Tech stock – how to split RSUs when you divorce in Washington state?
What is an RSU?
Restricted Stock Units (aka “RSUs”) are company shares that are awarded to an employee subject to certain terms. RSUs can be a vital part of tech and start up culture because they encourage employees to remain in the company and share in company growth. Companies can award employees vested and/or unvested RSUs.
What is a vested RSU?
A vested RSU is an award of stock that has been issued to the employee.
What is an unvested RSU?
An unvested RSU is a promise: the company promises to issue the employee stock at some point in the future. In exchange, typically, the employee promises to stay at the company. RSUs are generally awarded to employees in “chunks” of unvested stock that are called tranches. Each tranche vests over a specific period of time. The schedule for how the RSUs vest over that period of time varies from company to company, and even from grant to grant. In a divorce process, the vesting schedule will need to be reviewed for each grant to determine how many of the RSUs are community property and how many are separate property. Depending on your situation, one thing you may want to consider doing right now is ask for a copy of each award and vesting schedule.
Why do RSUs matter?
In Washington divorces, one question will be whether RSUs are determined to be compensation/income or a fixed value asset. Your point of view may depend on your risk tolerance and the size of your overall estate. Some people want to avoid the uncertainty of the market and would prefer cash. Others want to continue to keep a foothold in the tech boom. Some questions to consider are these: Do you think the employee spouse will still be employed on the future vesting dates? Do you think the future stock price will remain at this level? And, do you have enough assets to place a present value on the future realized value?
Do RSUs impact spousal support?
It depends. Spousal support is a discretionary tool. There is no uniform way to handle spousal support in Washington state. However, if an employee receives RSU awards on a recurring basis, these can be considered compensation available to the employee to pay support as long as the RSUs are not considered part of the asset division.
What’s so complicated about understanding RSUs in a divorce?
In a publicly traded company where the RSUs are fully vested, it’s relatively straightforward. The market value will appear clearly in your portfolio and stock can be transferred between spouses as part of the divorce without capital gains or losses. If the company is privately held and the stock is subject to transfer restrictions, it is more complicated.
Deciding how to divide RSUs in Washington divorces can seem overwhelming. Luckily, we have clear caselaw to guide us. Our firm regularly works with local experts who are familiar with the rules about dividing stock so that you can be prepared to make clear decisions about what works best for your situation.
Monica Cary is a Bellevue divorce attorney with over 17 years of experience representing men and women getting divorced. She served as a King County Family Law Pro Tem Commissioner for five years. DuBois Cary Law Group, PLLC is a full-service woman-owned family law firm providing compassionate legal representation for Northwest Families with over 50 years of combined experience. Call us today.