How Are Restricted Stock Units Divided If They Do Not Vest Until After Divorce? Putting Clients First. Always.

How Are Restricted Stock Units (RSUs) Divided If They Do Not Vest Until After Divorce in Texas?

In Texas, division of Restricted Stock Units (RSUs) can be treated as separate property, community property, or some combination of the two. When RSUs do not fully vest until after divorce, how they’re treated depends on when they were issued. Since the RSUs in question cannot be sold until some future date, an exact dollar value cannot be assigned at the time of division. The most sensible way to divide the asset, then, is to award a percentage (or number of shares) to each party so that when/if the RSUs are eligible to be sold, each party receives the amount that they are entitled to.

In an attempt to produce consistent and predictable outcomes in situations where post-divorce vesting is an issue, the legislature crafted a formula for the division of such assets (Texas Family Code, Sec. 3.007(d)). The formula determines the percentage of an RSU which should be treated as a party’s separate property, so that the remainder may then be considered a part of the marital estate. Depending on the facts of the situation, the Family Code presents two different approaches to determining the amount of an unvested RSU that can be counted as separate property.

In situations where an RSU was awarded prior to marriage, but the employee was required to continue working during the marriage, this formula determines the amount of the asset which will be considered separate property::

  • (time from issuance of the RSU to date of marriage) + (time from date of divorce to date of vesting) divided by (time from issuance to fully vested date)

In situations where the RSU was awarded during the marriage, and the employee was required to continue working after the marriage ended, this formula determines the amount of the asset which will be considered separate property:

  • (period of time from divorce to date of vesting) divided by (period of time from issuance to fully vested date)

Importantly, this calculation is performed with respect to each component of a benefit which is subject to a different vesting period. A set of restricted stock options whose restrictions are lifted after varying lengths of time, will each be viewed separately and divided in proportion to the results of their respective calculations per the relevant statutory formula.

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