San Jose Stock Option & RSU Division Lawyer

San Jose Stock Option & RSU Division Attorney

RSUs and stock options have become an increasingly popular form of incentive for employees in startups over the last few years. The downside of this trend is that it can cause unforeseen complications in divorce settlements. If you have been compensated with RSUs or stock options and are seeking a divorce in San Jose, CA, you may want to work with an experienced San Jose stock option & RSU division lawyer to ensure your rights are protected.

The practice of using stock options and restricted stock units (RSUs) as incentives and compensation for employees is most widespread among technology companies and startups. You may see this frequently in the Bay Area specifically.

At TDC Family Law, our experienced family law attorney has a thorough knowledge of divorce, property division, stock options, and RSUs. With her compassionate guidance, you can rest assured that your RSUs and stock options will be divided fairly.

RSUs and Stock Options Present a Challenge in the Division of Assets

The rise in popularity of using RSUs and stock options as compensation and incentives is no surprise. RSUs grant employees access to stock in the future. This practice not only rewards employees for past work but also encourages them to stay with the company, at least until the stock vests. This is a win for both the company and the employee in the fast-growing world of technology and startups.

You may face challenges, though, while dividing stocks in a divorce. California is a community property state, and because RSUs are considered no different than other assets, they must be divided evenly among both parties.

If the RSUs in question were both granted and vested during the lifetime of the marriage, this simplifies things. In this case, you can sell them and split the profits evenly, or one partner can buy them out for market value.

If the stocks are not vested by the time of the divorce, the process becomes more complex. There are several options for you to consider so that you can make the right choice while dividing stocks in your divorce.

It is important to note that the way you divide these stocks can have an impact on child and spousal support since they are considered income. You should also consider potential tax implications, as this may impact your financial situation.

Formulas Used for Dividing Stocks in a San Jose Divorce

Two main formulas are used when dividing stock options and RSUs in a California divorce. Both formulas stem from the time rule. This rule considers all earnings that occurred during the marriage and is used to split them evenly.

• Hug formula. The Hug formula views RSUs as a reward for past performance and a form of deferred compensation. The formula is calculated as the period between the start of employment and the end of the marriage. This is divided by the period between the start of employment and the vesting of the stocks. It is then multiplied by the number of shares of stock available for purchase on the date vested. The final figure is split evenly between the two parties.
• Nelson formula. This formula views stock options and RSUs as financial incentives to encourage future performance. The formula for dividing this type of property is calculated as the number of months of employment between the date the shares are issued and the date of separation. Then, they’re divided by the number of months between the date the shares were issued and the date when stock options became exercisable. This figure is then multiplied by the number of stocks harvested. The sum is split evenly between the two parties.

What Determines Whether the Hug Formula or the Nelson Formula Is Used?

The Hug formula is often thought of as favoring the community property, whereas the Nelson formula is more favorable to the spouse of the employee. Which formula is used is typically determined by the original intent of the RSUs granted by the employer. The intent might have been to reward past performance and keep the employee at the company long-term, or it could have been used as an incentive to reward their future performance.

This distinction is highly important. If the intent was to reward past performance, this could mean it is compensation for work done during the marriage. If the intent was to reward future performance, it is considered compensation for work done after the divorce. A San Jose stock option & RSU division lawyer who is well-versed in the division of property can help walk you through this distinction and how it applies to you.

FAQs

Q: How Are RSUs Divided in Divorce in California?

A: California laws generally dictate that RSUs that are granted and vested during the life of a marriage are community property and will be divided 50/50 between spouses. If the RSUs in question are granted and vested after the separation or divorce, they are considered separate property and not subject to division.

Q: Are Stock Options or RSUs Better?

A: The value of stock options versus RSUs depends on the stage at which the company grants them. If a company is in the early stages of its development, stock options are typically more desirable for both employees and employers. However, if the company is well established, RSUs are typically better for both parties.

Q: What Is the Nelson Time Rule?

A: The Nelson time rule is a formula for dividing property in a divorce. It calculates the period of employment between the date issued and the date of marital separation, divided by the period between the date issued and the date stock options became exercisable. This figure is multiplied by the number of stocks harvested and split evenly between the two parties.

Q: How Are Assets Divided in a Divorce in California?

A: California’s status as a community property state means that married individuals share equal ownership of all assets accumulated during their marriage. This can become especially complicated in the case of dividing RSUs. Since that compensation may not be exercisable until after the marriage has ended, there is more to consider during the division process in San Jose, CA.

A Stock Option and RSU Division Lawyer Can Help Protect Your Rights

If you are facing divorce in the San Jose area and wading through the details of dividing property and assets, you do not have to go through it alone. Our dedicated stock option & RSU division lawyer at TDC Family Law is ready to work on your behalf to ensure that property division in your divorce goes as smoothly as possible. Contact us today to schedule a consultation and see how we can assist you.