Stock options and other forms of equity compensation are increasingly common, particularly in industries like technology. Dividing these assets in a Washington divorce can be more complex than dividing traditional assets, especially when the equity has not yet vested. How those equities or unvested RSUs are divided as part of a dissolution depends on several factors including the length of marriage and the duration of the vest period.
Determining Whether Equity Is Community or Separate Property
Whether stock options or equity grants are considered community or separate property often depends on when they were granted and what they were intended to compensate, such as past performance versus future service. This analysis can require reviewing grant agreements and vesting schedules in detail. Often, RSUs awarded prior to marriage or after separation are presumed separate property.
Valuing Unvested Equity
Unvested stock options or restricted stock present valuation challenges, since their ultimate value depends on future vesting and, in some cases, continued employment or company performance. Courts and parties often use specific formulas or methodologies to allocate the value of unvested equity between the marriage and any post-divorce period.
Common Approaches to Dividing Equity Compensation
Washington courts and divorcing spouses often use approaches such as time-based formulas to determine what portion of unvested equity relates to the marriage, with the remainder treated as the separate property of the employee spouse. The specific approach used can vary based on the type of equity involved and the terms of the compensation plan. Your attorney may be able to assist with these calculations, but in the event of disputes, the parties will often hire forensic accountants to perform the necessary calculations.
Practical Considerations for Enforcement
Because equity compensation often vests over time, decrees addressing these assets may need specific provisions for handling future vesting events, including tax withholding and communication between the parties as shares vest. Working with financial professionals familiar with equity compensation can help ensure these provisions are clear and enforceable.
Stock options and unvested equity require careful analysis to ensure a fair division in a Washington divorce. At Magnuson Lowell, P.S., we help clients throughout Washington navigate the division of complex compensation packages. We offer free telephone case evaluations to discuss your situation.
