Abstract
Stock-based compensation has become increasingly prevalent in recent years. As a result, many high net worth divorces now result in the transfer of compensatory stock rights from the employee spouse to the nonemployee spouse as part of the marital settlement. Despite this growing trend, the tax consequences of these transfers have not yet been explored fully. This Article endeavors to fill this void and explain both the planning opportunities and potential pitfalls in transferring compensatory stock rights in divorce. These transfers can shift ordinary income from a high-bracket spouse to a lower-bracket spouse, creating a tax surplus that enlarges the marital estate. On the other hand, these transfers can result in counterintuitive tax consequences because the income tax effects are surprisingly inconsistent with the employment tax effects. This inconsistency can lead to misunderstandings about which party is intended to bear the burden of these taxes. In addition, despite recent IRS guidance in this area, the taxation of transfers of unvested stock rights remains highly uncertain. In light of the opportunity for income shifting, the potential for confusion, and the continuing legal uncertainty, tax and legal advisors on both sides of a divorce must be extremely careful when stock rights are part of the marital estate
Repository Citation
Gregg Polsky and Kathleen DeLaney Thomas,
Taxing Compensatory Stock Rights Transferred in Divorce
, 93 N.C. L. Rev. 741
(2015),
Available at: https://digitalcommons.law.uga.edu/fac_artchop/1191