In a New York divorce, stock options and Restricted Stock Units (RSUs) are considered marital property if they were granted for work performed during the marriage. Courts often rely on the DeJesus formula to determine the marital portion of unvested awards, ensuring an equitable division based on the time you were married compared to the total vesting period.
How Divorce Affects Stock Options and RSUs in the Finance Sector
For many families in Garden City, especially those with careers in the Manhattan finance sector, a significant portion of household wealth is held in equity. Unlike a traditional salary, stock options and Restricted Stock Units (RSUs) represent a future promise of value. When a marriage ends, these assets must be identified and shared fairly, even if they have not yet vested.
Under New York law, if you earned those awards while you were married, they are generally viewed as marital property.
What Is the Difference Between Options and RSUs
To determine how your assets will be divided, we first look at the specific type of award you hold. While they both represent company ownership, they are handled differently in a divorce:
- Stock Options: These give you the right to buy shares at a set price. They have value only if the current market price is higher than your “strike price.”
- RSUs (Restricted Stock Units): These are a promise to give you shares of stock after you meet certain conditions, like staying with the company for a few years. Unlike options, RSUs almost always have some value once they vest, as long as the company’s stock is worth more than zero.
Valuing Unvested Awards
The most difficult part of these cases is dealing with “unvested” awards—assets that you do not fully own yet. In New York, we use specific mathematical formulas to determine which portion of those future shares belongs to your spouse.
The court often applies a “time-rule” formula. This looks at the total time from when the stock was granted to the date it vests. If a large portion of that time happened during your marriage, your spouse is typically entitled to a share of those stocks once they finally vest.
Tax Considerations and “Net” Value
When you exercise a stock option or when an RSU vests, it is usually taxed as ordinary income. This can result in a large tax bill. It is vital that your divorce agreement accounts for these taxes.
If you simply agree to give your spouse 50% of the shares, you might find yourself paying 100% of the taxes on the full amount. We work to ensure that any division is based on the “net” value after taxes, so the financial burden is shared as fairly as the assets.
Methods of Division
Because you cannot usually transfer unvested options or RSUs to a non-employee, we often use one of two methods to settle the case:
- The “If, As, and When” Approach: You continue to hold the awards, and when they eventually vest, you pay your former spouse their designated share of the proceeds.
- The Asset Offset: We determine the current estimated value of the unvested awards and give your spouse a larger share of a different asset—like the equity in your Garden City home or a bank account—to “buy out” their interest in the stock.
The Importance of Plan Documents
Every company has its own rules for equity. Some plans state that you lose all unvested shares the moment you leave the company, while others have different rules for “retirement” or “good leaver” scenarios.
We carefully review your specific plan documents to understand these triggers. This helps us protect you from an agreement that assumes a value that might disappear if your employment situation changes.
Why a Garden City Divorce Lawyer is Essential
Equity compensation is a specialized area of family law. At Aiello & DiFalco, we have the experience needed to handle high-stakes financial portfolios. We will help you protect your separate property and ensure that any division of stock options or marital property is based on accurate math and a clear understanding of the tax laws.
If you are a professional in the finance sector or are married to one, contact our Garden City office. We will help you build a strategy that protects your financial legacy.
