We are in the thick of bonus season, and equity awards including restricted stock units (RSUs) are being awarded as part of compensation packages for employees of all levels.
During the COVID-19 pandemic, some corporations have had less cash to reward their key employees and therefore, chose to award restricted stock units (RSUs).
RSUs will likely continue to be a common form of executive compensation. C-suite employees are not the only ones who receive these types of compensation packages. More and more, entry-level hires are also receiving equity award compensation packages, which means they are an asset to be valued and equitably divided in a divorce.
If you are considering a divorce, are the earning spouse and want to keep future earnings on your side of the ledger, the sooner that you file for divorce the better. Even unvested stock can be considered marital property if it was awarded for past performance, such as a sign-on bonus.
If the unvested stock is instead being given to you as a part of an incentive package like golden handcuffs, then a portion of that unvested stock may still constitute marital property. How much of that unvested stock is marital? That requires a close reading of the plan documents, the summary plan description, the award letters and other documents including the employment offer letter or contract.
It also may require an analysis utilizing a formula known as the DeJesus Formula. The DeJesus Formula is a fractional formula in which the time from the grant of the stock plans until the commencement of the divorce is the numerator and the time from the grant until the interest in the stock vests is the denominator.
If you are not the earning spouse, and your spouse just asked you for a divorce and recently received a bonus, it is very important to understand this form of executive compensation: Stock options, restricted stock, and other forms of executive compensation are among the easiest assets to hide or overlook. Many clients who are not in charge of household finances might not realize that their spouse has these potentially high-income benefits.
There are many issues to consider about these complex financial instruments:
- Are they vested?
- How will they be valued?
- How will they be divided?
- What are the tax implications?
- For support purposes, will they be considered an asset, income, or both?
- Will a company transfer stock to a non-employee spouse?