﻿ FAQs - Family Law Software

# FAQs

Click on a question to see the answer.

Question: How should I enter restricted vs unrestricted stock options?

Answer: You know what stock options are: the company gives the employee the right to buy a number of shares of the company's stock, usually at the current price.

Let's say the price when the option is issued is \$100 a share.

If the stock price goes up by \$10, say, the employee has something of value, because he can buy shares for \$100, using his option, and turn around and sell those shares for \$110.

The company's goal in issuing options is to make the employee have the same interest as shareholders: boosting the stock price.

A restricted stock option is an option that can not be sold or given away. Companies give restricted stock options to make sure that the employees continue to retain the correct incentive. Otherwise, I would sell my option (for \$10 in the above example) and I no longer care about the company's stock price.

Of course, once the employee exercises the option and buys the stock, the restriction no longer applies.

But typically, the options may not be exercised for a period of time (1 - 5 years typically).

In the software, both "restricted" and "unrestricted" stock options are entered as "Cash & Investments."

The restriction would cause the value to be slightly lower than it otherwise might be. That is the only difference.

Your task is to figure out what that discount for the restriction should be. This is more art than science.

One more bit of jargon:

A stock option that is "underwater" is an option to buy stock for a price that is currently more than the market value.

So, in our example, if the current market value of the stock were \$90 a share, the option to buy at \$100 a share would be "underwater."

The option does have some value, though, because there is always a possibility that the stock will go back up.

Property Division Implications

You also want to be able to reflect the tax impact on the division of property.

You can use the software's worksheet for dividing assets on an after-tax basis.

You would enter the after-tax value / pre-tax value as the percent paid in tax.