How Illiquid Private Company Stock is Treated in a Divorce
Divorce proceedings can be complex, especially when there are private company stocks involved. The treatment of illiquid private company stock in a divorce can vary widely, and understanding the legal framework is crucial for both parties involved.
State-Specific Divorce Laws
It is important to remember that divorce laws vary by state. In general, if 100 shares of stock are considered marital property, they will be split equally. However, this can present unique challenges when dealing with illiquid assets.
For instance, assuming that 100 shares are marital property, the parties may determine the present value of the stock. The non-stock holding spouse can be provided with other assets to equalize the division of assets, ensuring a fair settlement.
Problems for the Company Issuing the Stock
Forcing a division of ownership in private company stock can create problems, especially if the ex-spouse is not considered an accredited investor. This can lead to complications in the stock's value and legal standing.
Your divorce mediator may recommend an agreement where one party continues to hold the stock and options, as in the example presented in this article. This approach can save a significant amount of time and effort in re-doing stock option grants, warrants, and actual share purchases.
The Treatment of Illiquid Assets
Illiquid private company stock is not excluded from the property that is up for grabs in a divorce. It is entirely possible to split the stock between the two parties, like any other property. However, there are several considerations to keep in mind.
For example, when you exercise stock options, your spouse should sign a contract agreeing to the same terms and conditions. This ensures that if the stock finds its way into new hands, the limitations follow it.
Avoiding legal and financial headaches down the line is key to a smooth divorce process. By understanding how illiquid private company stock is treated, both parties can avoid unnecessary complications and achieve a fair settlement.