Often Parties are faced with difficult issues related to the division of
property. One of the more vexing property settlement issues is dividing marital
assets that have not yet vested.
Since the property rights have not vested and are not owned, do they have a
Minnesota's Appellate Courts have wrestled with this issue frequently in the
past. As a result, there is no longer any doubt that even unvested property
rights, whether stock options or pensions, are considered marital and may be
divided as part of a divorce proceeding.
In the 1987 case of Salstrom v. Salstrom,
Minnesota courts specifically addressed the issue of unvested stock options. In
that case, the Court noted that stock options exercisable after the date of the
divorce are similar to vested pension plans and concluded that these options
"are an economic resource acquired during the marriage constituting a marital
asset." It is also recognized that unvested stock options have both marital and
nonmarital aspects which must be apportioned. There is a marital value to the
options since the options were granted during the marriage. There is also a
non-marital element since they are likely to vest after the marriage has been
dissolved and are earned, in part, through the continued labor of the employee
spouse after the divorce.
To determine the relative marital value and non-marital
values of stock options, Minnesota Courts have looked to the same methods that
are used for valuing unvested pension interests. The Minnesota Supreme Court
outlined a method of division for vested but unmatured benefits in the case
Taylor v. Taylor, 329 N.W.2d 795 (Minn.1983). In that case, the Court stated
that nonvested pensions need not be treated any differently than vested but
unmatured pension rights or benefits: both contain contingencies on the actual
payment of pension benefits.
Looking at cases across the nation, there are two
possible methods for dividing unvested assets, including stock options. Under
one method, the divorce Court retains jurisdiction to apportion the unvested
benefit at some point in the future only if and when that benefit is paid. This
is the approach suggested in the California case In re Brown, 15 Cal.3d
838, 126 Cal.Rptr. 633; 544 P.2d 561 (1976), and echoed in similar decisions in
other states such as In re Marriage of Hunt, 397 N.E.2d 511, 519 (1979),
an Illinois decision.
A second, and more preferable method, is to divide the
unvested benefit based on a percentage formula. This is particularly appropriate
where it is difficult to place a present value on the pension or profit sharing
interest due to uncertainties regarding vesting or maturation. Under this method
the trial court in its discretion may award each spouse an appropriate
percentage of the pension to be paid "if, as and when" the pension becomes
payable. The formula used to determine the respective non-martial and marital
interest in the benefit by taking the total number of years over which the
benefit is earned and using that number as the denominator. The numerator is the
number of years over which the benefit accumulated during the marriage marriage.
Even in this second method of division, the trial
court, retains jurisdiction over the division of unvested benefits