Are Restricted Stock, Stock Options and Restricted Stock Units Community or Separate Property?

Are Restricted Stock, Stock Options and Restricted Stock Units Community or Separate Property?

Restricted Stock Units (RSU’s), stock options, & restricted stock are only valuable if the employee remains employed for the required period, usually the vesting period. When part of the vesting period occurs during marriage and the other part is before or after the marriage, the assets are part community and part separate property.

Only community property is divided in divorce.

Texas Family code §3.007 provides a detailed formula about how to calculate the community and separate portions. It does not help determine the value of the shares, but can determine the number that may be divided in the divorce.

Most award or grant letters prohibit transfer of the shares or units until after they have vested, preventing a division in divorce. Often, the non-employee spouse must rely on the other to sell the units or shares after divorce and turn over the money, or transfer the assets directly to the former spouse. Because the divorce is usually done by this point, it can be difficult to make this happen. Occasionally, the employee spouse must be sued.

An option is to include security in the divorce decree. For example, an attorney may hold in trust an asset awarded to the employee spouse, to be turned over after the employee spouse complies with the requirements regarding the RSU’s, stock options, or restricted stock. If the employee spouse is to receive real property, an attorney can be ordered by the judge to hold the deed until the obligations regarding the RSU and shares have been met.

A marital agreement such as a prenup or postnup avoids all this. If you don’t have one, and divorce is imminent, educate yourself about the terms of each RSU award, stock option or restricted grant. The specific number of units or shares in each grant or award, and the exact vesting periods, is essential to determining the community and separate portions.

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