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Ask a Lawyer: Stock optoin sale and payment of social security and withholding tax PDF Print E-mail

Question:

My divorce decree called for me to split the stock options that I was awarded by my company. My ex received 1/2. I sold stock options at her request late last year. She received the proceeds from the stock sale as soon as the check arrived. Now she is asking me to reimburse her for the social security and withholding tax that was generated by the stock sale because it went to me. My lawyer is not a tax attorney, but this was his interpretation: "She is to pay all income taxes, etc. due on the stock options she owns and exercises. The decree says "It is further ordered and decreed that (her name) shall timely pay and indemnify (my name) and his property harmless from any and all income taxes attributable to the ownership and/or exercise of the options ...
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do not refund tax withholding on Option Sales - give her "real Net"
written by jjdjr, November 08, 2009
I just completed this. It all depends on the language in your MSA or Decree. I actually transferred some options to my ex and let her cash them directly since her tax rate is so low. It saved us $40K and we split it. Texas law allows you to "split" using after tax proceeds even if your MSA or decree does not contain the language. What does this mean?

WATCH OUT is what that means. If your co. is withholding option sales at 25%, you could owe significantly more taxes if you cross into the 33 or 35% rates. You need to figure your income tax WITHOUT options FIRST. Then add the sales afterwards to see the true marginal tax.

EX: You make $200K without options. Your options are sold and taxes at a flat rate of 25%. You sell $400K of optionns and $100K is withheld. However, add $400K on top of the $200k and the net real taxes are $140K at 35%. You send her the check based on the standard withholding, but you are in the hole $8K for every $100K you sell..... good lucksmilies/shocked.gif

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