Legal Updates

The classification of options during a divorce is determined according to their classification as forward-looking or based on past performance

December 12, 2021

A couple divorced after 23 years of marriage, and as part of the divorce settlement, a dispute arose regarding the options granted to the husband by his workplace.

The Court held that the wife is entitled to half of the options granted to the husband from the workplace including options that have not yet fully vested. Options may be given to an employee either as a bonus based on his past performance, or as an incentive for future performance. In start-ups, when the company is lacking revenues and unable to reward employees, the options granted to employees are almost always forward-looking, designed to incentivize the employee and retain employees, while often containing clauses that condition the options on employee performance and seniority. In established and stable companies, on the other hand, the options are often granted as a way of rewarding employees in real time based on their past performance, the seniority they have accumulated in the company and their proven experience. Here, the company that employed the husband was a long-standing company and the options were granted to him after many years of working in the company. The options did not contain conditions that condition them on the employee's performance or his stay with the company, and therefore, they appear to have been granted based on the employee's past performance. Thus, the basis for the options originated during the period of cohabitation and both spouses are entitled to enjoy them, even if the date of vesting is after the date of divorce.