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 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, if the stock units were awarded and vested during the marriage, they are considered marital property and must be divided equitably in divorce. If the stock units were awarded before the date of the marriage or after the date of separation, they 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.
What makes RSUs particularly complex for the courts in determining income sources for either child or spousal support is that their value may fluctuate dramatically from the time they are awarded to their date of vestment, since the price of the stock can rise or fall. Additionally, a large vestment may create a significant tax liability for the recipient.
The court typically awards the amount of support to be paid from RSU’s based on a percentage of the price of the stock as it vests, 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 me for assistance
If you are getting a divorce and have high-value assets, such as a wine collection, please contact my office for a consultation. As a San Francisco Bay Area family law attorney who also holds a Master of Laws in Taxation, I have worked with many individuals like you and can represent your interests in the most complex of financial situations.
Attorney Christina Sherman is a Marin County CA family law attorney and Certified Family Law Specialist, specializing in divorce, child custody and support, marital contracts and other family law issues.
Disclaimer: Law Office of Christina Sherman publishes articles about family law cases 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 Law Office of Christina Sherman 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. Using this information or sending electronic mail to Law Office of Christina Sherman or its attorneys does not create an attorney-client relationship. Any statements pertaining to past results do not guarantee future results.