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Startups: Employees & RSUs/Equity

Protecting Your Property in a High Asset Divorce

Assistance And Guidance For Employees With RSUs And Employee Equity

It’s not uncommon for technology companies in Silicon Valley or elsewhere in California to grant stock options to employees as an incentive package to work for their business, as a bonus to existing employees for going above and beyond in their job role, or as a grant to long-term employees for their years of great service and hard work. Unlike direct compensation for an employee’s services, stock options such as restricted stock units (RSUs) don?t have much value initially. Once vested and distributed to employees, they can become incredibly valuable assets that may rise ? or fall ? with the market and the company’s success.
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At Kaspar & Lugay LLP in Corte Madera, we see the hidden potential of RSUs and other stock options, and we understand the issues this can create for employees when divorce rears its ugly head. We can carefully inventory an employee’s stock portfolio to determine its wealth so they know what’s at stake when dividing marital property. Our team of attorneys and certified public accountant, attorney Brent Kaspar, are well-known for leveraging their experience in family law and the courtroom to resolve property division disputes and other complex financial matters quickly and in favor of our clients.

Employee Equity Compensation Framework

While it’s relatively common for technology startup companies to offer employee equity compensation to early employees, high-level executives and even company founders themselves, there is a new trend forming among businesses to offer meaningful equity in the form of RSUs to all employees, most often for these reasons:
  • New hire: As an incentive to help build and grow a company.
  • Promotion: Given as a grant to an employee for accepting a promotion.
  • Going above and beyond: Awarded to employees for exceptional work.
  • Longevity in a career: Given as a grant to employees who have been with the company for an extended period of time.

RSUs And Vesting Schedules

When an employee receives an RSU grant, they are essentially given a promise that they will one day receive a specified number of stocks in the company for which they work. The employee only receives this stock once they have met certain conditions such as remaining employed at the company for a certain amount of time. When these conditions are met, stock is typically vested based on a vesting schedule. Vested stocks are valued based on their fair market price. As with any stock, this price can rise and fall depending on the market and the company’s successes and failures. Typically, once vested, RSUs are distributed to the employee at which time the RSUs become taxable income. For employees going through divorce, understanding the vesting and distribution schedule of their RSU grant becomes incredibly important because these schedules not only determine when the employee is awarded equity, but how much that equity is worth. In the end, the vesting and distribution schedule can mean the difference between a spouse receiving half of the RSUs or only a fraction of the grant.

Community Property Versus Separate Property

In order to understand how RSUs factor into a divorce settlement, we first need to consider how property is handled in divorce. Since California is a community property state, assets acquired after the start of marriage are considered community property, and those assets are divided equally between both spouses. Since RSUs are considered assets during divorce proceedings, it’s important to know when the stock was vested and the employee received it. If vestment and distribution happened before the start of a marriage, then those stocks would be considered separate property and not eligible for division in a divorce settlement. On the other hand, if the RSU was vested and distributed during the course of marriage, those stocks could be considered community property and subject to California community property laws.

The Importance Of Accurate Valuation

When a married couple files for divorce in California, the courts require them to provide a detailed inventory of all their assets, including more complex assets like vested and unvested RSUs. When a cash value is not apparent, as is the case with most physical property and investments, assets must go through the valuation process. Determining the accurate value of property is incredibly important because it ensures a fair split of marital property. Because of vesting and distribution schedules for RSUs, the valuation process can get incredibly complex. Additionally, concealing the existence of an RSU grant is not uncommon in divorce proceedings, which adds a layer of complexity and frustration for the offended spouse. In order to get an accurate assessment, it’s necessary to speak with a licensed CPA who has experience handling property division matters in California. Only someone with this unique set of credentials will be able to accurately determine the value of the RSU ? both in terms of its current value and future potential ? as well as its vesting and distribution schedule and what portion of the RSU grant is separate property versus community property.

Speak With Our Licensed CPA, Family Law Attorney Brent Kaspar

Whether you received an RSU grant as part of a new-hire package prior to the start of your marriage or received RSUs for your years of service after getting married, the experienced team of lawyers at Kaspar & Lugay LLP is available to make sure your assets are protected and divided properly in accordance with California law. Attorney Brent Kaspar and partnering attorney Arvin Lugay will use their unique skills and experience to negotiate a marital settlement agreement that is truly in your best interests. If an amicable agreement cannot be reached, we will use our extensive trial experience to build a winning court case. If you have questions and would like to speak with our experienced lawyers, contact our law firm to schedule a consultation.