How Are Stock Options Valued or Divided in the Event of a Massachusetts Divorce?

If you have stock options through your employer, you may be wondering if, and how those options may be divided in your divorce. If you have unvested options, you may be even more befuddled at how unvested options could be divided. That’s where the Baccanti formula comes into play.

What is the Baccanti formula?

The "Baccanti Formula" was derived from a 2001 Massachusetts Supreme Judicial Court (SJC) case (Baccanti v. Morton) ruling that held that unvested stock options should be treated as assets when splitting the marital estate between divorcing parties.

The Facts

In Bacanti v. Morton, the wife left her full time job and worked part time in order to care for the couple’s child with behavioral issues. Husband continued to work full time, and received stock options through his employer. The couple had a 9 year marriage. There was no prenuptial agreement.

In considering whether unvested stock options are assets that may be included in the marital estate, the Court looked to MGL c. 208, s.34, and reasoned that although the statute does not specifically mention stock options, it does mention all vested or unvested benefits. The Court found that the portion of unvested stock that may be treated as a divisible marital asset is only the portion that “reflects efforts expended during the marriage.”[1] So, for each unvested stock option award, however far into the vesting period the employee spouse had reached at the time the divorce, is the portion of the stock option award that can be treated as an asset and split between the divorcing spouses.

Need an example?

If at the time of the Massachusetts divorce, the employee spouse was three (3) years into a five (5) year vestment of 100 shares of stock options, then the marital portion is determined by a fraction as follows:  the denominator is the number of years it will take for the option to fully vest, and the numerator is the number of  marital years before divorce for this option to vest. In the example herein, the marital portion of 100 shares of stock option is  ⅗ — or 60 shares out of 100 shares. Each spouse would then receive 30 shares in an equal split. The balance of unvested options, 40 shares of 100 total,  would be retained by the employee spouse and not divided with the non-employee spouse. Also, once there is a divorce, any post-divorce stock options granted to the divorced, employee spouse will remain with the divorced, employee spouse. However, the stream of income from these pre and post-divorce undivided shares kept by the employee spouse could be used in a calculation of alimony, if the facts of a particular case deemed it appropriate.  In other words, even though some of the options are not divided with the non-employee spouse, the income from these options can be used in a support calculation after this income is received.

The Baccanti formula is an efficient way of splitting unvested stock options as assets, and has been applied to other similar employee compensation methods that have grown in popularity in the last ten years: namely RSUs. RSUs (Restricted Stock Units) are like stock options, except they are valued at the time the RSU is awarded and in some plans, automatically vest after a certain period of time.

If you are considering a divorce in Massachusetts, and are unsure of how your stock options or RSU's will be divided,  call Mavrides Law at 617.723.9900, or email us at info@mavrideslaw.com to schedule an in-office consultation.

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[1] Toni Baccanti vs. George I. Morton, 434 Mass. 787 (2001)

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