On February 21, 2023, Robert Carter and Kristopher Hallengren of Vallit Dispute & Valuation Advisors presented a CLE program during which they outlined how stock options, pensions, and phantom stock are commonly treated for purposes of income determination and valued for purposes of asset division in family law cases. 

Among other things, Carter and Hallengren noted that in marital dissolution cases, it’s important to consider all potential income sources when determining a spouse’s annual income. For example, information about a spouse’s bonuses, profit-sharing and matching agreements, employee benefit plans, pensions, phantom stocks, and stock options may not appear in a standard W-2. For that reason, it’s important for attorneys to know where to look for additional assets and income sources, as well as how to value them appropriately. 

The presenters walked through a number of common complex compensation schemes highlighting the various approaches for valuation and the relevant source documents that may help establish value. For example: 

  • Stock Options. Determining the value of stock options will require acquiring and carefully reviewing a number of different source documents in discovery. Important information about a spouse’s income and assets may be included in a spouse’s initial employment offer letter, a stock option award letter, account statements, and employee HR files. For stock options issued by a public company, information about the instruments’ value may be available in regulatory filings like Form 10-Q and Form 10-K. Carter and Hallengren also noted that in Otley v Otley (2002), the Maryland Court of Appeals outlined a three-prong solution for calculating the value of unvested stock options as marital property. 
  • Pensions. In a marital dissolution, determining how much of the pension will be included as marital property will turn on information that can be found in a number of documents, including a spouse’s pension award letter, which may outline the vesting period and benefit formula and pension statements including total compensation statement and monthly income statements. Carter and Hallengren also compared and contrasted the Hard Asset approach versus If, As, and When methods for determining pension values in marital dissolution cases.

Other Topics covered included unique issues in Business Valuations, Phantom Stock and Phantom Income Valuation, as well as Waterfall Dissolution. Among other things, the faculty noted that when considering complex compensation and conducting income analysis, each scenario raises its own unique set of issues and considerations. 

The on-demand program qualifies for 3 hours of CLE credit for surrounding MCLE states of Virginia, Delaware and Pennsylvania. To watch this program click HERE.