If you or your spouse benefit from restricted stock units (RSUs), you may be wondering how they may be handled by the courts in the event of a litigated divorce. Like every other asset, the courts will first seek to determine whether the RSUs are separate assets or marital assets.
There are several ways the court may determine whether restricted stock units (RSUs) are separate assets or marital assets in the context of a divorce, including the following.
Date of grant vs. date of vesting
The court will consider the date the RSUs were granted and the date they vested. If the RSUs were granted and vested before the marriage, they may be considered separate property. Where they were granted during the marriage but vested after the marriage, the courts may assign part of the RSUs as marital property. Similarly, RSUs granted before the marriage and vested during the marriage may have a portion classified as marital property and another portion classified as separate property.
Purpose of granting the RSUs
Another factor the court may consider is the reason for granting the RSUs. Whether the RSUs were granted as compensation for work performed during the marriage or as part of a long-term incentive plan with benefits extending beyond the marital period can influence their classification as separate or marital property.
RSUs granted as performance incentives for work completed during the marriage are more likely to be deemed marital assets subject to division, whereas RSUs granted for future performance or as part of a long-term employment agreement may have a stronger argument for being classified as separate property. The court may examine any agreements or documentation related to the RSUs to determine the intended purpose and treatment of these assets in the event of divorce.
Once the classification phase of the process is complete, there are several ways restricted stock units can be divided in a divorce. The following are the most common.
Spouse buyout
This is a straightforward approach where one spouse buys out the other spouse’s share of the RSUs. The buying spouse may offer cash, other assets of equivalent value or a larger portion of other marital assets in exchange for the RSUs. This method allows for a clean division of the RSUs without the need for further involvement or ongoing ties between the ex-spouses.
Constructive trust
This is an arrangement where the employee spouse holds the RSUs on behalf of both spouses until certain conditions are met, such as the RSUs vesting or reaching a specified value. In this scenario, the RSUs are not immediately divided or transferred to either spouse but are instead held in a trust-like manner with both spouses retaining an interest.
Since tax implications for RSUs can be complicated, it is advisable to seek legal and professional guidance to help ensure that any division or transfer of RSUs in a divorce is conducted in a manner that complies with relevant tax laws and regulations. At The Law Firm of Poppe & Associates, PLLC, our focus is relentless advocacy for our clients. If you or someone you know is considering divorce, reach out to schedule a consultation at 646-665-3903 or by contacting us online.
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Mia Poppe, Esq.
Managing Partner