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If you have a question not answered, please email amanda gordonfamilylaw. If you live in Silicon Valley, you are probably familiar with the acronym RSU. RSUs or Restricted Stock Units have become an increasingly popular form of equity compensation.

An RSU is a promise by a company to an employee regarding the right to own company stock in the future. No stock is issued to the employee with a RSU grant - instead, the stock is released to the employee after certain conditions have been met.

However, unlike a stock option, once vested, an RSU has a monetary value without the employee exercising the option.

These days, a typical tech employee receives a large RSU grant when they join a company and may be given refresher grants periodically based on performance and company growth. RSUs usually have a 4-year vesting schedule with a one-year cliff and after the first year of employment, RSUs vest quarterly.

RSUs are taxed under federal income tax rules based on the market value of the RSU when the shares are delivered to the employee — almost always at vesting. To ensure that employees pay the required income tax, some companies take the taxes out for the employees by taking back a portion of the RSU grant.

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If an employee chooses to hold on to the shares and later sell those shares on the market for a higher price, then they pay capital gains tax on any appreciation over the market price of the shares on the vesting date.

The division of RSUs as community and separate property in California is a complex topic for both family law attorneys and divorcing couples. Part of the confusion is that as of September , no California court has defined a specific formula for division of RSUs at divorce.

RSUs granted and vested during marriage If RSUs are granted during marriage and vest during marriage, then division is straightforward. There are really two options: A complicating factor can be the capital gains taxes that are incurred as a result of the sale.

Divorce and Restricted Stock Units in California — Gordon Family Law

RSUs granted but vested after marriage If RSUs are granted during the marriage and vest after the marriage ends, the division becomes more complicated. First, vesting is contingent on the employee spouse staying with the company for several years.

If the employee leaves or is terminated, those RSU grants have no value. Parties can consider RSUs fully earned marital property based on the date the RSU was granted. The downside of this approach is that RSUs are hard to value until vested and the RSU owner cannot sell the RSU until it vests. Also, my experience is that the parties who divorce are not super keen on staying in touch and relying on each other for many of future transactions.

Hug and Nelson are California Appellate Cases that explored the division of stock options in divorce.

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Under Hug , you calculate the shares owed to the non-employee spouse by thinking of an RSU as deferred compensation. You then multiply the community interest by the total number of shares that harvested and divide that number in two.

The Nelson Rule looks at stock as primarily future incentives for performance. You then multiply the community interest by the total number of shares that have vested and divide that number in two. If the spouse who is awarded the RSUs wants to keep these RSUs to herself, she will argue that the grant is merely a refresher grant meant to continue compensation at the current level and is compensation for future work.

A non-employee spouse who wants the RSU grant because they believe the grant was only awarded due to the employees performance during the marriage will need to argue that the company has a policy of providing bonuses in the form of RSUs and that the grant was specifically awarded for past work.

Next, they will need to calculate what percentage of the grant is community.

However, popularity does not make the government any faster in providing clear guidance. Gordon Family law provides family law services to the San Francisco Bay Area. Gordon Family Law will be in touch within 24 hours.

Here are some resources to get started:. What can I include in my Premarital Agreement? Either formula can work to divide RSUs- the choice of the formula is typically the parties. Child Custody Primer What are ATROs? Divorce Process 34 Child Support 28 Tax Issues 27 Property Division 23 Custody 20 Spousal Support 19 Premarital Agreements 11 Divorce Mediation 9 Financial Disclosures 9 Contempt 8 Retirement 6 Domestic Violence 3 Estate Planning 3 Annulment 2 Name Change 2 Attorney Fees 1 Ex Parte 1.

How can we help? All information shared is secure and confidential. However, submitting this form does not create an attorney client relationship. Here are some resources to get started: Divorce Process Child Support Tax Issues Property Division Custody Spousal Support Premarital Agreements Divorce Mediation Financial Disclosures Contempt Retirement Domestic Violence Estate Planning Annulment Name Change Attorney Fees Ex Parte.