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How Restricted Stock Units Are Treated in Divorce & Child Support

Restricted Stock Units in Divorce and Child Support

How Restricted Stock Units Are Treated in Divorce and Child Support

Providing restricted stock units (RSUs) to employees, in addition to salary and benefits, has become popular in recent years. This is popular in the San Francisco Bay Area among startup and high tech companies. Unlike stock options, which allow an employee to purchase shares of the company’s stock for a specific price on a certain date, employees do not need to buy their restricted stock units. Instead, restricted stock units are granted to employees, subject to a vesting schedule, which can be based on the recipient’s length of employment or on performance goals. The grant may be governed by other limits on transfers or sales that the company can impose.

Unlike stock options, RSUs always have some value, even when the stock price drops below the price on the grant date. An employee typically receives the shares after the vesting date, and the vesting date can be over several years. For example, an employee can be granted 4,000 RSUs with 1000 units vesting each year over four years. Once a portion vests, the employee can sell their vested shares at the current market price of the stock. They may also decide to hold on to their shares, particularly if they believe the price of the stock will rise in the future.

Restricted stock units and divorce

Similar to other types of executive compensation, it’s important to determine if the RSUs are separate or marital property. Without a prenuptial agreement stating otherwise, RSUs  awarded and vested during the marriage are considered marital property. They must be divided equitably in divorce. Stock units awarded before the date of the marriage or after the date of separation are considered separate property.

Restricted stock units and child or spousal support

In California, child support payments are based on each parent’s net disposable monthly income and the amount of time the child will be cared for by each parent. The court considers each parent’s income from all sources. Similarly, in determining the amount of spousal support to award, the court will assess, among other things, the lower income spouse’s needs and the other spouse’s ability to pay. When calculating income to determine the amount of child or spousal support a person will pay, the court may consider restricted stock units as a source of income once they are vested and mature.

RSUs are particularly complex for the courts in determining income sources for either child or spousal support. This is because is their value may fluctuate dramatically.  From the time they are awarded to their date of vestment, stock prices will rise or fall. Additionally, a large vestment may create a significant tax liability for the recipient.

The court typically awards support due from RSUs as a percentage of the stock price as it vests. This may be an amount such as 10% or 20% of the vesting amount. If the recipient desires to hold onto the stock rather than sell it, they will need to tap into other income to provide the court-awarded amount of support.

Contact us for Assistance

If you are getting a divorce and have high-value assets, please contact us for a consultation. We have worked with many individuals like you and can represent your interests in the most complex of financial situations.

Marissa Major and Hillary Warren of Warren Major LLC are Marin County family law attorneys, specializing in divorce, child custody and support, marital contracts and other family law issues. If you are looking for honest, expert legal advice, please contact our office for a consultation

Disclaimer: Warren Major LLP’s blog articles on its website for informational purposes only. The information contained herein may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Warren Major LLP or the individual author. This general information is not a substitute for legal advice on any subject matter. For advice pertaining to your specific case, please contact our office to schedule a consultation. No reader of this article should act or refrain from acting on the basis of any information included in, or accessible through, this article without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

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