Restricted Stock Units – Will Your Former Spouse Get Half?

Restricted Stock Units (RSUs) are one of the many forms of compensation that senior corporate executives can receive from the companies they work for. Conceptually, RSUs are simply a promise by the company to issue some of its stock or shares (or else cash that is the equivalent to the underlying shares) to an employee after a certain period of time, or on a certain specified vesting date. RSUs are subject to vesting periods (i.e. a specified length of service before they are issued), which is typically three years.

If you are a corporate executive or other type of employee who is entitled to RSUs as part of your compensation package, then you essentially have a present-day right to a deferred form of income. When these RSUs become part of the mix of assets that need to be divided as part of your divorce, this deferred-income aspect can make their valuation and division quite contentious and complex.

Conceptually, however, the treatment of RSUs is quite straightforward: As with other types of stock options, the value of your vested or unvested RSUs represent “property” that can be subject to equalization between you and your spouse as part of your divorce proceedings under Family Law legislation.

But this begs the question of how the value of your RSUs is to be determined. Customarily, this involves identifying the current-day value of the stock less any vesting discount; however there may be certain other contingencies that attach to your particular RSUs that can affect their value. Generally speaking the best – and easiest – way to get their value assessed is for you and your spouse to hire a Certified Business Valuator.

Note that although your RSUs will be considered “property” for asset-equalization purposes upon divorce, there remains a danger that they will be unwittingly double-counted as part of your “income” as well. This is the legal concept known as “double-dipping”. Even though the RSUs will have already been accounted for amongst your assets upon equalization, their value may be included a second time in your employment income for the year in which they actually vest. The amounts added to your now-increased income total will usually form the basis for calculating anychild or spousal support you may be liable to pay.

Clearly, the treatment of RSUs on divorce can be complex. It’s always best to get experienced legal advice about them, both during your negotiations with your corporate employers over compensation, and especially once a separation or divorce is on the horizon for you.

Separation and Divorce can be a difficult and uncertain time. Our team of Toronto family lawyers is dedicated to relentlessly pursue our clients’ interests, and getting exceptional results.