Stock Options and Trust Interests

Divorce or separation can be a complex and challenging process, particularly when it comes to the division of property. Understanding how different types of property are treated under the law can be crucial for a fair and equitable division of assets. In this post, we will delve into two types of assets that can be particularly complex: stock options and trust interests in property.

Stock Options

Stock options have become a common element of executive compensation and, if earned prior to marital breakdown, are considered property. However, valuing stock options can be more complex than valuing a deferred bonus.

In the case of Ross v. Ross 2006 CanLII 41401, the Court of Appeal for Ontario endorsed the Black-Scholes method of valuing “out of the money” stock options, as opposed to an “if and when” valuation approach. This method considers various factors including the current stock price, the option strike price, the time until the option expires, and the stock price volatility.

An expert should be retained to perform this calculation unless everyone agrees to use the intrinsic value, which is simply the difference between the strike price (the price at which the holder can purchase the share) and the trading value in the marketplace for the share on that same day. Taxes and other costs of disposition (such as brokers’ fees) will have to be deducted. This is the simplest method, and it generally produces the lowest value. If the options are not yet vested, there is an additional level of discounting that requires an expert’s opinion to quantify accurately.

Trust Interests in Property

Trust interests in property refer to an interest in an inter vivos or testamentary trust. These can range from a fixed interest in the income and capital of the trust to a totally discretionary interest.

However the trust may be structured, there is some monetary value to the interest. These trusts purport that the property that forms the corpus of the trust has been given away irrevocably by the donor spouse, even though that spouse may be a beneficiary. The spouse no longer has the legal right to call upon the return of the capital or even a payment of income but must request it from the trustee.

It is important to understand how different types of property are treated during divorce or separation is crucial. Given the complexity and nuances of these assets, it's important to consult with a family lawyer to ensure all relevant factors are taken into account. A family lawyer can provide advice tailored to your specific circumstances and help navigate the often complex process of property division upon marriage breakdown.

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