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How Are Restricted Stock Units Valued In A Divorce?

On Behalf of | Mar 28, 2023 | Community Property Division

Successful professionals are often compelled to navigate complex employment contracts and diverse personal resources. Companies often become quite successful when trying to incentivize the best possible performance or attract the top talent. Higher pay isn’t always the best option. Instead, complex compensation packages are common in executive-level roles.

Offering restricted stock options is one way to get people to stay with a company for an extended amount of time and to commit to meeting specific performance metrics. Restricted stock options usually aren’t available to someone until they either meet certain performance metrics or have stayed with a company for a fixed amount of time. As such, restricted stock options are a form of deferred compensation that can easily complicate a divorce.

How can couples address and value stock options for property division purposes during a divorce?

They establish what property is marital and what is separate

The first step to take when figuring out how to split restricted stock options will involve evaluating a worker’s contract to establish how much of the stock they accrued during the marriage.

If they are only two years into a five-year contract, then not all of the restricted stock will be subject to division. However, if they only have three months to go before their employer stock options, then nearly all of it may be subject to division.

They establish what the stock is – and will be – worth

Some situations lead to a simpler valuation process for restricted stock than others. If the stock is for a company that already has publicly-available stock, the current value of that stock combined with the likely future growth of the company can help establish a reasonable price for the stock.

If the organization has yet to make become a publicly-traded company, then a bit more legwork will be necessary to establish how much the stock will be worth once the come allows outside investors to purchase an interest in the organization. The process is a bit speculative, and spouses may need to compromise if they reach different conclusions about the value of the stock options.

Both the process of negotiating how much of the stock is subject to division and the value of each unit can potentially be a source of conflict in an upcoming divorce. Learning more about the rules that apply to high-asset divorces with the assistance of a legal professional can help people to prepare for property division negotiations and/or litigation in family court.