How to divide the divorce of Ningbo stock option income.

Whether and how stock options can be divided depends on whether the rights have been converted into realizable property benefits during the marriage. The part of the acquisition of parallel rights during the existence of the marriage relationship is usually divided as the joint property of the husband and wife, the part that has been acquired and exercised before marriage is generally vested in the individual, and the part granted within the marriage but exercised after divorce is subject to the corresponding relationship between the time interval of grant, maturity and exercise and the duration of the marriage.

In particular, it should be noted that an option is only an anticipatory right when it is not exercised, the value is uncertain and often non-transferable, and the court usually does not impose a share-based split of the option itself, but orders the holder to retain the option, pay a discount compensation to the other party, or claim it separately after the exercise conditions are fulfilled.

1. legal basis

the joint property of husband and wife listed in Article 1062 of the Civil Code includes wages, bonuses, remuneration for labor services and income from production, operation and investment. Option is essentially an incentive arrangement for the employer to contribute to the labor of the worker, which is highly bound to the labor relationship and the period of employment, so that the part acquired during marriage as a result of employment has the attribute of labor remuneration and falls into the scope of common property.

The personal property stipulated in Article 1063 includes one party's pre-marital property, special daily necessities, etc., and the property rights and interests acquired before marriage and determined shall belong to the individual. The division rules still apply the principle of priority and care for the rights and interests of children, women and no-fault parties in Article 1087, and if the option corresponds to the equity of a limited liability company, it also involves the provisions of Articles 9 and 10 of the (II) on the attribution and transfer of equity.

2. core points

the technical difficulty of option segmentation lies in the segmentation of the time dimension and the determination of value, both of which are indispensable.

1. Time node segmentation method

options involve three points in time: grant date, maturity date and exercise date. The grant date to the exercise date often spans several years, and if there is an overlap between this interval and the duration of the marriage, the interest corresponding to the overlap is usually recognized as joint property. It is common practice in practice to determine the share of the common portion by the proportion of the month of service during the marriage to the total month of grant to exercise.

If the option is matured and exercised before marriage, it is personal property before marriage, and if the option is matured but exercised after divorce, most courts will recognize the divisibility of the marital counterpart on the grounds that the substance of maturity occurs during the marriage and the exercise is only a procedural act to realize the existing interest.

2. Value determination and segmentation methods

if the options have been exercised and realized, they are relatively clear in terms of actual earnings. If the shares have been exercised but have not yet been sold, they shall be calculated at the market price at the time of the divorce or at a price approved by both parties. If the right is not exercised, the value is uncertain, and the treatment is usually to be awarded to the holding party, which shall give appropriate compensation to the other party, or the joint part shall be claimed separately after the exercise of the right is made clear in the judgment.

The determination of the amount of compensation needs to be balanced. The holder bears the obligation to continue to hold office and the risk of stock price fluctuations, while the other party has an interest in the labor contribution during the marriage, so in practice compensation is not simply calculated in half, the court will combine the marriage duration, option size, exercise conditions and tax burden and other factors, and through mediation to determine the payment period.

3. boundary conditions

restrictions in option agreements can directly affect enforceability. Many incentive plans stipulate that options may not be transferred, that they expire upon separation, or that the company has the right to repurchase, which prevents the court from directly deciding to change the subject of rights and can only be compensated at a discount. If there is a phased maturity of the option, whether the immature part is the expected common property, the caliber is not consistent from place to place.

Also consider taxes and costs. The exercise income is usually subject to personal income tax, and the split should be based on net after-tax income, otherwise the actual burden on the holder will exceed its share. If the option is related to an offshore listed company, it also involves cross-border forensics, exchange rate translation and ease of execution, requiring an assessment of feasibility and cost prior to prosecution.

4. common mistakes

the first misconception is to equate options with ordinary deposits, believing that half of what you get in marriage should be one person. Options are attached to the obligation of employment, maturity arrangements and stock price risk, and the division should not only recognize the contribution of the other party, but also respect the reality that the holder continues to perform his duties.

The second misconception is that no exercise of power is equivalent to no property. Failure to exercise only means that it has not yet been realized and does not necessarily exclude the divisibility of the interest, the key being whether maturity has occurred within the marriage or whether there are clear realizable benefits. Waiver of claims is often tantamount to waiver of rights and should be clearly arranged in the divorce agreement.

5. operational steps

the first step is to collect complete option materials, including grant agreements, incentive plans, maturity and exercise arrangements, historical exercise records and tax clearance documents, to form a schedule from grant to exercise. The second step is to mark key time points such as marriage, separation, divorce, etc., and calculate the overlap ratio between the duration of the marriage and the grant-to-exercise interval.

The third step is to distinguish between the three states of realized, exercised not sold, and unexercised, and to propose separate or compensation schemes, and to agree on subsequent claims for the unexercised part. The fourth step is to submit materials in Ningbo through pre-litigation mediation or online filing, and apply for inquiry and preservation simultaneously to prevent the exercise proceeds from being unilaterally transferred.

Practical Experience of 6. Lawyers

whether stock options can be divided depends on whether the rights are converted into realizable property benefits during the marriage. The part acquired within marriage and exercised is usually treated as common property. If parallel rights have been acquired before marriage, they are generally owned by individuals. What is more troublesome is that the part that is granted within marriage and exercised only after divorce needs to be converted according to the corresponding relationship between the time nodes of grant, maturity and exercise and the duration of marriage. Therefore, the first step in dealing with this kind of property is not to calculate money, but to draw a clear timeline to see whether each link falls within or outside marriage.

An option is only an expectant right before it is exercised, its value is uncertain, and it is often not freely transferable, and the court generally does not divide the option itself by its share, but rather allows the holding party to retain the option, pay a discount to the other party, or wait for the exercise conditions to be fulfilled before claiming it separately. So your focus is on forensics and valuation: option grant agreements, exercise records, company valuations or equity incentive programs, all of which are collected as much as possible, and these are the basis for conversion and compensation. If the clues are not clear enough, you can apply to the court in the lawsuit to investigate the other party's shareholding and exercise.

Negotiations should be prepared, the value of options fluctuates greatly, and the figures calculated today may change over time, so it is best to write a clear calculation point and caliber when agreeing on compensation, so as to avoid different words afterwards. If the option corresponds to the equity of a limited liability company, it will also involve other shareholders and the restrictions of the articles of association, which is more complicated to deal with, and the transfer and valuation need to be evaluated separately. In case of such property, don't rush to make a figure on the negotiation table. First, find out the structure of rights, the time interval and the conditions for realization, and then talk about how to divide and how much to divide.