If I Cash In My Stock Options 10 Years After Separation, Will My Ex Get More Spousal Support


Cashing in stock options

Family Law questions about spousal support are never quick to answer.  Neither are questions about stock options in the family law context.  Your question does raise a number of important issues surrounding spousal support that people often misunderstand.  (Getting spousal support law wrong is a frequent family law mistake.)

 

To determine whether you are entitled to spousal support based on your spouse’s stock options, it is necessary to go over the basics of the law of spousal support.


 


Spousal Support is not like child support.  While there are Spousal Support Advisory Guidelines, they are very different from the Child Support Guidelines in many ways.  A couple of those differences are that:

  1.  Spouses are not automatically entitled to spousal support the way that children, through their parents are automatically entitled to child support.  Entitlement to spousal support, can be complicated issue, which is discussed in this podcast episode.  Even if a person meets the definition of “spouse” under the Divorce Act or Family Law Act, that person may still not be entitled to support.
  2. Spousal support is not just based on income.   The factors that decide whether a spouse is entitled to support also influence how much spousal support to which a spouse may be entitled and for how long.  It is not just a question of looking at table and seeing the amount of support payable for the spouse’s income, which is how child support works.   The Spousal Support Advisory Guidelines produce a range of figures for support and range of time for how long support should be paid.  How much and how long are determined by looking at the factors influencing entitlement.  And, if a spouse does not meet the legal tests for entitlement, the calculated figures mean nothing as the proper amount of support is $0.
  3. Unless required by a court order or separation agreement, spousal support does not automatically change, even when the spouses financial situations’ change.
Ontario Family Law Podcast

13 - Spousal Support in Ontario and Canada

30 - Entitlement to Spousal Support

The factors that determine entitlement to spousal support are set out in section 15.2(6) of the Divorce Act (for married spouses) and section 33(9) of the Family Law Act (for common law spouses).  These are set out in some detail the podcast. But, to summarize, While the wording is quite different, spousal support under either piece of legislation can be based on one or more of three bases for spousal support (sometimes called types of support):


  1. Compensatory Support – support that is designed to compensate a spouse for the  services provided during the marriage/relationship and the income or other wealth that a spouse gave up for the marriage/relationship (e.g. leaving a job to look after the kids and the spouse).
  2.  Non-Compensatory Support – support that is designed to give a “soft-landing” when a spouse will not be able to maintain the same lifestyle after a short marriage/relationship, or try to maintain the lifestyle after a long marriage or relationship.
  3. Contractual Support – where the parties agree that a certain amount of spousal support ought to be paid for a period of time.  This is usually set out in a marriage contract or cohabitation agreement.  However, spouses who do not fully understand entitlement do may obligation themselves to pay spousal support in a separation agreement that they would not otherwise have to pay because their spouse does not meet the test for entitlement.

 

All of this matters because, as noted above, spousal support does not automatically change with a support payer’s income.   In some cases, changes to support will not be permitted by the support order or separation agreement. 

 

Even where a support order or agreement does permit a change in support, the support recipient must establish that he or she is entitled to an increase in spousal support.  Such an increase is based on two sets of factors:

  1. There is link between the increase in the support payer’s income and the marriage or relationship, and
  2. There is an entitlement to increased support based on the three bases set out above.

 

The issue of stock options highlights the first factor. 

 

Stock options are performance incentives that are tied to the performance of the employee’s company.  Instead of being paid entirely by salary, the employee “earns” the right to buy shares in the company at a certain price.  If the company does well, then the employee can later buy the shares at a price that is less than they are worth and sell that at some point for a profit.   The income that an employee earns through stock options appears on that employee’s tax return at the time he or she sells the stocks, not at the time he or she earns the options.  In addition, it usually appears as a taxable capital gain rather than a salary.  (True stock options will always show up as a capital gain).


reporting stock options on tax returns



When calculating support, good family lawyers, know that stock options income should be included in income for calculating support at the time the support payer earns the options and not when the support payer sells the stock and pays the tax.  It is possible that the support payer may never sell the stock and may pass it onto heirs - or at least wait until a support obligation is over before cashing them in.  Calculating what income should be used when stock options are an issue is unbelievably complicated and anyone who has a stock option issue in his or her divorce or separation needs to speak to a lawyer who knows about them.


If the stock option income was included in the calculation of your spousal support, then the cashing in of the stock options should not affect your spousal support because it was already factored in to the amount you receive.


If the stock option income was not included in the calculation of your spousal support payments, then when you  earned those options is very important:  

  • If you earned the options during your relationship, then they will be linked to your relationship and that gives your ex a basis to ask to share in the increased income. 
  • If you earned the options after your relationship for work you did after your relationship that was not linked to your relationship, then your ex probably has no claim to additional spousal support.
  • If you earned the options after your relationship for work you did after your relationship, but that work is related to the relationship (e.g. you were promoted to the job while you were still together, you were able to do the work leading to the options because your ex looked after you during the relationship) then your ex may be able to claim additional support.

But, even if the options are linked to your relationship, to get increased support, your ex will still have to establish that there are compensatory grounds (show that your ex has not been fully compensated for your ex's sacrifices during the marriage), non-compensatory grounds (you ex is struggling financially) or contractual grounds (you and your ex agreed to the additional support).


In addition, if you had the stock options at the time of separation, and included their value in the calculation of the equalization of net family properties, then it is not appropriate to divide up the options again for spousal support.  They capital gains from stock options will still be income for child support.  In addition, income from stock options earned after separation, which were not included in the property equalization process, but which can be linked to the marriage, can be used for spousal support calculations, if the support order or separation agreement permit. 


Clearly, the situation of stock options and support is complicated and even more complicated when discussing post-separation increased in income.  It is similar for most deferred compensation employee incentive plans.   So, it really is important that you get legal advice specific to your situation to make sure your support arrangements are right.

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The best way to protect yourself, your children, and your financial security, is to find out how the law applies specifically to your situation and what steps you should take to get things to work out for you. Certified Specialist in Family Law (and author of the book to the left), John Schuman, has extensive experience assisting high net worth clients on complicated legal matters, including stock options.  Contact him right now by using the contact form below, by emailing him, calling 416-446-4036, or using the contact form below.  John, We answer all inquiries promptly and we can arrange for you to come in quickly for a consultation (charged at a reduced hourly rate).

  

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