Equity-based payment and awards can be beneficial for employees, but complicated when it comes to property division. These assets differ from traditional income or property, meaning that determining ownership and entitlement can be challenging. If you or your spouse has stock options or RSUs, it is important to understand how they can be divided during your divorce. Continue reading for more information and work with a knowledgeable Bergen County property division lawyer for skilled representation during your case.
What Are Stock Options?
Stock options give an employee the right to buy a certain number of company shares at a fixed price, called the grant or strike price, for a specific period. They often come with a vesting schedule, meaning the employee must work for the company for a set time or perform certain work before exercising the option to purchase the shares. The value of the option comes from the difference between the strike price and the stock’s market price when it is purchased.
What Are RSUs?
RSUs (restricted stock units) are a type of compensation that grants an employee company shares once a vesting schedule is met. While they are similar to stock options, there is no purchase price, and the employee does not have to buy anything. Instead, the shares are simply given to the employee once they vest. RSUs are valued based on the company’s stock price at the time they vest and are often taxed as normal income when the employee receives them.
Are Stock Options and RSUs Marital Property?
In a New Jersey divorce, stock options and RSUs are subject to equitable distribution if they are considered marital property. Generally, any portion of these assets earned or granted during the marriage up to the date the divorce complaint is filed can be considered a marital asset. This includes any that vested during the marriage, as well as the portion of unvested options or RSUs awarded for work during the marriage.
Any assets granted before the marriage, or the portion of awards earned or granted after the divorce complaint is filed, may be considered separate property of the employee spouse. The most important factors are the timing of when the asset was awarded and the work it represents.
Courts determine which part of these assets is marital based on the grant date, vesting period, whether it was designed to compensate past or future work, and how much of the vesting period occurred during the marriage, among other factors.
How Are Stock Options and RSUs Divided in an NJ Divorce?
When the court has decided which portion of the stock options and RSUs are marital property, there are a few ways to actually divide the assets. For vested shares, the simplest method is a cash buyout, where the employee spouse pays the non-employee spouse their share of the net value.
For unvested assets, courts often use deferred distribution. This means the non-employee spouse receives a percentage of the shares, or their value, after they vest, and only when the employee spouse exercises the option or the RSUs are released.
This process can be complex, especially depending on the employer’s policies and any tax implications. For more information, reach out to a skilled attorney today.
