How Does BC Family Law Apply to Division of Stock Options?

In this article, we will discuss division of assets under BC family law when one or both spouses hold stock options. For many in BC, compensation from employment is made up of various components including stock options. Are those stock options “family property” under BC family law? If so, how are they to be valued and divided? When spouses separate, division of such assets may be complicated as stocks may not have yet vested, and once vested, stock options may remain open to be exercised for a number of years or may be subject to various conditions and restrictions. That was precisely the issue in a recent BC family law decision, H.C.F. v. D.T.F., 2017 BCSC 1226.

Recent BC family law litigation concerning stock options

In H.C.F. v. D.T.F., the spouses married on June 18, 2004 and were found to have separated on November 22, 2014.  Throughout the marriage, the husband had great professional success, working as one of the most senior executives at ScotiaMcLeod. His total annual compensation was made up of several components, including Restricted Stock Units (“RSUs”) which were part of the bonus he received each year. The value of these RSUs made up a significant portion of the husband’s annual income (which from 2011 to 2016 was between $939,000 and $1,093,000). The number of RSUs the husband received depended both on ScotiaMcLeod’s year end performance and the husband’s performance. ScotiaMcLeod’s year end was October each year, so the RSUs were granted in December each year as a bonus earned for the previous year ending in October. The RSUs were not redeemable until three years after they were first granted. As such, in the years leading up to the end of the marriage, the husband earned amounts that he was not paid out until after the parties separated:

• In 2014 he was paid out $190,094 for the RSUs he received in 2011.
• In 2015 he was paid out $144,594 for the RSUs he had received in 2012.
• In 2016 he was paid out $139,095 for the RSUs he had received in 2013.

When the spouses separated in November 2014, the husband had not yet been granted the RSUs for 2014.

Division of family property under BC family law

Dispute arose in H.C.F. v. D.T.F. due to the timing of when the RSUs were granted, when they were paid out, and how they should be valued. The husband initially took the position that all RSU amounts paid to him after the date of separation were not “family property” under s. 84 of BC’s Family Law Act, SBC 2011, c. 25 and should not be divided with his wife. By the close of the trial, the husband changed his position and agreed that one-half of the net value of the RSUs granted in 2011, 2012, and 2013 (but not paid out until 2014, 2015, and 2016 respectively) were “family property” and subject to equal division with the wife under BC family law.

What about the stock options granted after separation?

The husband maintained that the RSUs he received in December 2014 were not family property and should not be divided between the spouses. In support of that position, the husband pointed out that the RSUs were granted in December 2014 – after the spouses separated on November 22, 2014. He also pointed to the fact that at the date of trial, he had not yet been paid anything on the 2014 RSUs as they were not redeemable for three years after they were granted, so it was possible that he may never be paid anything for the RSUs granted in 2014 (for example, if he were to leave or be let go from ScotiaMcLeod, before his RSUs vested, he would not receive those RSUs). Further compounding the matter, in the husband’s view, was that the value of the 3922.986 RSUs he was granted in December 2014 was unknown at the date of trial.

Stock options found to be family property

The court found that the 2014 RSUs were family property and subject to equal division with the wife. The RSUs that were granted in each of 2011, 2012 and 2013 as a component of the husband’s compensation, and that were paid out three years later, were all granted on account of work that he did in the calendar year ending in October of each such year. That was also true of the RSUs that he received in 2014. So, while the 2014 RSUs were not granted until after the date of separation, they  were granted on account of the husband’s employment prior to when the parties separated.  The court further concluded that the fact that the RSUs for 2014 had not yet vested and that there remained some uncertainty about what precise amount the husband would receive (or at the most extreme whether he would receive anything) did not change the central fact that the 2014 RSUs were granted on account of the husband’s employment prior to when the parties separated. In the result, one-half of the net value of the RSUs for 2011, 2012, 2013, and 2014 was to be paid to the wife. The division and payment of the 2014 RSUs could await the husband’s receipt of his payment for that year. The parties agreed that any RSUs he received in December 2015 or thereafter would be his property.

Take home point on stock options under BC family law

Under BC family law, where a spouse’s compensation is made up of various components including stock options, the stock options granted before the date of separation are family property and subject to equal division between the spouses. As the outcome in H.C.F. v. D.T.F. demonstrates, stock options granted after the date of separation but on account of employment prior to the date of separation are also family property. An equal division of those assets will give each spouse an equal opportunity to benefit from whatever income they may generate in the future.  In all cases, it will be important to examine timing of the grant and any conditions and restrictions on the stocks. If you have questions about how this aspect of BC family law applies to you, contact Onyx Law Group at (604) 900-2538 to schedule a free 30 minute consultation with one of our team of BC family lawyers.