Six FAQs about divorce and RSUs in Washington
Many executive-level employees in Washington state receive restricted stock units (RSUs). If your spouse has not been forthcoming with financial information, it can be difficult to find out if he or she receives RSUs at work. However, if you are able to get a paystub for your spouse, the paystub will show if RSUs have vested in the past calendar year. This is because when the RSUs vest, the employee recognizes the value of the shares as income paid by the employer.
Many executive-level employees in Washington state receive equity compensation. Equity compensation means part of the employee’s compensation at work is shares of stock in the employer company. Equity compensation comes in many forms. Employees may receive shares of company stock now, or the opportunity to receive or purchase shares in the company in the future. Stock purchase plans, restricted stock units (RSUs), and stock options are all examples of equity compensation.
Today’s blog is a deep dive into RSUs – what they are, how they work, what companies offer them, how they dealt with in divorce, and what key documents you can review to find out if your spouse has RSUs.
FAQ 1: What are RSUs?
Restricted stock units (RSUs) are a form of compensation issued by an employer to an employee. RSUs give an employee an interest in company stock. Employers issue RSUs to incentivize new hires to come to work for the company, for achieving performance milestones, and for working at the company for a certain length of time.
FAQ 2: How do RSUs work?
RSUs are like a promise from the employer to the employee that the employee will be rewarded with company stock in the future if certain criteria are met. When an RSU vests, it becomes a share of stock in the company. For that reason, an RSU doesn’t have intrinsic value – the value comes later when the RSU vests and becomes a share of stock. RSUs vest based on a vesting schedule set by the employer; often, an employee will receive a grant of several RSUs at one time, and those RSUs will vest in increments over a period of time. When a group of RSUs vest and become shares in the company, the employee will owe ordinary income tax on the value of those shares. Usually, some of the shares are held back by the employer and used to pay the income tax owed, so that the employee doesn’t have to pay for the tax out-of-pocket.
FAQ 3: What are some examples of employers in Washington state that compensate employees with RSUs?
Here is a list of companies in Washington that may compensate some employees with RSUs.
Amazon
Apple
Costco Wholesale
eBay
Expedia
Facebook
IBM
Intel
Microsoft
MongoDB
Nordstrom
Qualtrics
Salesforce
Sonos
Starbucks
T-Mobile
FAQ 4: How are RSUs assessed in a divorce?
When a divorcing spouse owns RSUs, often the first step is to run what is known as a “Short analysis,” which determines which RSUs are the separate property of the employee spouse (i.e., the spouse who earned the RSUs at work) and which RSUs are considered to be community property. Once it is known which RSUs are community property, those RSUs are generally assigned a value based on the current share price. Typically, the assigned value of those RSUs is what will be considered in the divorce.
FAQ 5: Which spouse gets the RSUs in the divorce?
Usually, the actual RSUs themselves do not get split up in a divorce. Instead, the employee spouse keeps them all. This is for two reasons. First, it is difficult, if not impossible, to transfer ownership of RSUs. Second, RSUs only become valuable when they vest and become company stock. For the vest to occur, the employee spouse must remain employed at the company. If the employee spouse leaves the company before the vest occurs, usually the RSUs will be forfeited. Given that the employee spouse can generally end employment at the company at any time, it usually makes sense that he or she bear the risk of losing the RSUs in the event of a job change.
FAQ 6: How can I find out if my spouse gets RSUs at work?
If your spouse has not been forthcoming with financial information, it can be difficult to find out if he or she receives RSUs at work. However, if you are able to get a paystub for your spouse, the paystub will show if RSUs have vested in the past calendar year. This is because when the RSUs vest, the employee recognizes the value of the shares as income paid by the employer.
Paystubs generally detail earnings received year-to-date, meaning earnings received since the beginning of the calendar year. Ideally, you will want to review the most recent paystub for this calendar year, as well as the last paystub of the previous calendar year. When you review the paystub, look at the earnings activity. If RSUs vested during the calendar year, the value of the vest will be reported as earnings.
Contact us if you need help figuring out how to consider equity compensation in your divorce.
This information is educational in nature and should not be relied upon for legal or tax advice. Serene Divorce Planning LLC is not an attorney and does not provide legal or tax advice. Individuals seeking legal or tax advice should solicit the counsel of competent legal or tax professionals knowledgeable about the divorce laws in their own geographical areas. Serene Divorce Planning LLC does not sell or consult on securities.