Restricted Stock Units, or RSUs, are increasingly common in divorce settlements—especially if you or your spouse work in tech or finance. But they aren’t as straightforward as other assets. Their unique features add complexity, and understanding these can be critical in a fair division.
What Are RSUs?
RSUs are a type of company stock given as compensation. But unlike regular stock options, you don’t own them immediately. They come with a vesting schedule—meaning you must stay employed for a certain period before they’re fully yours. Once vested, RSUs are treated as income for tax purposes.
Why RSUs Complicate Divorce Settlements
Here are some key challenges:
- Future Value is Unknown: RSUs depend on company stock performance. By the time they vest, their value could be much higher—or lower—than today.
- Timing of Vesting Matters: If RSUs vest after the divorce, are they marital assets or separate property? States differ in their approach.
- Tax Implications: RSUs are taxed as ordinary income when they vest, which can create a sizable tax burden. It’s important to understand who will shoulder this tax responsibility.
Strategies for Dividing RSUs
RSUs don’t fit easily into a “50/50” split. But you have options:
- “If and When” Division: An “if and when” approach allows you to divide RSUs based on their value if and when they vest. This ensures both spouses share the actual value realized and not a hypothetical amount.
- Deferred Distribution: You may agree that one spouse receives a portion of the RSUs after they vest. This option requires detailed planning, especially with respect to taxes.
- Buyout Option: In some cases, one spouse can “buy out” the other’s interest in the RSUs. This method involves estimating the RSUs’ current value, often with the help of a financial expert.
Practical Considerations
- Assess the Tax Impact: Taxes on RSUs can be significant. Will the tax burden be shared, or will one spouse cover it? This needs to be clear in the agreement.
- Hire a Financial Expert: RSUs require specific expertise in valuation and tax implications. A financial advisor who specializes in divorce, like a Certified Divorce Financial Analyst (CDFA), can provide valuable guidance.
- Create a Clear Agreement: The more specific your agreement, the fewer disputes you’ll face. Detail how and when RSUs will be divided, who covers taxes, and how to handle fluctuations in value.
Questions to Ask
- Do you know the full vesting schedule of the RSUs?
- Are you comfortable with how taxes on the RSUs will be handled?
- How do RSUs fit into your broader financial goals post-divorce?
Dividing RSUs fairly requires clear planning and professional help. By understanding the options, you can make informed decisions and protect your financial future.
Ready to Get Clarity on RSUs in Your Divorce?
Navigating the complexities of RSUs can feel overwhelming, especially when so much is at stake. At Orlando Divorce Planning, we specialize in helping you make sense of financial assets in divorce, including RSUs.
Contact us today to schedule a consultation. Together, we’ll build a clear strategy that protects your interests and sets you up for financial security post-divorce. Don’t leave your future to chance—let’s get started.
Contact Orlando Divorce Planning now to schedule your consultation and take control of your financial future.
