RSUs: ABCs

  • • If you or your spouse receive stocks as part of your compensation package, you need to know the ins and outs of RSUs, restricted stock units.

    • In a divorce, vested RSUs are counted as assets.

    • RSUs can be divided in a divorce with a buyout.

    • RSU awards made during a marriage but not received before divorce may be considered marital or separate property, depending on how the court characterizes the award. 

Assets: Vested RSUs Are Considered Assets

Restricted stock units (RSUs) are non-cash compensation often given to employees in the tech industry.

They are considered fully vested or not vested.

Vested RSUs are those that a spouse receives during marriage because the spouse has fully met the conditions for receiving them, things like the length of time with the company or meeting performance goals. 

Unvested RSUs are stock units granted during a marriage but not yet received by a spouse at the time of the divorce because he or she hasn’t met the company’s conditions for awarding them.

A typical example is a spouse who works in the tech industry for a public company and receives RSUs upon employment under an offer letter. 

The offer letter states that the employee will receive a certain number of RSUs (say 10,000) over five years, and in each year of employment, the spouse will receive 20% of the RSUs or 2,000 shares. 

If you divorced after the first year your spouse worked at the company, they would have only received 2,000 shares. 

The value of this vested RSU is easy to determine if the spouse works for a public company. You can look up the public company's share price and then multiply it by the number of shares received.

So, in this example, if your spouse received 2,000 shares of stock and the share price was $50 when the divorce action commenced, those shares are worth $100,000.

Buying-Out RSUs

In equitable distribution states like New York, courts consider many factors when determining how to divide marital property, such as vested RSUs.

The court considers the length of the marriage, each spouse's income and earning potential, and each spouse's contribution to the marriage (both financially and non-financially) to determine how assets are supposed to be divided in the event of a divorce.

If spouses are open to settlement, it is generally possible for one spouse to buy out the other spouse's interest in the RSUs as part of a global settlement.

This can be done through a variety of methods, including: 

  • Cash Payment: One spouse would pay the other spouse a cash sum equal to the value of their interest in the RSUs.

  • Exchanging Property: The spouses can exchange other marital property of equal value for the restricted stock. They could exchange homes, cars, or personal items.

  • Crediting the Value: The value of the RSUs can be offset against other marital property, such as a retirement account or a shared bank account.

Characterization: How to Determine Whether Unvested RSUs are Marital or Separate Property

RSUs granted to a spouse during marriage but not yet delivered at the time of the divorce are usually considered unvested.

Conflicts may arise when the employee spouse, who may receive the unvested RSUs, wants to characterize the unvested RSUs as separate property because they regard the unvested units as payment for future performance, while the other spouse usually wants to include them in the marital pot because they see them income that’s already earned but deferred.  

Should the employee spouse receive 100% of these promised shares, or is this an asset that the parties should rightfully share in the divorce?

The answer depends on the specific circumstances of your case. 

Your takeaway:

Dividing RSU’s in a divorce may be complex, especially if unvested RSUs, whose value may rise or fall in the future, are outstanding. 

Consult with an attorney to ensure that your rights and interests are protected throughout the divorce process and to help negotiate a fair settlement of your RSUs during divorce negotiations and in litigation.