Property division is often one of the most contentious points of any divorce. In Silicon Valley divorces, restricted stock units (RSUs) are frequently involved. RSUs are a common way for tech companies in the area to retain and incentivize employees to have a highly vested interest in the company’s success. What happens to these restricted stock units in a divorce, though? How does the court treat these, and how can you protect your interests?
We’re glad you asked! Here’s what you need to know about these essential retention tools in divorce.
Restricted Stock Units in a Divorce: Are They Community Property?
Most people’s first question about RSUs is perhaps the most obvious one: Are they community property?
The short answer is that it depends on when the spouse received the RSUs.
RSUs granted before the marriage or after the date of separation are typically separate property. RSUs granted during the marriage that have vested during the marriage are almost always community property.
However, the trickier case is for RSUs granted during the marriage but vest after separation. Any part vesting during the marriage is community property. The portion that vests after separation may be considered separate. Courts can use different rules and formulas to determine which part of these RSUs to count as community property. Experienced divorce attorneys know how to protect your interests and argue for the inclusion or exclusion of these RSUs, depending on what is better for you.
How Do Courts Divide RSUs?
There are typically three ways that courts can divide RSUs.
If the RSUs have already vested, the court can order the vested shares sold to split the proceeds 50-50. This path is perhaps the most uncomplicated and most straightforward distribution option.
For RSUs that have not vested, one spouse may retain the RSUs, and the court can balance their value with other assets. So, if one spouse has RSUs worth $500,000, the court may take the other spouse’s $250,000 stake from another asset.
Lastly, as with most things in the divorce process, the attorneys could reach a mutually agreeable plan for the division of the RSUs. That may include splitting them somehow or agreeing to a formula for future support paid upon RSU vesting.
Determining Correct Valuation Is Essential
The granted RSUs may have a vague value for some companies, like startups. If you work for Google, for example, your shares have an evident valuation as the court can look up the price of Alphabet stock. However, if you work for a startup, those shares may not have any intrinsic value now but may be worth a significant sum later.
In this case, the same rules apply as above, but the court and attorneys will typically try to work off the potential value of the RSUs. Sometimes, the spouse will keep the RSUs and pay an amount in the future “if and when” they are worth something. In other cases, the parties can negotiate a settlement based on the company’s performance and expected value in the future. RSUs in a company in the early funding stages would have a lower expected value than a company just about to enter IPO.
Restricted Stock Units in a Divorce: Consult a California Divorce Attorney
Ultimately, RSUs often account for a significant portion of compensation at many tech companies in the area. Getting their valuation correct is essential to protecting your interests in the final settlement.
If you or your spouse have RSUs, please call our offices at (408) 560-4487 or complete our secure online form to schedule your case evaluation. We’d love to hear from you and protect your interests in the divorce process.
