An Advocate In Family Law Cases

Addressing restricted stock during a divorce

On Behalf of | Oct 5, 2024 | Property Division

Dividing marital property generally becomes more difficult as a couple’s marital estate becomes more valuable. People who have grown accustomed to a comfortable standard of living may resent the need to divide their resources.

It is easy to overlook certain marital property when the marital state is relatively complex. Under community property statutes, both spouses typically have an interest in the income that either earned during the marriage and in any assets accrued during the marriage. That may include resources that aren’t yet fully accessible. If either spouse has a complex compensation package, the marital estate might include restricted stock units. Addressing that stock can be a major hurdle during divorce negotiations.

What do spouses need to consider when discussing restricted stock units during property division matters?

How much is separate and how much is marital

One of the first issues to address when dividing restricted stock units is whether that stock is separate property or marital property. Frequently, employers include specific terms in contracts that grant employees a right to restricted stock units.

How much they accrue often depends either on how long they remain in their position or their performance on the job. Frequently, divorce may occur partway through a contractual agreement, meaning that only a portion of the restricted stock units are part of the marital estate. Determining how much is marital and how much is separate is crucial during property division negotiations.

The likely value of the restricted stock units

Restricted stock units are not the same as traditional stock acquired on the open market. In some cases, companies may include stock options in their compensation packages before having their IPOs. It can be very difficult to value stock that is not yet publicly available.

Additionally, restricted stock units are typically not eligible for immediate liquidation. Not only do employees have to follow specific protocols when they want to sell their restricted stock, but they may have to wait a certain amount of time before they can even do so.

The value of the stock could change substantially during that time. Spouses often have to set a specific valuation date or perform research to validate their claim of what the stock might be worth. Complex compensation packages can make it difficult for people to navigate property division matters.

Reviewing personal holdings and employment contracts with a skilled legal team can help those preparing for property division discussions. Those who identify valuable income and assets can more effectively protect their interest in their marital estate during divorce.