Equitable Distribution of Stock Options & RSU's

Dividing marital assets during a divorce can be a complex process, particularly when it comes to specialized assets like Restricted Stock Units (RSUs).

These are often a significant part of the compensation package for high-earning individuals, especially in industries like tech and finance.

Understanding how RSUs are handled in a New Jersey divorce is essential for ensuring a fair and equitable division of assets.

What Are RSUs?

Restricted Stock Units (RSUs) are a form of compensation granted to employees, typically as part of a bonus or incentive plan.

Unlike traditional stock options, RSUs are awarded but not fully owned until they vest.

Vesting is often contingent on certain conditions, such as remaining with the company for a specific period or meeting performance goals.

Once vested, RSUs become part of the employee’s taxable income and are typically converted into company stock or cash.

Are RSUs Considered Marital Property in New Jersey?

In New Jersey, marital property includes assets acquired during the marriage, regardless of whose name is on the asset.

This means RSUs granted or vested during the marriage are generally considered marital property and subject to equitable distribution.

However, determining whether RSUs are marital property can depend on several factors, including:

1. Grant Date vs. Vesting Date: If the RSUs were granted during the marriage but vest after the divorce, they may still be considered marital property, particularly if they were awarded for work performed during the marriage.

2. Purpose of the Grant: Courts may analyze whether the RSUs were granted for past performance during the marriage or as an incentive for future work. RSUs granted as compensation for future services after the divorce are typically considered separate property.

3. Vesting Schedule: The timing of when the RSUs vest is critical. Only the portion of RSUs attributable to the marriage is subject to division.

   
   

How Are RSUs Valued and Divided?

Valuing RSUs can be complicated due to their contingent nature. Here’s how the process typically works:

1. Determining the Marital Portion: The court may apply a formula, such as the "time rule" or "coverture fraction," to calculate the portion of RSUs earned during the marriage. This formula considers the grant date, vesting schedule, and length of the marriage.

2. Valuation: The value of RSUs is usually based on the stock’s price at the time of vesting or a mutually agreed-upon date.

3. Tax Considerations: Since RSUs are taxable when they vest, the tax implications must be accounted for when dividing them. The court may award the non-employee spouse a percentage of the net value after taxes.

Options for Dividing RSUs

Courts or divorcing spouses can use several methods to divide RSUs:

1. In-Kind Distribution: Once the RSUs vest, the employee spouse can transfer the non-employee spouse’s share directly.

2. Deferred Distribution: The non-employee spouse receives their portion after the RSUs vest and the taxes are deducted.

3. Buyout: The employee spouse retains the RSUs and compensates the non-employee spouse with an equivalent value in cash or other marital assets.

Working with a Family Law Attorney

Given the complexities of dividing RSUs, working with an experienced New Jersey divorce attorney is critical. A knowledgeable attorney can help:

• Identify and classify RSUs as marital or separate property.

• Ensure an accurate valuation and equitable division.

• Navigate tax implications to protect your financial interests.

Conclusion

RSUs can significantly impact the financial outcome of a divorce, making it essential to address them carefully.

Whether you’re the spouse holding the RSUs or the one entitled to a share, understanding your rights and working with professionals can ensure a fair resolution.

HERE'S A LOT MORE FREE NJ DIVORCE HELP

Until next time,