Timothy F. Rayne, Esquire

Stock options qualify as marital property
and are subject to distribution in a divorce

Should stock options qualify as marital property? Yes, says a landmark divorce case ruling argued by Senior Partner William J. Gallagher and Partner Timothy F. Rayne, (then an associate). In MacAleer v. MacAleer, they successfully argued before the Court of Common Pleas of Chester County and the Superior Court of Pennsylvania that stock options should be legally classified as marital property, and, hence, subject to distribution in a divorce. Although the case was appealed to the Supreme Court of Pennsylvania, the parties settled the case and the appeal was withdrawn.

The Facts
Mr. MacAleer (hereafter Husband) was employed by a corporation and, during his marriage, was awarded stock options. The stock options gave Husband the right to purchase stock at specified prices and "vested" on certain dates in the future. Before the options vested, they could not be exercised and the stock could not be purchased.

The Issue
The issue before the court was whether or not stock options granted to a spouse during the marriage as part of the spouse's compensation constituted marital property for the purpose of dividing property in a divorce when the right to exercise such options did not mature until after separation.

The Arguments
Marital property is essentially defined, with certain exceptions, as any property acquired during the marriage by either party.

Husband
Husband argued that the stock options were not property acquired during the marriage and, therefore, were not marital property. Husband reasoned that since the options could be terminated without vesting and because the options did not have any real value until vesting, which occurred after separation, the options were not marital property.

Wife
On behalf of Wife, MacElree Harvey argued that the stock options were merely a portion of Husband's compensation that he earned during the marriage. As such, the options were property "acquired during the marriage" and, like any other property, should be subject to distribution in divorce. Just because the options may have terminated without vesting, that did not justify Husband receiving a windfall if, in fact, the options did vest after separation.

The Decision
Both the trial court and Superior Court found that the stock options qualified as property acquired during the marriage and were marital property.The courts found that the options were comparable to pension benefits, which have consistently been classified as marital property. The Superior Court ruled that, regardless of when the right to exercise the option matures, stock options granted during the marriage constitute marital property unless it is clear that the options are being awarded as an incentive for future services rather than as compensation for past services.

MacElree Harvey
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