When an executive’s stock options vest over several years, the hardest question in a Texas divorce is simple to state: how much of each grant belongs to the marriage? Many online articles answer it with California formulas. Texas does not need to borrow them. Since 2005, the Texas Family Code has contained its own time based formula for employer stock options and restricted stock, and the current version has been in effect since September 1, 2009.
This guide explains that Texas rule, walks through the arithmetic, and shows where executives and their spouses in Houston, the Energy Corridor, Sugar Land, Katy and The Woodlands most often get it wrong.
The starting point: community property and its presumption
Texas is a community property state. Property either spouse acquires during the marriage is presumed to be community property, and a spouse claiming separate property must prove it by clear and convincing evidence (Family Code section 3.003). Compensation earned for work during the marriage is community property.
Stock options complicate this because a single grant can reward work before the marriage, during it, and after the divorce. The time rule is the tool that sorts those periods.
What Texas Family Code section 3.007(d) says
Section 3.007(d) applies to a spouse who participates in an employer provided stock option plan or restricted stock plan. It defines the employee spouse’s separate property share. Everything else is community property.
Grant made during the marriage, vesting after the divorce (section 3.007(d)(2)):
- Separate share = (divorce date to vesting date) ÷ (grant date to vesting date)
Grant made before the marriage, vesting during or after the marriage (section 3.007(d)(1)):
- Separate share = [(grant date to marriage date) + (divorce date to vesting date, if vesting falls after the divorce)] ÷ (grant date to vesting date)
Three rules in the statute change real outcomes:
- The end point is the divorce, not separation. The statute measures from the date the marriage is dissolved. Texas has no legal separation, so months of separation before the decree still count as community time.
- Each tranche gets its own calculation. Section 3.007(e) applies the formula to each component that requires a different period of employment. A grant vesting 25% per year is four separate calculations.
- Grants that vest during the marriage are not split by this formula unless they were granted before the marriage. A grant made and vested during the marriage is community property under the general rules.
Worked examples (hypothetical)
Example A: granted during marriage, cliff vesting after divorce. Options granted July 1, 2023 vest in full on July 1, 2027. The divorce is granted January 1, 2026.
- Divorce to vesting: 1.5 years. Grant to vesting: 4 years.
- Separate share: 1.5 ÷ 4 = 37.5%. Community share: 62.5%.
Example B: granted before marriage, vesting after divorce. Options granted January 1, 2021 vest in full on January 1, 2026. The parties married January 1, 2022 and divorced January 1, 2025.
- Grant to marriage: 1 year. Divorce to vesting: 1 year. Grant to vesting: 5 years.
- Separate share: (1 + 1) ÷ 5 = 40%. Community share: 60%, which matches the 3 married years out of 5.
Example C: graded vesting. 3,000 options granted March 1, 2024 vest 1,000 on each March 1 of 2025, 2026 and 2027. Divorce is granted September 1, 2025.
| Tranche | Vests | Separate share | Community share |
|---|---|---|---|
| 1,000 | Mar 1, 2025 | 0% (vested during marriage) | 100% |
| 1,000 | Mar 1, 2026 | 0.5 ÷ 2 years = 25% | 75% |
| 1,000 | Mar 1, 2027 | 1.5 ÷ 3 years = 50% | 50% |
What about the Hug and Nelson formulas?
In re Marriage of Hug and In re Marriage of Nelson are California decisions. Before Texas enacted section 3.007, out of state formulas like these were sometimes argued in Texas cases. For employer provided options and restricted stock that require continued employment, Texas now has a statutory formula, and it is the one a Texas divorce should be built on. Out of state articles that tell Texas readers a court may simply “choose” Hug or Nelson are misleading.
After the fraction: valuation and division
The time rule tells you what portion is community property. It does not tell you what that portion is worth or who gets it.
- Division. The court divides the community estate in a manner it considers just and right (Family Code section 7.001). That can be unequal.
- Method. Parties choose between deferred distribution (“if, as and when” the options are exercised) and a present valuation with an offset. Each has trade offs covered in Dividing Unvested Stock Options in a Texas Divorce.
- Timing. Because the fraction depends on the divorce date, the vesting schedule can affect when a case settles.
- Taxes. ISOs and NSOs are taxed differently, and the decree must say who bears the tax on each spouse’s share.
- Price. Options can be underwater at the time of divorce and still carry value.
Gray areas the statute does not answer
Section 3.007(d) covers grants made before or during the marriage. It does not directly address an award granted after the divorce that arguably rewards work done during the marriage, such as a grant delayed until after a performance review. Those situations turn on the grant documents and the facts. The same is true of awards that are not options or restricted stock, such as RSUs and PSUs, deferred compensation and carried interest, where parties often use a similar time based approach by agreement.
Mistakes that cost executives and spouses money
- Using the separation date instead of the divorce date
- Blending all tranches into one percentage
- Measuring from the hire date, a California method not found in the Texas statute
- Treating the community fraction as each spouse’s automatic 50% share
- Forgetting replacement grants from a prior employer
Speak with a Houston executive divorce lawyer
Getting the fraction right for every tranche is basic. Building a settlement around it, with tax, notice and protective terms, is where experience matters. Chidi Anunobi is Board Certified by the Texas Board of Legal Specialization and holds an M.B.A. from Carnegie Mellon University, with a decade of prior consulting experience at KPMG.
From our office at 1415 North Loop West in Houston, we represent executives and their spouses throughout Harris County, Fort Bend County and Montgomery County, including Sugar Land, Katy, Fulshear, Missouri City, Pearland, The Woodlands, the Houston Heights and River Oaks. For the full picture of executive pay in divorce, see our comprehensive guide.
Call 832-538-0833 or contact us for a confidential consultation.
Frequently asked questions
Does Texas use the Hug or Nelson formula for stock options? For employer provided options and restricted stock that require continued employment, Texas uses its own statutory formula in Family Code section 3.007(d).
Is the time rule based on the separation date? No. The statute uses the date the marriage is dissolved.
How are options that vest in installments handled? Section 3.007(e) requires a separate calculation for each installment with a different vesting date.
Does the community share go 50/50? Not automatically. The court divides the community estate in a manner it finds just and right.
This article is general information, not legal advice. Outcomes depend on the facts, the plan documents and current law.