Restricted Stock Units and Divorce

A Restricted Stock Unit (RSU) or Restricted Stock Award is a new form of stock-based compensation that has gained recent popularity and is becoming more and more common in divorce proceedings. Stock-based compensation is one form of compensation that allows employees to have ownership in the company for which they work. Often, young startup companies, having limited financial resources, may use stock-based compensation in addition to a salary or wage. An employee would be paid, in part, with shares of the company, allowing them to participate in the company’s growth.

One of the reasons for RSUs increase in use with equity compensation plans is a result of a law created by the Financial Accounting Standards Board (FASB). Revised in 2004, this law requires companies to expense their employee stock options.

Restricted Stock Units (RSU) and Restricted Stock Awards are two types of stock-based compensation issued through agreements. This article will discuss advantages and disadvantages and how to view ownership and division for negotiation purposes during the divorce process.

Restricted stock agreements basically are allocated in two different forms: a restricted stock award or a restricted stock unit award. In a restricted stock award, the employee receives, in their own personal account, the number of shares that are outlined in the restricted stock agreement. The employees own the stock.

A restricted stock unit (RSU) is a promise to deliver stock at a later date. The number of shares, per unit, is typically outlined in the restricted stock agreement. As an example, one unit may be equal to one, five or more shares of stock.

There comes a level of risk with a restricted share of stock, whether a restricted stock award or a restricted stock unit award. The risk is created when the restricted stock ownership is based on uncertain future events occurring, usually being either a length of time or performance related conditions of the company. A time based condition is referred to as a vesting period which forces the employee to work for a certain period of time at the company before the stock is vested. If the vesting period, for example, is a two year period, the employee would have to remain employed at the company from the time that the restricted stock awards or RSUs were granted until the two year period passes from the grant date. The units are essentially the right to stock ownership, in the future, that are not entirely transferable or owned until the vested time period has passed.

Performance related conditions are not based on the length of time that the restricted stock agreements have been held but are related to company factors such as customer satisfaction or revenue growth. This type of risk is greater as it is also related to the economic conditions of the country, especially if the country falls into an economic recession and can cause an even higher risk of forfeiture.

In general, restricted stock units and awards can be considered marital property if it as granted for services performed during the marriage. It is important to understand if the restricted stock was issued for work performed during the marriage or if it is granted for future services which do not occur during the marriage. Sometimes, the agreement will state that some have been issues for several different conditions, being past performance or work or services or time that must be completed in order for restricted stock to vest. In cases where this occurs, it is imperative to analyze which portion of the restricted stock is a marital asset and which is separate. This can be determined by analyzing what compensation relates to past services and future services. It cannot be assumed that restricted stock agreements that have been issued will automatically be received.

The recipient of the restricted stock agreement cannot sell the restricted stock until the awards/units are vested. However, the employee may be able to collect dividends or exercise voting rights on the awarded, yet unvested, awards/units. This situation often happens when a restricted stock agreement has been issued to a CEO or top level executive. The company executives are restricted from liquidating his or her interest in the unvested awards but can participate to a limited degree in stock owner’s rights.

After the restricted stock awards have been determined to be marital or separate property, it is important to understand how the awards, deemed marital property will be divided, being to the employee, the employee’s spouse or divided between the two.

Often, most agreements do not allow the employee’s spouse to take receipt or ownership of restricted shares. Constructive stock trust documents have been successfully written, to potentially appoint the employee of the restricted stock units/awards to act as a fiduciary until the stock vests. Once the shares vest, they can be divided between each spouse, pursuant to the court’s orders or according to the property settlement agreement.

In conclusion, restricted stock units and awards are becoming more and more common in divorce cases. It is imperative that each spouse has a thorough understanding of the issues surrounding each agreement awarded in order to provide adequate division of the assets in divorce.


Darlys S. Harmon-Vaught, divorce financial strategist, is president and owner of Financial Solutions for Divorce. She focuses her practice on guiding divorcing individuals and couples through the complex financial issues in mediated, litigated, or collaborative divorce, especially in multi-million dollar cases.