Are stock options considered income for child support?

Posted by Brian Waller | Sep 20, 2021

The 2021 updates to the Massachusetts Child Support Guidelines clarify that stock options ARE considered income for child support purposes. Exactly how stock options are included as income is a more complicated question. When I first starting writing about this topic, I realized that people probably don't really understand how stock options work unless they have worked for a company that issued stock options to employees. I have no idea what percentage of the population falls into that category, but I can say anecdotally that in my experience in divorce cases, that percentage is pretty low. Even with Massachusetts being a hub for technology and biotech companies, most people don't really understand how stock options work. I have worked for technology companies and have been granted stock options, but I learned some things while putting together this blog post. This will actually be a series of blog posts, but I am going to try to break down how stock options work and what that means for parents who pay or receive child support in a way that will hopefully clear up some of the misconceptions and mysteries about stock options. 

Part 1: So what are stock options, anyway?

A stock option is very different from a regular paycheck. As the name implies, it provides the recipient with the option to buy or sell shares of stock in the employer in the future. The cost of the options are established at the time the shares are granted. For example, startup companies often woo new hires with stock options because they allow the employee to share in the company's success. You have probably heard many stories about early employees at companies like Google and Facebook who became millionaires from their stock options. Stock options are not a sure thing though. Many times, stock options may be “under water” if the company's stock price declines, making them worthless. It is important to keep in mind that stock options are not income until they are exercised, or sold. Sometimes, employees never have an opportunity to exercise their stock options. If an employee works for a startup company and that company never makes it to an Initial Public Offering (IPO), their stock options are almost always completely worthless. Sometimes employees may have stock options that make them millionaires on paper, but they never see a single dime because there is no way to exercise or cash out of the options. 

Stock Options and Child Support

 The most important thing to keep in mind with stock options when it comes to child support is that stock options are non-cash compensation. That means exactly what it sounds like, the employee does not receive any cash or income of any kind when the stock options are granted. Stock options MAY have value at some time in the future, but that is not always the case.

 ** Please note: there are many different flavors of equity stock awardsand programs, including Incentive Stock Options (ISOs), Non-Qualified Stock Options (NSOs or “non-quals”), Restricted Stock Units (RSUs), Restricted Stock Awards (RSAs), Employee Stock Purchase Plans (ESPPs), among others. There are nuances to each of these and while this blog post is geared primarily towards NSOs, many of the concepts apply across the board and in relation to child support.

We will be following up with a more detailed explanation of the mechanics of stock options in the coming days, which will be linked below when posted.

Part 2: How do stock options work?

Part 3: How do stock options become income?

About the Author

Brian Waller

Founder and Principal Attorney

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