San Diego’s economy has grown increasingly dependent on biotech, life sciences, and technology companies, and with that growth has come a rise in equity compensation as part of employee pay packages. Stock options and restricted stock units, commonly called RSUs, are now a regular part of many divorce cases in San Diego. Primus Family Law Group, located in Mission Valley and serving families throughout San Diego County, regularly handles the division of these complex and often confusing assets.
Are stock options considered community property? It depends heavily on when they were granted and when they vest relative to the marriage. Bonnie Rabinovitch-Mantel, Managing Partner and California Certified Family Law Specialist, explains that it is important to understand what factors and formulas are used to determine what portion of granted, vested or unvested equity is community property versus separate property. These factors can include:
- Whether the equity compensation was granted for future work
- Whether the equity compensation was granted for work already performed during the marriage;
- What vesting schedule the grant(s) have.
How are RSUs different from stock options? Restricted stock units convert automatically into actual shares once they vest, while stock options give the employee the right, but not the obligation, to purchase shares at a predetermined price. Both types of compensation require careful tracking of grant dates, vesting schedules, and any performance conditions attached to them, since these details directly affect how they are valued and divided.
What formulas do courts typically use? Many California courts apply time-based formulas, such as the Hug formula or the Nelson formula, to determine what percentage of equity compensation is community property subject to division versus the employees separate property. Kimberly Soule, Senior Litigation Specialist and California Certified Family Law Specialist, works closely with clients to gather grant agreements, vesting schedules, and employer plan documents needed to have these calculations run accurately.
Can equity compensation be divided without selling it? Sometimes. Depending on the company’s transfer restrictions and internal policies, options or RSUs may need to stay entirely with the employee spouse while the other spouse receives an offsetting asset of comparable value, such as a larger share of a retirement account or the family home.
Why is early documentation important? Wayne Rice, Of Counsel and California Certified Family Law Specialist, emphasizes that equity compensation documents can be difficult and time consuming to obtain later in a case, particularly from employers who are slow to respond to formal requests, so gathering them at the very outset of a divorce is critical to ensuring proper division of these assets.
Contact Primus Family Law Group in Mission Valley at 619.574.800 or online at www.primusfamilylaw.com if equity compensation is part of your divorce and you want to make sure it is valued and divided correctly. We proudly offer a free 30 minute telephone or Zoom consultation.