How Are Stock Options and RSUs Divided in a Maryland Divorce?
Base salary is usually the easy part of a divorce. Stock options and restricted stock units are a different story. If you or your spouse receives equity compensation as part of a job, you may be wondering how that gets handled once a divorce is on the table. The answer depends on timing, and getting the timing wrong can mean losing out on assets you are entitled to.
Why Equity Compensation Does Not Fit Neatly Into a Category
Maryland is an equitable distribution state, which means marital property is divided fairly, though not necessarily equally, between spouses. That framework works reasonably well for a bank account or a car. It gets more complicated with stock options and restricted stock units, because these forms of compensation are often granted at one point in time but do not fully belong to the employee until a later vesting date. Some of that value may have been earned during the marriage. Some of it may reflect work performed, or yet to be performed, after the marriage ends. Sorting out which portion is marital property and which portion is not is where these cases get complicated.
How Vesting Timing Affects Classification
Have you ever received an equity grant and wondered what “vesting” actually means for you? A stock option gives an employee the right to buy company shares at a set price in the future. A restricted stock unit is a promise from an employer to deliver actual shares once certain conditions, usually continued employment over time, are met. Both typically vest gradually rather than all at once.
Maryland courts generally look at whether an equity grant was intended as a reward for past work already performed, which tends to support marital classification, or as an incentive for future performance, which tends to support treating it as separate property. Because many grants blend both purposes, the classification question often depends on:
- When the grant was awarded relative to the marriage and separation dates
- The vesting schedule attached to the grant
- Whether the grant was tied to past performance, future retention, or both
- How much of the vesting period overlapped with the marriage itself
Courts and practitioners frequently use a method that compares the portion of the vesting period that occurred during the marriage to the total vesting period, applying that ratio to determine what share of the equity is treated as marital property.
Valuing and Dividing These Assets
Once equity compensation is classified as marital property, the next challenge is figuring out what it is actually worth and how to divide it. Vested shares that have not yet been sold are usually easier to value than unvested grants, which carry real uncertainty since the employee could leave the company or the stock price could decline before vesting completes. Under Maryland’s equitable distribution statute, the court considers a range of factors, including each spouse’s contributions to the marriage and their respective economic circumstances, when determining how these assets should ultimately be divided.
We Can Help You Today
Stock options and restricted stock units are not the kind of asset you want to divide based on guesswork. Our Maryland divorce attorneys at the Law Office of Vanessa R. Dozier, Esq. help clients identify, classify, and pursue a fair outcome when equity compensation is part of the marital estate. Contact us today to schedule a confidential consultation and discuss what your equity compensation may mean for your divorce.
Source:
mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gfl§ion=8-205&enactments=false