Court Opinion

ID: 5124151
Source: CourtListenerOpinion
Date Created: 2021-11-08 16:13:23.043367+00
Date Added: 2024-06-11T08:22:38.850046
License: Public Domain

[Cite as Flores v. Flores, 2021-Ohio-3965.]

                                     IN THE COURT OF APPEALS

                            TWELFTH APPELLATE DISTRICT OF OHIO

                                              WARREN COUNTY

 MALISA FLORES,                                     :     CASE NO. CA2021-01-009

         Appellant,                                 :          OPINION
                                                                11/8/2021
                                                    :
   - vs -
                                                    :

 OCTAVIO FLORES,                                    :

         Appellee.                                  :

             APPEAL FROM WARREN COUNTY COURT OF COMMON PLEAS
                        DOMESTIC RELATIONS DIVISION
                            Case No. 19DR041156

Alexander, Wagner & Kinman, and Christopher M. Alexander, for appellant.

Joseph Candito, for appellee.

        M. POWELL, P.J.

        {¶ 1} Appellant, Malisa Flores ("Wife"), appeals a divorce decree from the Warren

County Court of Common Pleas, Domestic Relations Division.

        {¶ 2} Appellee, Octavio Flores ("Husband"), and Wife were divorced on December

31, 2020. The divorce decree allocated marital property between the parties, including

unexercised stock options Husband had received in 2016, 2017, and 2018 as an executive
                                                                    Warren CA2021-01-009

employee at Proctor & Gamble Company. Husband's testimony at trial indicates that the

stock options are nontransferable and may only be exercised by Husband between three

years and ten years after they are granted.

       {¶ 3} In allocating the unexercised stock options, the divorce decree provided,

"Husband shall exercise the options at a time when in good faith he believes is most prudent

to maximize the gain from the stock options. He shall notify Wife at least (14) days before

his intention to do so. Upon sale, he shall pay to Wife one-half the net within three days of

receipt together with documentation confirming the calculation of Wife's one-half." The

divorce decree further provided that Wife was "responsible for any tax liability and/or

transaction fees incurred as a result of Husband's exercise of the options on Wife's behalf,

and at her directions."

       {¶ 4} Wife appeals the trial court's allocation of the unexercised marital stock

options, raising one assignment of error:

       {¶ 5} THE TRIAL COURT ABUSED ITS DISCRETION BY ALLOWING HUSBAND

TO SOLELY DETERMINE WHEN TO EXERCISE MARITAL STOCK OPTIONS.

       {¶ 6} Wife argues the trial court abused its discretion by giving Husband sole and

complete control over when to exercise the marital stock options.

       {¶ 7} Trial courts are vested with broad powers in determining the appropriate

scope of property awards in divorce actions. See Kuhn v. Kuhn, 143 Ohio St.3d 457, 2015-

Ohio-2806. A reviewing court may modify or reverse a property division only if it finds the

trial court abused its discretion in doing so. See Wolf v. Wolf, 12th Dist. Preble No. CA2009-

01-001, 2009-Ohio-3687. The trial court ordered Husband to exercise the marital stock

options "when in good faith he believes is most prudent to maximize the gain from the stock

options." We review the trial court's "good faith" stock options-exercising order under an

abuse of discretion standard.

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       {¶ 8} A stock option may be defined as the right to buy a designated stock at any

time within a specified period at a determinable price if the holder of the option chooses.

Fox v. Fox, 10th Dist. Franklin No. 01AP-83, 2002-Ohio-2010, ¶ 76; Banning v. Banning,

2d Dist. Greene No. 95 CA79, 1996 Ohio App. LEXIS 2693, *14 (June 28, 1996).

       {¶ 9} Allocating nontransferable stock options in a property division is difficult in

nature. Banning at *17. Methods used by courts in doing so include the following: valuing

the options at the time of the divorce trial and having the option-holder spouse pay the other

spouse his or her share of the value in cash; using the "if and when" method in which the

trial court orders the option-holder spouse to pay the other spouse his or her share at the

time the stock options are exercised; and establishing a constructive trust for the benefit of

the non-employee spouse over that spouse's share of the options. Id. at *17-18. The "if

and when" methods "have been praised because they avoid coercing the option-holder into

exercising the options at a time that he or she would not have chosen to do so. They also

have been complimented because they assign equally the risk that the exercise of the

options may not be profitable and the benefit if they are lucrative." Id. at *18.

       {¶ 10} Valuing stock options is also difficult by nature. Murray v. Murray, 128 Ohio

App.3d 662, 674 (12th Dist.1999). "When valuing stock options, both the stock value and

the grant price for each stock option must be considered, along with other complicating

factors." 1 Anderson, Ohio Domestic Relations Practice Manual, Section 4.14 (2020). One

complicating factor is that stock options typically cannot be transferred from one spouse to

another. Id. "Thus, even if a non-employee spouse is to receive stock options in a property

division, other provisions will need to be made in order to permit the exercise, since title

must remain in the name of the employee spouse with the non-employee spouse as

beneficial owner of those designated option shares." Id. Another complicating factor is the

stock options' vesting schedule. "It is not unusual for a grant of a stock option to vest over

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a number of years, typically three or four, rather than vesting immediately. This means that

when the option is granted there is usually a period of time that must pass before the

employee spouse can exercise any portion of the options." Id. "Typically, the option grant

expires after a period of time, creating a window of a number of years during which the

options may be exercised." Id.

       {¶ 11} "At the time of its grant, the [stock] option does not have a readily

ascertainable value." Murray at 674. A stock option has value based upon how likely the

market price will rise above the exercise price in the time before the stock option expires.

Banning, 1996 Ohio App. LEXIS 2693 at *20. Thus, the "true value of stock options lies in

their future exercise. [That is], the true value of the stock option to its owner is the potential

for appreciation in stock price without investment risk. If the stock price were to drop, the

owner simply would not exercise the option since he could instead buy the stock more

cheaply on the market." Murray at 674.

       {¶ 12} We find that the trial court's order that Husband exercise the marital stock

options "when in good faith he believes is most prudent to maximize the gain from the stock

options" was not unreasonable, arbitrary, or unconscionable. As stated above, Husband's

testimony indicates that the marital stock options at issue are nontransferable and may only

be exercised by Husband for a seven-year period once the options vest three years after

their grant. At the time of the divorce decree, the stock options Husband had received in

2016 and 2017 had already vested; the stock options he had received in 2018 were to vest

by the end of February 2021. The trial court's guidelines governing Husband's exercise of

the marital stock options, i.e., exercising the options in good faith and with the goal of

maximizing gains, notifying Wife at least 14 days in advance of the execution, and paying

Wife one-half of the net within 3 days of the execution, are reasonable. Furthermore,

Husband and Wife equally share the risk that the exercise of the options may not be

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profitable and the benefit if they are lucrative. That is, Husband stands to lose as much as

Wife if he were to prematurely exercise the stock options, i.e., when their market value

would be identical to or below the price of the options on the date they were granted to

Husband. By the same token, Wife stands to gain as much as Husband when he exercises

the options when their market value is higher than their grant price. Finally, the trial court's

order provides a standard pursuant to which Wife may vindicate her right to enjoy her share

of the stock options should Husband fail to exercise the stock options "in good faith * * * to

maximize the gain." The fact that the trial court could have used other methods for dividing

the unexercised nontransferable marital stock options does not make the court's decision

unreasonable, arbitrary, or unconscionable.

       {¶ 13} We therefore find that the trial court did not abuse its discretion by giving

Husband sole and complete control over when to exercise the nontransferable marital stock

options. Wife's assignment of error is overruled.

       {¶ 14} Judgment affirmed.

       S. POWELL and BYRNE, JJ., concur.

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