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What Is a Callahan Trust and When Is It Needed in a New Jersey Divorce?

Seeking a divorce today is very different from seeking a divorce several decades ago. There are different issues and considerations that people must take into account. That said, it can be challenging, stressful, and even overwhelming to think about every single asset you own or have earned over the years and develop an agreement with your spouse on how you will divide these assets. One of the most frequent issues that most spouses struggle with is stock options and the process of a Callahan Trust, which can be very difficult and complex to understand.

How is Marital Property Divided in New Jersey?

First, you must know that New Jersey is an equitable property state. This means all marital property is divided fairly, but that does not mean it is divided equally. If you are going through a divorce in New Jersey, the judge will likely distribute both spouses’ wages, assets, and properties based on what they believe is fair. Sometimes, the judge will decide the best course of action is to sell specific items and then split the money received from the sale. This is usually a good idea when the property cannot be agreed upon or divided. For example, a house cannot be cut in half and given to both spouses. Therefore, the judge may order the house to be sold and the proceeds fairly divided.

How Stock Options Are Handled In A New Jersey Divorce

Some employers award their employees stock options and their usual salary or pay. Since stock options can be awarded throughout the years, it is not unusual for employees to receive these assets while married. However, if the married couple decides to get a divorce, any unvested stock options that one spouse holds are still considered marital property. Therefore, the stock options must be properly divided between both spouses. The employee spouse must exercise the option to purchase the stock on behalf of the non-employee spouse. As a result, the non-employee spouse will then own a share of the stock. This is known as a Callahan Trust.

How Was the Callahan Trust Created?

In May 1976, a court case took place in the Superior Court of New Jersey, which was Callahan v. Callahan. During the trial, the husband did not believe that his stock options should be considered marital property that should be equally divided. Therefore, he argued that these stock options were not part of his assets. However, the court ruled that stock options are considered compensation and marital property, which a constructive trust should distribute equally. As a result of this case, the term “Callahan Trust” was created.

The Differences Between Vested and Non-Vested Compensation

Stock options are often referred to as “deferred compensation,” which is additional money given to an employee on top of their regular income that will be paid out after a certain period has passed. Below, we will tell you the difference between vested and non-vested deferred compensation.

    • Vested compensation: Vested compensation is available when the period given by your employer has successfully passed. When divorcing spouses have vested compensation, this asset is easy to distribute. The court will look at the amount and ask that it be distributed as cash. The court may also determine how much the compensation is worth, award it to the spouse who is the employee, and award assets equal in value to the non-employee spouse.
    • Non-vested compensation: Non-vested compensation means that the money is not available yet. This can make things a little more complicated because there is not a “physical” asset or money to divide between the spouses yet. Every case is unique and different. However, it is not uncommon for the judge to decide that since the spouses have decided to divorce before the compensation is available, the non-employee spouse may only receive part of the compensation earned throughout the marriage instead of the full amount.

Why Do I Have to Divide My Unvested Stock Options With My Spouse?

It may be surprising to learn that you must fairly distribute your unvested stock options with your spouse. These stock options are considered an asset you earned while married to your spouse, meaning that they are entitled to them as well. To the courts, these stock options are a form of money. While the money from the stock options cannot be placed in one’s hand immediately, the compensation is valuable and will be available sometime in the future. Therefore, they are typically brought up in divorces because both spouses are subject to the stock options regardless of whether the money can be placed into the individuals’ hands or bank accounts today.

Does a Callahan Trust Mean That Non-Vested Compensation or Marital Assets Will Be Divided More Fairly?

When stock options are non-vested, the employee spouse may have the option to purchase the non-employee spouse’s share of the stock options. This can be done by determining the current value of the non-vested compensation or by placing the asset in a Callahan Trust. As a result, the Callahan Trust will determine when the compensation will be divided, how the taxes will be paid, and how to distribute the proceeds. That said, the Callahan Trust can ensure that the non-vested compensation or marital assets are divided more fairly among spouses going through a divorce.

Call a New Jersey Family Lawyer Today

If you have any questions or concerns regarding a Callahan Trust, vested or non-vested compensation, divorce and retirement benefits, child custody or support, Zeigler Law Group, LLC is here to assist you in any way we can. Our family law attorneys know and understand that this is an extremely difficult time in your life, so we will remain by your side, guiding you through the legal process and helping you solve the problems that may arise. Call 732-361-4827 or fill out our contact form to schedule your free and confidential consultation with a New Jersey family lawyer today. We serve clients throughout the state of New Jersey. We look forward to hearing from you soon!

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Sonya K, Zeigler, Esq. and her team have a well-earned reputation for committed and fierce legal representation. Our firm is here to provide you with the best possible guidance. Call Zeigler Law Group, LLC, at 732-361-4827 or contact us online to schedule a free consultation. Located in Tom’s River, Red Bank, Princeton, and Mount Laurel, New Jersey, we serve clients throughout the surrounding areas.

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