What Happens to Stock Units and RSUs in a California Divorce?

Restricted stock units are an increasingly common part of high-level professionals’ compensation packages. They’re often given in technology, finance, and similar industries. However, while they can significantly boost an individual’s income, they can also create substantial complications when a couple decides to divorce. That’s why it’s important to discuss your specific assets and property with a California property division attorney.

At the Law Office of Taylor B. Warner, APLC, we understand how your property is divided during divorce lays the groundwork for what your post-divorce life looks like. Attorney Taylor Warner has built her career exclusively in family law, helping individuals like you navigate divorce, custody battles, and other complex issues. As California Bar Certified Family Law Specialist, she advocates for clients from a wide range of backgrounds and needs. Learn more about the services offered at our property division law firm by calling us at 909-466-5575.

Are RSUs Community Property in California?

California is a community property state, and generally, income and property earned during the course of the marriage prior to separation belong to the community. Income and property earned before marriage or after separation is usually considered separate.

Since RSUs are a form of employee compensation, the same basic principles apply. When RSUs are earned and vested during the marriage, characterizing and dividing them may be fairly simple.

However, it gets more complicated when an award spans different time periods. An individual may earn RSUs while married, then separate from their spouse. Part of the RSUs may still be vesting for several additional years. In these situations, it’s particularly important to have a property division lawyer analyzing the details.

What Happens to RSUs That Haven’t Vested Yet

Unvested RSUs aren’t automatically excluded from the marital estate. While it is more complicated when RSUs haven’t vested, the fact that the employee has not yet received the shares doesn’t lead to an automatic characterization.

California courts looking at similar types of equity compensation have recognized that contingent employee benefits may contain some community property, even when they are not exercisable until after separation. Consider In re Marriage of Hug, a landmark case in which the court divided employee stock options that did not become exercisable until after separation. Trial judges were given broad authority to use a time-based apportionment formula.

One issue that comes up in this discussion is why the employer awarded the RSUs. Awards may be given for past performance, to encourage retention, reward ongoing services, or a variety of reasons.

How California Courts Divide Stock Compensation Earned Before and After Separation

As established In re Marriage of Hug and In re Marriage of Nelson, time-based formulas can determine what percentage of an equity award belongs to the community. In Hug, the court allowed a formula measuring service from the beginning of employment through separation and the period afterward. In Nelson, a different calculation method was used. Because the court intentionally stressed that there’s no one formula that applies to every case, the input of your property division attorney will be essential.

How RSUs Are Divided in a Divorce

After determining how much of an award is community property, your property division lawyer and your spouse’s lawyer may move on to negotiating how the asset is divided. It’s somewhat common for the full RSUs to be given to the employee spouse, with the value of the non-employee’s share being given to them in other assets.

A couple may also divide the proceeds as the RSUs vest. This is often necessary when unvested awards cannot be divided per the terms of the employer’s compensation plan.

Calculating What RSUs Are Worth

A final challenge comes in the form of RSU valuation. Vested shares in a publicly traded company have easily identifiable market value, but unvested RSUs are significantly less predictable, since the company’s stock value could change dramatically before the vesting date.

Continued employment may also be required; if the employee spouse leaves the company prior to vesting, some or all of the award may be forfeited. Your attorney can explore options based on the terms of the employee spouse’s compensation and other factors in the divorce.

Schedule a Consultation With Our California Property Division Law Firm Now

The team at the Law Office of Taylor B. Warner, APLC is here to help you discuss your concerns regarding your divorce and develop a plan that prioritizes your best interests. Schedule a time to meet by calling us at 909-466-5575 or contacting us online.

Taylor Warner

Taylor has always been an advocate. Growing up the middle child with an older and a younger brother, Taylor developed a strong voice and personality and has always felt strongly about helping others. Becoming a lawyer seemed to fit Taylor’s personality and character – she is a strong leader and a bold advocate. Learn more here.