There has been a recent shift in employer compensation packages to attract and retain employees, particularly in the corporate world.  These various forms of compensation can include not only salary and/or bonuses but also restricted stock units, stock options, profit-sharing, long-term incentives, or a combination of more than one.  When dealing with the separation of finances, it is crucial to understand your and your spouse’s forms of compensation to explore their implications in a divorce fully.

A relatively recent method of employee compensation is restricted stock options, or restricted stock units (RSUs), which are a form of equity-based compensation that companies often use to reward employees.  These options are promises to give employees company shares after a specific vesting period.  The receipt of RSUs can be subject to prerequisites, such as remaining with the company for a certain time, duty performance, or market productivity.

In a divorce context, RSUs can become part of the marital estate, subject to equitable distribution.  However, classifying the RSUs as marital or separate and the timing of distribution are not always straightforward.

One important aspect of the analysis is determining the purpose for granting the RSUs—as compensation for past services, as an incentive for future services, as gifts, subject to purchase, etc. RSUs given to one employee may vary in their purpose, further complicating how to classify the asset. Understanding why the RSUs were granted provides guidance in classifying whether they are separate or marital. 

Moreover, RSUs are either vested or unvested.  Vested RSUs are units that have met the conditions of ownership, while unvested RSUs continue to be subject to certain conditions and a timeline before the employee receives the compensation. It may be that the RSUs vesting is dependent on the market conditions and future company performance, not just the employee’s future employment and/or performance. Therefore, unvested RSUs can impact the valuing of these RSUs as well as the timing and method of distribution.

Finally, there is an interplay between distributing RSUs as part of the marital estate and utilizing RSUs as income for purposes of calculating support. RSUs may be included in the employee’s W-2 in combination with a base salary and/or bonus.  RSUs can also be the entire compensation package of an employee.  Therefore, when there is spousal support or child support to calculate, there is a risk of the RSUs being counted twice (i.e., as an asset and as income), which would yield an unfair benefit to one spouse, a concept referred to as double dipping.

When RSUs are involved in divorce, having an attorney and/or mediator who understands their inner workings is crucial for efficiency and reaching fully informed agreements. Our attorney-mediators at Berner Law and Mediation Group understand the complexity of these compensation packages, know what documentation to request and review, and are committed to ensuring that the classification, valuation, and distribution of these stock options align with a sensible and fully informed resolution.

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