Some aspects of marital property division in a divorce are simple, but some are a lot more complex. Now that many companies are offering alternatives to stock options, like Restricted Stock Units, you may want to know how that works in a divorce.
What Are RSUs?
RSUs are Restricted Stock Units. They have become a popular retention tool for big companies since similar stock systems have fallen out of favor after ENRON and other scandals that hurt longtime employees when stocks plummeted.
RSUs aim to provide stability and incentivize the employee to remain with the company long enough for the shares to “vest”. It is a win/win, but they can also add a layer of complexity to divorce divisions because they don’t reach their full vested value for years. To “vest” in this case means to be fully earned. So each year that passes, the employee owns more and more of the RSU until they are fully vested where they have earned 100% ownership and it cannot be taken back by the company.
RSUs are basically a promise to issue shares of the employer’s stock when specific time conditions have been met.
RSUs and Divorcing Couples
Here are some important points about RSUs that are relevant to divorcing couples
- RSUs are not like stocks in that they retain some value even if share prices for the company drop. The only exception is if the stock price goes to zero.
- RSUs are dependent on the company’s stock value and so the precise future value can be hard to determine before vesting.
- RSUs generally require you to remain with the company until they vest. They would, in almost all cases, be forfeited if you left before that.
As part of the financial disclosure process, employees need to disclose any RSU grants. That is where the simple part of this ends. From there we need to determine if it is community property to be divided. That question depends on your state of residence, when these RSUs were granted, and in some cases, how long you have been married.
How Are RSUs Divided in Divorce?
RSUs are typically divided in one of two ways.
The first option is that the employee partner can keep the RSU grants and “buy out” the other partner’s share using the current valuation.
The other option is known as deferred division. With this version the relevant partner holds the unvested RSUs until they are released and they both receive their share at that time.
So, as either the employee spouse or the partner, how do you know whether to do a buyout or deferred division. Will the current value stay the same, drop, or increase? What if you agree to a buyout, but then the company’s value skyrockets? What is the risk if the value plummets? What is the risk if the employee spouse leaves the job unexpectedly and without informing the other partner?
These are all items that can be discussed in mediation where additional resources, such as financial experts, can weigh in on workable options.
Still Have Questions About Your RSUs?
A good mediator can not only help you with all of the complexities of dividing assets, but can help smooth the way for a better future for both partners by working towards consensus and with care and concern for both partners. Mediation is a far better solution for most divorcing couples and we would love to be of service to you. No matter where you live or what your current financial circumstances, please reach out to see if our affordable mediation services are a good fit for you. You can see our site at https://affordablemediationaz.com/ or call us at 602.622.2008