Understanding Stock and Restricted Stock Options

Understanding Stock and Restricted Stock Options

In your divorce, your retirement plans, including stocks will probably be subject to division. Understanding if and how these plans will get divided is important as you enter the divorce proceedings. If you have stock options as an employee benefit, it is important to understand what will happen to this benefit in your divorce. Likewise, if your spouse has stock option benefits, you need to know if you are entitled to them in divorce.

Stock Options And Restricted Stock Options

Stock options awarded as employee benefits constitute very valuable benefits. Many managers will get restricted stock options as benefits. This award is a grant of the company’s stock. The recipient of the stock (the employee) will not be able to use the stock until the shares vest. This period of restriction is also known as the vesting period. But, after the vesting period ends, the recipient can own those stock shares outright. They can then do whatever they want with the stock shares.  Restricted shares are usually awarded to employees as a benefit and also an incentive to remain with the company. This is because if the employee quits during the vesting period, or if they are terminated for some other reason, they won’t get the stock shares. This is different from a regular stock option because it requires the employee to stay with the company in order to receive the shares. Traditional stock options are valuable as the stock value grows. On the other hand, restricted stock options are valuable regardless of the company’s stock. 

Restricted Stock Award Plans

If you have a restricted stock award plan, you might wonder how it works. The first step in the offering of a restricted stock award plan is to accept or deny it. If you accept the grant, you have to go through the vesting period. Generally, this means that you have to wait a certain period of time before owning the stock shares. However, there are some cases where the vesting period might be contingent on your performance at work. This would mean that you can get the stocks when you achieve certain goals within the company.  Then, once the vesting period ends, you can get either the shares of the stock, or you will get their cash equivalent. This depends on the company’s rules. Either way, you will receive your award without any restrictions. Even during the vesting period, obtaining restricted stock means that the recipient receives voting rights.  Once this restricted stock pays dividends, the recipient of the stock will receive these payments. This is the case even if dividends are paid during the vesting period. Dividends constitute income, meaning that the recipient of them gets taxed for them based on their normal income tax rate. 

Getting Help

This is some basic information on stocks, restricted stocks, and restricted stock award plans. In our next blog, Understanding Restricted Stock Units (RSU) we will discuss how they're similar to restricted stock awards, but that differ in some ways. If you need additional information regarding the division of stocks and restricted stocks, contact our team today.

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