Protecting Tech Equity & Stock Options in Irvine

What are Restricted Stock Units?

Restricted Stock Units or RSUs are a form of employee compensation awarded as stock shares vested usually when the employee has met certain conditions and criteria within the company.

RSUs are issued to employees through a vesting plan and distribution schedule after they achieve certain performance targets or if they remain with their employer for a certain time. Although RSUs give employees interest in their employer’s equity, their tangible value is realized only after they are vested. These RSUs are assigned a Fair Market Value (FMV) when they vest and are considered an income source wherein regular rules of income tax deduction apply. After the tax deductions through the withholding of shares are deemed complete, the employee has the right to sell the remaining shares.

RSUs are treated differently for tax purposes as compared to other stock options. As soon as the RSU is vested, the income obtained through it is counted as ordinary income in the year of vesting. To declare the income amount, the employee must subtract the original price at which the stock was purchased, also known as its exercise price, from the FMV on the date it becomes fully vested. This income or difference is declared as “ordinary income.” If the stock is sold at a later date than the exercise date, the difference between the sale price and the FMV is declared as capital difference (gain or loss) on the date of vesting.

Unlike stock options, RSUs are not purchased but rather granted during employment. However, since RSUs take several years to get vested, they create a challenge during asset evaluation in a divorce.

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How Is Dividing RSUs Different From Typical Asset Division During A California Divorce?

Since RSUs differ from typical stock options and other assets in that they can be vested only after a specific schedule, the income obtained from them can be regarded as community or separate property depending on when they are vested.

California is a community property state, which means marital assets are divided 50/50 between both spouses after their divorce. This principle encompasses compensation earned during the marriage, even if it is not to be paid out until after the date of separation. RSUs can be awarded as compensation for past service or future performance. This notion views RSUs as community property earned during the marriage or separate property earned after separation. Since RSUs are considered income once they vest, they can artificially inflate your “income on paper.” This is why the division of RSUs becomes a delicate matter during divorce proceedings requiring astute forensic examination by legal experts, such as those from JOS Family Law.

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How Do California Courts Divide RSUs Fairly?

To divide RSUs that were granted during the marriage but vested after the date of separation, California courts use specific formulas known as the Hug Formula and the Nelson Formula to help apportion the RSU between separate and community property interests.

The Hug Formula

The Hug Formula is typically applied when an employee is rewarded for their past achievements or to retain a valued employee. It presumes that the grant recognizes the employee’s contributions leading up to the grant date. The Hug formula was established in In re Marriage of Hug (1984) and this method allocates the community’s interest based on how long the employee was with the company before the separation, relative to the whole vesting period.

Community Property Portion =
(Date of hire to date of separation) ÷
(Date of hire to date of vesting) × Number of shares

              The resulting number of shares after plugging in the values into the formula is then considered community
              property to be divided equally between spouses.
            

The Nelson Formula

Developed in In re Marriage of Nelson (1986), this formula is more favorable to the separate property spouse and is used when the RSUs are granted as incentives for future services. The Nelson formula is used to incentivize an employee to remain with the company in the future and is common with new-hire grants or grants intended to encourage future innovation.

Community property portion =
(Date of grant to date of separation) ÷
(Date of grant to date of vesting) × Number of shares

              This approach shortens the community interest to only the period after the stock was granted, rather than
              the full employment duration. The Nelson formula, therefore, often results in a smaller community property
              interest compared to the Hug Formula.
            

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How Do I Approach Splitting RSUs For My Divorce?

Your RSU Divorce Division Attorney can help you decide whether you should split the shares between yourself and your spouse or pursue a buyout. Not only that, your attorney from JOS Family Law can help you craft the best approach and deal with legal nuances and tax details.

You must remember that as a general rule under California’s community property laws:

RSUs granted and vested during your marriage qualify as community property that must be split 50/50 between both spouses
RSUs granted after your separation or divorce become separate property
RSUs granted during your marriage but vested after your separation have both separate and community property portions
RSUs granted before your marriage and vested during your marriage also have separate and community property portions

You can also value RSUs for “offset”, where you get to keep all or a portion of your stock in exchange for assets or cash to be given to your spouse. Fair and equitable division of restricted stock units can present itself as one of the most challenging aspects of any complex, high net-worth divorce. If you are looking for an RSU divorce division attorney, make sure that you reach out to someone who understands the intricacies of RSUs and laws pertaining to them in Irvine.

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Sonia Fernández

Jos exhibits exceptional compassion and understanding, promptly addressing all inquiries to facilitate clarity and calm throughout the process with comprehensive and sincere explanations. He offers potential solutions to minimize unnecessary court costs. His team operates efficiently and effectively to complete the task. I highly recommend this law firm as it operates with integrity.

Carlos Serrano

Thank you very much to Mr. Jos and to all his group of professionals who helped me get out of my child support case with a very good result. Each case is different and my case was very complicated. I live in the state of Virginia and the child support office of the state of California was starting a case against me, the amount they wanted me to pay was ridiculously high I didn't know what to do because I don't live in California and I had never met the child either. I searched online for a lawyer in California and thank God I found Mr. Jos's law office. I don't know them personally but I put my trust in them and they didn't disappoint me. We had very good communication despite the distance and they were always available to talk to me and clarify my doubts. Mr. James was the one who took my case to the end and after a long and very difficult process everything went very well in my favor much more than expected. I am very grateful to God for putting the entire team of professionals from Mr. Jos' office on my way. Words are not enough for me to describe everything they did for me and how grateful I am. I definitely recommend Mr. Jos's law firm. Thank you Mr. James for not giving up in my case and having achieved a magnificent result in my favor.

Alexandra Duvall

Jos Family Law has been absolutely fantastic in helping me through my child custody case. Mr Jos communicated with me throughout the entire process. He was very empathetic and understanding with my case and my concerns. The team was always supportive and never once did I feel like they didn’t take my case seriously. I’m so grateful I chose this law firm to represent me and I would 100% recommend this team to anyone seeking assistance. In the end I received the outcome I was looking for which was Sole Physical Custody. Thank you so much Jos Family for representing me.

Marco Galatro

This was the second attorney that represented me for my divorce. Binoye is a very knowledgeable, fair, and professional attorney. They are reliable and this made my experience way less painful. They are definitely not greedy for money, they are not one of the many attorneys out there who overbill for their services. I truly recommend them.

Roya

Mr. Jos is by far the best attorney l've ever had to work with. He is diligent, extremely prepared and informed and patient with his clients and goes above and beyond the call of duty to make sure you get the results you are hoping for. I recommend him to anyone who needs a Family attorney.

Ricardo Lajaruna

My most sincere gratitude to the attorney Mr. James Sowers, who is very knowledgeable about the law, works with and for his clients. He is very transparent, honest and I am very grateful for his great support. His legal representation is highly recommended!!!

Nader Zayid

JOS family Law took on my case which entailed custody and move away components and I honestly could not say enough great things about JOS Family Law! Mr. Jos is not only extremely knowledgeable and professional, but it is also extremely obvious how much he cares for his clients on a personal level as well. There is an expression that two heads are better than one, however, Mr. Jos' philosophy takes it further as eight heads are better than two. It was so impressive and reassuring how collaborative everyone at the office works together to meet on regular cadences and discuss their client's cases to brainstorm strategies in order to seek the best possible outcome for their clients. Mr. Jos has an amazing team of extremely talented and knowledgeable attorneys that have worked together on my case. James was the lead attorney on my case and also represented me in my hearing. James was able to get us everything we were asking for as he successfully proved that full custody remaining with me is in the best interest of the children and that the move away is in the best interest of the children as well. We were able to come up with a plan to ensure that the children's mother can visit regularly and still maintain a healthy relationship. James is a rock star attorney! I would without hesitation refer anyone seeking help in a family law matter to call Jos Family Law!

Frequently Asked Questions

Find answers to some of the most commonly asked questions about RSU division from JOS Family Law

Unvested RSUs are still subject to division if they were granted for services performed during the marriage. Because these shares cannot be sold immediately, the court may order a "deferred division." This often involves a "Time Rule" calculation. We help our clients structure "In-Kind" divisions or buy-out agreements so that both parties understand exactly when and how much will be paid out as the shares vest in the future.

Yes, if the effort that led to the RSU grant occurred during the marriage, the court views it as an asset earned by the community. However, the calculation is nuanced. Factors like whether the RSUs were a "signing bonus" (looking forward) or a "reward for past performance" (looking backward) change how the time rule is applied. JOS Family Law specializes in identifying these distinctions to prevent over-distribution to an ex-spouse.

RSUs are taxed as ordinary income upon vesting, which can create a massive tax bill. If you simply transfer half the shares to an ex-spouse without a proper tax-sharing agreement, you could end up paying the taxes for their windfall. We draft meticulous Qualified Domestic Relations Orders (QDROs) or settlement stipulations that account for federal and state withholdings, ensuring you aren't unfairly burdened by the tax liability of divided assets.

Standard divorce attorneys often treat RSUs like simple bank accounts, leading to "double-dipping" where the same stocks are counted as both an asset and income for support purposes. At JOS Family Law, we have the technical expertise to separate these variables. We ensure your equity is valued accurately and that your support obligations aren't artificially inflated by one-time vesting events.

Protecting Tech Equity & Stock Options in Irvine

Home/ Practice Areas /Protecting Tech Equity & Stock Options in Irvine

What are Restricted Stock Units?

Restricted Stock Units or RSUs are a form of employee compensation awarded as stock shares vested usually when the employee has met certain conditions and criteria within the company.

How Is Dividing RSUs Different From Typical Asset Division During A California Divorce?

Since RSUs differ from typical stock options and other assets in that they can be vested only after a specific schedule, the income obtained from them can be regarded as community or separate property depending on when they are vested.