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The Whens and Hows of Dividing Stocks After a Divorce

Joseph Camenzind, IV

Sept. 13, 2019

There’s nothing simple about divorce in California. When you legally break things off with your former spouse, you may be shocked to find so many matters to consider.

The big-ticket items like support, division of the marital home and custody get the most attention - and for very good reason. Yet, for many ex couples, one of the most surprising and complicated aspects of their divorce is the division of stocks. This is especially so in Silicon Valley were equity compensation is standard.

Though we certainly can’t cover everything you need to know here, we’ll break down the basics of such a division for Stock Options and Restricted Stock Units (RSUs) to give you a general overview of how this matter plays out in divorce.

Armed with this information, we hope you’ll be better able to understand the recommendations of your family law attorney.

When and How Do You Divide Stock Options During a Divorce?

Stock options give an employee the right to buy company stock at a set price, at a future date. The idea is that this set price will be considerably lower than the future trading price, so that the employee can then sell their stock at great profit.

With so many employers offering stock options, many of those in the throes of divorce are forced to consider when and how to divide them. Do these employee benefits belong to you alone or must they be divided between you and your ex?

Unfortunately, there’s no simple answer to this question. Sometimes these benefits are exclusively yours and sometimes they’re not. The key, however, is to consider when they were granted and when they vest.

  • If You Earned Your Stock Options Prior to Separation: As California is a community property state, when stock options are earned during a marriage, they generally are considered to be the property of both you and your ex.

  • If You Earned Your Stock Options Before Your Marriage or After Separation: If stock options are fully vested outside of marriage, i.e. prior to marriage or after separation, they are considered your separate property.

  • If Stock Options are Granted During Marriage, but Vest After Separation: This scenario complicates the issues considerably. Court’s will generally use the “time rule” to apportion the interest of the stock options based on when it was earned. Under this scenario a portion of the stock options will be deemed your separate property and a portion will be deemed community property to be divided equally between you and your ex.

Still confused? Not to worry. The division of stock options in a divorce is a complicated matter that depends on your specific circumstances. An experienced family law attorney will carefully assess your case in depth and determine what is best in your given situation.

What Happens to Your RSUs in a Divorce?

RSUs refers to company shares that are granted at no cost to employees, but that are not transferable until certain conditions are met.

If you work for a tech company here in California, you likely possess the form of equity compensation known as RSUs. As with stock options, division of these investments is far from straightforward, yet we’ll do our best to give you a general idea of what happens to them post-divorce.

  • If You Earned Your RSUs During Your Marriage: Should you have earned your RSUs during your marriage, they belong to both you and your ex-spouse. Unless you have a prenuptial agreement (a.k.a. a prenup), they will likely be divided between the two of you.

  • If You Earned Your RSUs Before Marriage or They Will Vest in the Future: Like with Stock Options, RSUs that are earned, i.e. granted and vested prior to marriage or after separation are considered your separate property. RSUs that are granted during marriage but vest after separation, will need to be apportioned per the time rule. Unfortunately, there’s no easy answer we can provide here without knowing the details of your particular situation. This area of California law is quite complex and the best response for you will depend on your specific circumstances. Therefore, we highly recommend going over your RSUs in detail with your attorney.

Stock Options and RSUs as Income for Support.

Stock Options and RSUs are considered income. If Stock Options or RSUs are your separate property, the Court can consider them as income for purposes of calculating spousal and child support. In most cases, Stock Options or RSUs that are community property will just be divided equally between the parties, and Stock Options and RSUs that are considered separate property will be looked at by the Court when calculating support.

Dividing stock after a divorce requires the assistance of a qualified and knowledgeable family law team. At the Law Office of Joseph Camenzind, IV, we specialize in handling these matters with the experience and great care. Family law matters such as dividing stocks after a divorce are simply our expertise. Contact us today at (408) 882-9758 for a consultation. We are on your side.