Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
Now, more than ever, you need to proceed with caution when it comes to valuation issues in divorce. Valuing restricted stock units in divorce is a delicate financial maneuver at the best of times, but amid current market uncertainty, it could require even more care and attention.
If you are getting a California Divorce, and you live and work in one of the cities in California’s tech heartland (whether it’s San Diego, San Jose or Berkeley), these considerations are likely to apply to you. Are you working for a bigger company or a smaller company? This could affect the value of your restricted stock units. With interest rates rising and other financial changes on the horizon, it’s difficult to know what’s ahead in 2023. One thing is for sure, if possible you should avoid conflict in your divorce. If you choose to mediate your divorce with West Coast Divorce Mediators, the process is geared towards optimizing your community property.
Dividing RSUs in Divorce: How Do I Get Started?
You can start by looking at whether the RSUs are marital property or not – or if they are, what portion of them are marital property.
If you are divorcing and have a spouse who has restricted stock units (RSUs), how do you know whether they are marital property or separate property? You will have to look at when the RSUs were granted and when they vested, which could be before, during or after the marriage. The other thing you have to consider is whether the RSUs were granted as a reward for past performance or an incentive for future performance. This could affect the property division because the RSUs could technically be awarded for future performance (or past performance) that takes place outside the marriage.
What Are Restricted Stock Units?
Restricted stock units are employee compensation in the form of company stocks that are similar to bonuses. They are called “restricted” because if you leave your job before you cash out, you lose the benefit. Sometimes they are awarded based on a fixed schedule after the employee has completed a certain duration of employment. Sometimes they are awarded based on performance. The “vesting schedule,” which is the period the employee has to wait to receive the units, is used as an incentive to keep highly valued employees and executives at a company.
RSUs are different from stock options in that they are tantamount to income (like an employee bonus) and are taxed as income when they vest, unlike stock options, which can be bought at a certain price and are then subject to tax when exercised and capital gains tax when sold. Unlike stock options, you don’t have to pay for RSUs, which means you don’t lose anything even if stocks lose value.
Are they Marital Property or Aren’t They?
RSUs can be defined as marital property because they are classified as earned income for tax purposes, and income earned during the marriage is part of the marital estate. However, the timing of when they are granted and when they vest could affect whether they are defined as marital property. There may be a portion of the RSUs that are part of the community property and a portion that is separate property.
As this is a complex calculation, you need a qualified divorce financial professional to help you define what portion of your RSUs are marital property.
Example 1: Your RSUs might have been granted before marriage but they vest during marriage. In this case the RSUs may be part marital property and part separate property.
Example 2: RSUs are awarded based on future performance which means at least part of the value of the RSUs are considered to be based on income which is earned outside the marriage.
Evaluating these situations could cause conflict in your divorce. This is why it makes sense to work with an experienced West Coast divorce mediator who will help navigate the complex decision-making involved in dividing RSUs
What About RSUs and the Financial Climate?
When you are splitting RSUs there’s a danger that someone might lose out. The stock prices could go up or down based on market fluctuations. One spouse might want to play it safe by accepting cash in a buyout from the employee spouse, but if the value of the stocks go up, the non-employee spouse could lose. On the other hand, the employee spouse might lose out if they hold on to low-performing RSUs, but give up on real estate or other marital property that holds value or increases in value. Fortunately there are smart ways to divide community property to reduce risk. Some people may find solutions like agreeing that the employee spouse holds on to the non-employee spouse’s portion of the RSUs for a period of time. You should work with a skilled West Coast Divorce Mediator who will thoroughly analyze the potential appreciation or depreciation of assets within the marital estate and help you come to a decision that offers the greatest opportunities for both of you.
Our Services And How We Can Help
We are experienced, highly skilled West Coast Divorce Mediators who work with high performing executives and highly valued employees who are employed in high tech and business fields. We use proven mathematical and financial tools to secure the value of community property and help divorcing spouses to make rational but compassionate decisions about their financial future.
We are certified financial professionals who thoroughly analyze the current and potential value of your marital property. We help couples avoid conflict, which is mathematically proven to diminish shared resources. As a full service divorce mediation firm, we can also help divorcing couples navigate the complex documentation burden of a high asset California divorce. Although we don’t do divorces within the adversarial system, we help to ensure that your divorce is legally compliant and that any divorce settlement or prenup is satisfactory to both parties and will stand up in court. We have offices in Silicon Valley, Berkeley, CA and San Diego, CA. We can mediate remotely or in person depending on your comfort level, convenience and your location. Please contact us to learn more about our divorce mediation services.
