Restricted Stock Units/Stock Options Employee Benefits which may be marital assets subject to Equitable Distribution in Divorce: An employer may provide Restricted Stock Units and Stock Options as a way to reward employees with a share in the success of the business.

Restricted Stock Units (RSU’s) are subject to a vesting schedule based upon employment time goals or performance goals. RSU’s always have some value unless the stock price falls to zero whereas stock options can lose all value as the options go underwater and the exercise price is higher than the stock price.

Usually with RSU’s you must remain employed by the company until vesting. If you leave, any unvested RSU’s are usually forfeited.

RSU’s are taxed when the shares vest. A common practice is for the employer to withhold some of the vested shares to cover withholding taxes. It is taxed like W-2 income. The stock price at vest becomes the cost basis if one chooses not to sell the share immediately. If they are held onto and cashed out later and there is gain, capital gains tax will be owed.

Financial Discovery: Unless the RSU’s vest, they will not show up on your spouse’s W-2’s or paystubs. Thus there can be RSU’s awarded during the marriage but not vested by the time of divorce, and unless they are voluntarily disclosed, it is advisable for a subpoena to go to the spouse’s employer for data on all employee benefits.

RSU’s and other stock forms of compensation can be valuable marital assets.

Ways to distribute RSU’s:

  1. Buy out at the current value;
  2. Defer division: The employee spouse keeps it in his/her name until the RSU’s are released.

Before any discussion can take place there needs to be a determination as to what part is marital.

  1. When was the RSU granted?
  2. What is the vesting schedule?
  3. What is the vesting criteria? Is it based on time or vesting over performance goals?
  4. Why was it granted? Is it for past performance or incentive for future performance? If it was granted for past performance, a spouse may receive RSU’s after separation as a bonus for work during the marriage. There would be a marital portion subject to equitable distribution. Usually an employee cannot transfer ownership of restricted shares to their spouse.

Calculating the marital portion of the RSU: If the employee leaves the company before vesting, the RSU has no value. If not, the RSU can be looked at as deferred compensation in which a percentage can be calculated as the marital interest.

Detailed analysis is performed to calculate the right numbers.  The courts in New Jersey are courts of equity. Usually the coverture portion (marital portion of the assets) are split 50/50. Sometimes the court changes the percentage due to equity.

Many people want a clean break at time of divorce and do not want to wait until after a marriage end date which may be the vest date. In that case, the fraction is applied to current value and this may either be bought out or traded off against other assets.

If the parties wait until a vest date after divorce, a trust is formed for the later payout. This is called a Callahan trust. The spouses “ride along” together until cashout.

It is vital to be aware of the RSU’s and Stock options and the technical nature of these assets, which are assets to be addressed in divorce.

Helfand & Associates has handled divorce matters for over 25 years. Tanya Helfand and her staff provide thorough representation and utilize experts recognized by the courts to provide valuations and analysis of marital assets. She fully investigates each matter and applies her own meticulous review of the evidence and valuations to ensure that assets divided in a divorce are fair and equitable.

Call Helfand & Associates, 575 Route 10 East, Whippany, NJ 07981 at 973-428-0800 for Tanya Helfand, Esq. - Certified Matrimonial Attorney – Leading Entrepreneurs - Top Business Woman in New Jersey.