There are instances in which an employee of a large company may receive compensation in ways beyond their regular salary. Sometimes, a compensation package may include restricted stock units (RSUs) as additional compensation. When an employee who has RSUs is going through a divorce, they may wonder whether or not they are subject to equitable distribution. Continue reading below to learn more and contact an experienced New Jersey divorce attorney for assistance with your case.
Understanding Restricted Stock Units and Divorce in New Jersey
The division of financial assets during a Morris County divorce can be overwhelming, especially when compensation extends beyond a traditional hourly income or annual salary. Many employees in New Jersey, including Morris County, Essex County, and Bergen County, receive compensation packages that include assets like restricted stock units (RSUs), stock options, deferred compensation packages, and other equity-based benefits.
Because these assets may vest over time and fluctuate in value, determining whether or not they are considered marital property often requires a comprehensive legal and financial review.
Are RSUs Subject to Equitable Distribution in New Jersey?
- RSUs may be subject to the equitable distribution standard in New Jersey
- Courts consider:
- When the RSUs were granted
- If they vested during the marriage
- Whether they were awarded for past or future employment
- When the divorce is filed
- Some RSUs may be deemed marital property
- Other RSUs may remain separate property if primarily dependent on future employment performance
- New Jersey courts analyze these on a case-by-case basis
How Are RSUs Divided in a New Jersey Divorce?
In recent years, the New Jersey Appellate Division determined how assets such as RSUs should be evaluated in a divorce. The case addressed the matter of whether stock options granted to a spouse during their marriage, but not exercisable until after their divorce, are subject to equitable distribution.
In many New Jersey divorce cases, including those in Morris, Essex, and Bergen Counties involving executive compensation, courts must distinguish between marital and separate portions of RSUs based on the purpose of the award. Because some equity awards are intended to reward future work, while others serve to compensate prior performance during the marriage, understanding the classification of these assets can impact negotiations.
The court ruled that a “future performance” of an RSU is not considered marital property. This means it would not be subject to equitable distribution, due to the fact that most of the award would not be fully vested until after the divorce was filed and the marriage was over.
However, the Appellate court did establish several situations in which RSUs and stock awards may be divided.
Situations Where RSUs May Be Subject to Equitable Distribution
- The stock award was granted during the marriage and vested prior to when the divorce complaint was filed
- The award was granted during the marriage for work performed during the marriage, even if the award vested at a later point
- The RSUs were awarded during the marriage and partially tied to past employment
- The employer intended for the award to compensate for prior performance rather than solely for future work
- A portion of the vesting schedule happened during the marriage
Factors Courts Consider When Dividing RSUs
- When the RSUs were granted
- Vesting schedule
- The date the divorce complaint was filed
- What the purpose of the compensation award was
- If the award compensated past or future performance
- The language in the employer’s stock plan
- Testimony about the structure of compensation
- If marital efforts contributed to the award
What Are Stock Options and How Are They Different From RSUs?
RSUs and stock options, though both forms of equity compensation, operate differently and as such, may be treated differently during a divorce.
Stock options typically allow an employee to purchase company shares at a fixed price in the future once vesting requirements are met. RSUs, on the other hand, are typically promises to provide shares or cash once vesting conditions are satisfied.
Because assets can fluctuate in value and vest over time, courts must consider the timing and intent of the award.
Important Differences Between Stock Options and RSUs
- Stock options typically require the employee to purchase shares
- RSUs are generally granted automatically once vested
- RSUs typically have no strike price
- Vesting schedules can span years
- Equity may be dependent on:
- Retention incentives
- Executive compensation
- Future employment
- Past performance bonuses
How Can I Protect My RSUs?
Individuals with stock options who are facing these situations should protect their assets. That is why it is beneficial to hire a skilled divorce attorney who can help to prepare them for the proceedings, as they can help gather documentation and evidence to prove the purpose and classification of the asset.
Documentation Often Used in RSU Divorce Cases
- Testimony of you and your employer
- A copy of your stock plan
- Correspondence and additional documentation related to the stock award
- Vesting schedule
- Stock plan statements
- Equity grant notices
- Bonus and compensation records
Steps Employees Should Take When Their RSUs are Involved in Divorce
- Preserve all compensation records
- Avoid unusual or excessive transfers without first discussing with an attorney
- Obtain updated valuations
- Review employer restrictions on transferability
Contact Our New Jersey Family Law Firm Today
When you are going through a divorce in which complex assets are at risk, it’s imperative to work with an experienced Morris County family law firm. If you need an experienced legal team to guide you through your divorce, contact Townsend, Tomaio, Newmark & Clancy L.L.C today.
