If you are going through a divorce and part of your compensation comes from stock options or restricted stock units (RSUs), those assets may become a major focus of property division discussions. For many Silicon Valley executives, founders and technology professionals, equity compensation can represent a substantial portion of personal wealth.
Unlike a brokerage account or real estate, unvested stock options and RSUs do not have a fixed current value. Their value may depend on future employment, company performance, vesting schedules or other conditions. Those uncertainties can make both classification and valuation more complicated during a divorce.
Why unvested equity can be difficult to divide
If your compensation includes stock options or RSUs, the court will need to determine whether those assets belong to the marital estate, separate property or a combination of both.
That analysis can become complicated because equity awards may relate to work performed over an extended period rather than a single point in time. When analyzing unvested equity, courts may consider:
- The date the employer granted the award
- The structure of the vesting schedule
- The employee spouse’s work performed during the marriage
- The purpose of the award, including whether it rewards past service or future employment
- The date of separation
- The language in documents describing the reason for the award
The answers to these questions help courts determine which portion of an award relates to the marriage and which portion may remain separate property.
How courts analyze stock options and RSUs
Courts recognize that employers grant equity compensation for different reasons. A company may use stock options or RSUs to reward past performance, encourage employee retention or accomplish both goals at the same time.
Because the purpose of an award matters, courts may apply different formulas to allocate the community and separate property interests. The facts surrounding each grant, including its timing and purpose, can affect the outcome. If a large share of your wealth comes from equity compensation, these calculations may influence the overall division of marital property.
Valuation issues that can affect high-asset divorces
Even after determining ownership, questions about value may remain. If your awards have not yet vested or if the company is privately held, assigning a value to those assets may require additional analysis. When valuing stock options and RSUs, parties may evaluate:
- Future growth prospects for the company
- Performance conditions tied to vesting
- Current and projected market conditions
- Restrictions on selling or transferring shares
- Tax consequences associated with vesting or sale
For startup founders and senior technology employees, future appreciation may account for a large share of an award’s eventual value.
Planning for future vesting events
Stock options and RSUs may continue to vest months or years after a divorce becomes final. That timing can complicate property division because the value of the award may change long after the marriage ends.
If your compensation package includes unvested equity, future vesting events may remain part of the overall property division analysis. The structure of the award, the employer’s compensation plan and the timing of vesting can all affect how these assets factor into the marital estate.