Hoover Krepelka, LLP - Lawyer

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Dividing RSUs in a divorce proceeding

Divorce is emotionally challenging, and it can be financially tumultuous. A spouse with RSUs (restricted stock units) typically navigates a very complex process to effectively divide this asset. When recruiting top talent to a company, prospective employers often offer RSUs as part of a compensation package. These stocks vest at a scheduled time when the company attains its performance goals, and the company “grants” the shares to an employee.

Vesting impacts values of RSUs

In a divorce proceeding, you have several options for disposing of RSUs. Companies typically grant these at a scheduled date. Employers financial reporting periods, product cycles and other aspects vary, so vesting schedules are not the same. One company may vest 20% of the RSUs on an employee anniversary date. Another company may grant 10% every three months.

RSUs fall under federal income tax rules, and market value of the shares is set when the employee receives the shares. A spouse, who acquires RSUs before a marriage, retains this asset while RSUs accumulated during a marriage are community property under California law.

Many options for distribution

California law affords a few options for dividing this asset class in a divorce proceeding. Keep in mind that the government considers RSUs an asset as well as future earnings. If the employee’s RSUs are all vested, then it’s far easier to determine market value and divide the asset for the former spouse. If some or all RSUs have not been vested, it often requires time and research to determine the best course of action.

You can choose one of the following to distribute RSUs during a divorce:

  • If all RSUs are vested, sell half the stock at the current market value and transfer funds to your former spouse. You can calculate the value of the vested and non-vested vale of the RSUs. Then you use cash or other liquid funds to compensate your former spouse.
  • If both spouses agree, assign a fixed value to the non-vested RSUs, so you can equitably divide the asset and pay your spouse. In many cases, the employee is anticipating that the RSUs will maintain or increase in value, so many employees want to retain not-yet-vested RSUs.
  • If the RSUs have not reached the vesting dates, you can include a clause in the divorce decree to deliver half the value of the RSUs when these shares vest.

The best path forward

Divorce is emotionally taxing and often presents many different financial hurdles to scale. You need to carefully weigh all your options when preparing to divide the value of RSUs. You and your spouse should determine the most equitable method for setting the value. Then you should acquire liquid funds and compensate your spouse for the value of the RSUs. While this isn’t easy, you have many options to consider, so you can come up with the best solution for your situation.

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