Stock options are considered deferred compensation, much like a pension, thus marital property subject to distribution in a divorce. As options are usually not transferrable, a “buy-out” of the non-employee spouse is required. The simplest method to value a buy-out is to subtract the exercise price of the options from the market value. However, this method does not consider that the employee might never exercise the options. The discount to present value method applies discounts for the possibility of forfeiture
or death, and items such as taxes and lack of marketability. The most complicated, but more accurate method is to apply a complex valuation formula known as Black-Scholes. This method, while theoretically sound, still invites speculation. Accordingly, in some cases the court might defer valuation and buy-out until the options are actually exercised. This method is exact, but may entail the disadvantage of delaying final economic resolution of the divorce for years.
