Unvested Stock Options in an Arizona Divorce
The Arizona Court of Appeals in the matter of Brebaugh v. Deane issued a decision regarding whether unvested stock options in an Arizona divorce were community or separate property in the case of William J. Brebaugh v. Nancy L. Deane.
William Brebaugh and Nancy Deane petitioned for divorce after a marriage of thirty years. Stock options were given to Brebaugh by his employer several times during the marriage.
The parties agreed on the options that vested before the petition was community property and the options he received after service was sole and separate property.
However, the parties were unable to agree on whether the stock options Brebaugh received during the marriage but had not vested at the time of service, were community or separate property.
The trial court stated that the issue, in this case, was deciding how the community interest in the unvested stock options could be determined. Courts typically decide such an issue by examining two separate “time rule” formulas, which are known as the Hug formula and the Nelson formula.
The most appropriate method to use depends on the intent of the company when they offer the stock options to the employee.
Brebaugh contended that the options were given to him as an incentive to stay with the company, which would favor the use of the Nelson formula.
Deane asserted that they were compensation for Brebaugh’s past efforts because his salary and bonuses alone were inadequate compensation, which would favor the use of the Hug formula.
The trial court rejected Brebaugh’s claim after examining the time rule, deciding that he had not presented clear and conclusive evidence that the unvested options were his sole and separate property.
Therefore, they held that the options were community property and Deane would receive one-half of them.
Brebaugh appealed this decision to the Arizona Court of Appeals, pursuing his claim that the options were given solely to encourage him to remain with his company.
Deane maintained that there was insufficient evidence for his claim and that the options were compensation for work he performed during the marriage, which would make them community property.
The appeals court examined the stock option agreement and concluded that the agreement did not appear to support Deane’s claim.
They also heard testimony from a representative of Brebaugh’s company who reiterated that stock options were granted to encourage employees to remain with the company.
Formula to Apply to Unvested Stock Options in an Arizona Divorce
The appeals court concluded that the trial court did not appear to have considered these pieces of evidence before ruling on the issue.
Because of this oversight, the appeals court reversed the portion of the decree dividing the unvested stock options and returned the case to the trial court for further examination of the evidence presented.
What we can take away from this case is that it is important for the trial court to consider all evidence before deciding how to disburse unvested stock options to a divorcing couple.
The intent of the employer when they gave the options to the employee, whether the options were compensation for past performance or incentives for remaining with the company, is crucial in determining which formula to use when dividing these stock options.
Other Articles About Community Property in Arizona
- Community Lien in Arizona
- Community Lien on Sole and Separate Property in Arizona
- Community Property and Personal Guaranty in Arizona
- Determining Community Versus Sole Property in Arizona
- The difference Between Community and Separate Property in Arizona
- Disclaimer Deed in a Divorce in Arizona
- Divide Retirement Accounts in an Arizona Divorce
- Dividing Property Not Included in Divorce Decree in Arizona
- Division of Debt in an Arizona Divorce
- Do Rules Regarding Property Apply to Debts in an Arizona Divorce
- Enforce Division of Property and Debt in an Arizona Divorce
- Enforcing a Property Settlement Agreement in Arizona
- Filing a Lis Pendens in a Divorce in Arizona
- How is Property Divided in a Divorce in Arizona
- How to Divide Property in Arizona When a Spouse is Hiding Assets
- Is All Property Community Property in Arizona
- Is Arizona a 50 50 State in a Divorce
- Is Separate Property Divided in Arizona Divorce
- Marital Property Laws in Arizona
- Military Retirement Pay and Divorce in Arizona
- Pensions and Divorce in Arizona
- Separate Property Used to Purchase a Home During Marriage in Arizona
- Sole and Separate Property Divorce Arizona
- Is a Spouse Liable for Credit Card Debt in Arizona
- Stock Options Divided in an Arizona Divorce Case
- Unequal Division of Property in Arizona Divorce
- Unfair Separation Agreement in Arizona
- Valuation and Distribution Options For Pensions in an Arizona Divorce
- What is Community Property in Arizona
- What is Separate Property in Arizona
Chris Hildebrand wrote the information on this page about unvested stock options in an Arizona divorce to ensure everyone has access to information about community property laws in Arizona. Chris is a family law attorney at Hildebrand Law, PC. He has over 24 years of Arizona family law experience and has received multiple awards, including US News and World Report “Top Arizona Divorce Attorneys”, Phoenix Magazine “Top Divorce Law Firms”, and Arizona Foothills Magazine “Best of the Valley” award. He believes the policies and procedures he uses to get his clients through a divorce should all be guided by the principles of honesty, integrity, and actually caring about what his clients are going through.