are considered and an expert valuer be engaged to advise on the issue of value.

On a side note – This month the Australian Federal Government announced substantive changes to Australia’s taxation of employee share and option schemes it will be interesting to see if legislation is implemented and whether share option plans will become a more prevalent issue.

If you would like to discuss how employee share option plans may be considered in your separation please make an appointment with one of our solicitors.

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