Stock Options Disbursement to Ex Wife

[yagersmom]

California

In my husband's divorce decree (2000), he and his ex-wife equally divided his employee stock options. Since they were non-transferable stock options and she did not wish to cash them in at the time, they remained invested (and vested, by the way) in his name via his employer. His company was just recently purchased by another and he was forced to either purchase the stock options in order to reinvest them, or sell them at current market value. He only had one month in which to do this. He informed his ex of acquisition and gave her the option of purchasing her share or selling. Since neither of them could afford to purchase, they agreed to sell. It was at that time that they learned that the options were non-transferable. He was told by the issuing bank that the funds would come to him as earnings for the year. He chose to pre-withhold the minimum estimated taxes instead of taking the risk of owing moe than expected come tax time.

His attorney advised him to hold onto the proceeds until he has filed his 2005 taxes as there is no way to predict what his earnings and the total tax penalties will be. He suggested an interest bearing account of some type. After he does his taxes it could then be determined what amount should be disbursed to his ex based upon the taxes taken out of the entire net. He does not want to give her the money now and find that he owes more on taxes and then needs to try to get money back from her.

We were told by our (family law - not tax) attorney that since the options were non-transferable, there was no way to assign the proceeds to the ex-wife's SSN. It will come to my husband as earnings and he - and only he - will be responsible for the taxes due.

The ex-wife is barking at him. She wants her share of the money now. He offered to give a big chunk - about 80% - now, withholding a portion in an interest-bearing account until tax time. He then would figure out what amount is hers and give her the remainder, along with the interest earned. She says no way. She said that she wants her 50% and she wants 50% of the gross, not 50% of the net. She said that she will be required to claim having received it and owe taxes on it herself. She says that he will have to claim that it was disbursed to her and he will then get a refund.

If we give her 50% of the gross, that will pretty much eat up all of what has been received from the sale. She'll have what she wants and, because we already opted to have Uncle Sam take his share up front, we will be left with very little - hoping to get a refund next year. Our attorney tells us that what we have offered to her thusfar is more than equitable.

I should also note that nowhere in the divorce decree does it say by when we must give her the money, nor does it say how the money is to be disbursed. It simply says that she is entitled to one half of X number of stock options, valued at $X. Looks like he should have settled this immediately following the divorce - sold them then, regardless of the value at the time, and given her the money just to get it behind them. She wanted him to keep the stock options invested with hopes that they would grow - which they did. We'd love to learn that all she is entitled to is the value of each at the time of the divorce. The options also split following the divorce, leaving her with even more options - unless, of course, she truly is only entitles to the number and the value stated in the decree.

She plans to see a tax attorney but I was hoping to get some info. here. Sorry for the long post but I wanted to supply as many details as possible. Thanks for your help. All those replying, please let me know when you post whether you happen to be a tax attorney or not. It would just be nice to know when/if I am receiving expert advice. Thanks, again.

[Snipes5]

First of all, if you want "guaranteed" expert advice, find a reputable "tax attorney" as you put it, and PAY for it.

As I see it, this is not a tax question. What you are looking for is an interpretation of the decree that is favorable to you.

You MAY be able to assign (nominee) the proceeds, based on what it says in the decree. Nomineeing the proceeds is different than transferring the options.

Hire an attorney or someone else to interpret the decree for you, and if the ex-wife doesn't like it, oh well.

For information on the proper way to nominee the proceeds, you will need to see either a "Tax Attorney", a CPA, or an Enrolled Agent. Any of those professionals will be able to help you with that little problem.

Snipes