Many times, employers will give their employees an award of company stock, subject to conditions (such as continued service to the company or attainment of performance goals). Restricted Stock Units (RSUs) are equivalent to shares, but are converted to stock upon vesting. Conditions are placed on the Restricted Stock Units (RSUs) awarded to the employee before the employee can convert the RSUs to stock to be sold or transfer the stock.
At the time of divorce, a value is assigned to the restricted stock awarded to the employee spouse. Before a value can be assigned, one must first determine which portion of the restricted stock is community property (property subject to division at time of divorce) and which portion of any is separate property (property not subject to division at the time of divorce). In order to determine which portion is community property and which portion is separate property of the RSUs, the Texas Family Code Section 3.007 (d) – (e) provides a formula specifying a numerator and a denominator. The formula is lengthy; therefore, it will not be included in this summary, but it can best be summed up with the following example:
The date is May 8, 2018 and husband and wife are going through divorce proceedings. Wife is an employee who was given an award of 30 RSUs from her employer on January 1, 2017. The typical vesting schedule is 1/3 each year. On January 1, 2018, 10 RSUs would be fully vested and those fully vested shares would be characterized as community property, meaning they are subject to division at time of divorce.The second tranche of RSUs would not fully vest until January 1, 2019. The third tranche of RSUs would not vest until January 1, 2020. Approximately one half the RSUs which vest on January 1, 2019 would be characterized as community property and the other half would be characterized as wife’s separate property, meaning her separate property portion would not be included in the assets subject to division at the time of divorce. Since the third tranche of RSUs does not vest until January 1, 2020, if we plugged the numbers into the formula provided under Texas Family Code Section 3,007 (d) – (e), most likely all or almost all of the third tranche would be characterized as wife’s separate property. In summary, the farther out the vesting date of the RSUs, the less community property there is in characterizing the RSUs.
Due to the complexity of the formula in Texas Family Code Section 3.007 (d) – (e), Christine will usually hire a CPA familiar with Texas divorce laws who has experience in calculating the value of RSUs pursuant to the Texas laws for divorce.
All companies have their own set of rules and regulations for managing and transferring RSUs. Typically, the RSUs are not transferrable to a spouse at the time of divorce; however, if the RSUs have already vested and the RSUs have already been transferred to stock in the employee’s stock account, then the stock could be divided at the time of divorce.