Divorce involves the division of assets acquired during a marriage. Among these assets, financial holdings and investments can be particularly complex to divide.
One such financial asset is “phantom stock,” a type of incentive some companies offer their employees. If you or your spouse own phantom stock, the question arises as to whether it is subject to division in a divorce.
Understanding phantom stock
Phantom stock, also known as shadow stock, is a compensation plan that provides benefits similar to actual stock options. However, employees holding phantom stock do not have ownership of company shares. These hypothetical units change in value over time alongside actual company stocks. Employees can cash out the accumulated value upon a predetermined event like retirement or sale.
Divisibility of phantom stock
The phantom stock mirrors true shares in almost every way. Like actual company stocks, phantom stocks acquired during marriage are subject to asset division. If you acquire phantom stock before the marriage, the amount you received might be separate property and not divisible.
Equitable distribution
Texas is a community property state, meaning that courts will follow the principle of equitable distribution during divorce matters. If the phantom stock’s value significantly contributes to one spouse’s financial well-being, the court will distribute it in such a way as to ensure a fair and equitable outcome.
An uncontested divorce can take eight months on average from start to finish. When complex factors like phantom stocks are in play, the process can become even more lengthy. Fully understanding the processes that affect the division of phantom stocks can help the divorce proceed smoothly.
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