Dividing stock options in divorce can be one of the most complex financial issues spouses face. In New Jersey, courts may treat stock options, restricted stock units (RSUs), and similar stock-based or deferred-compensation pay packages as part of the marital estate, meaning the total property shared between spouses. Whether the couple divides these assets and how depends on when they were granted, how they vest, and the timing of the couple’s separation.
At Weiner Law Group, we guide clients through complex divorces involving business interests, deferred compensation, and stock-based assets. Founded in 1988, our firm is recognized for practical solutions, close collaboration with clients, and strategic advocacy. Our attorneys work with valuation experts, accountants, and financial professionals to achieve fair, effective results for clients throughout New Jersey. Contact us online by calling us at 973-403-1100.
Features of Stock Options and RSUs
Stock-based compensation can take many forms, varying depending on how an employee earns it, whether it is automatic, and when and how an employee receives it. Regardless, these forms of compensation must vest before the employee receives or becomes entitled to purchase them.
Many companies use time-based vesting, which grants ownership after the employee has worked for the employer for a certain number of years. Others use performance-based vesting, which depends on meeting goals such as:
- Reaching revenue targets,
- Completing projects, and
- Achieving market performance benchmarks.
Many plans also include gradual vesting, where additional shares or options vest over time.
Stock Options
Stock options give employees the right to buy the employer’s stock at a set “strike price” after vesting. If the stock’s market price rises above that strike price, the employee can purchase shares and make a profit.
Restricted Stock Units (RSUs)
RSUs are company promises to deliver shares of stock or their cash value after the company or an employee meets defined goals. When the company or employee meets those goals, the stock vests, and the employee automatically receives it without purchasing it. Companies often grant RSUs on a schedule tied either to continued employment or to meeting performance goals, making timing crucial when handling RSUs and divorce.
Executive Compensation
Many stock options and RSUs are part of executive compensation—the pay and benefits companies provide to high-level employees such as executives, directors, or managers. These packages often include a mix of:
- Salary,
- Bonuses,
- Stock-based awards,
- Deferred compensation, and
- Performance incentives.
Much of this compensation is tied to company performance or long-term employment. As a result, dividing executive compensation in divorce can be complicated by the executive having not fully earned the property or not having access to it at the time of divorce.
Other Deferred Compensation
Executives sometimes receive other stock-based awards, such as:
- Performance shares—shares earned after meeting performance targets;
- Restricted stock awards—shares granted with sale restrictions; and
- Phantom stock—cash bonuses that mirror the company’s stock value.
Each has unique vesting terms and payout triggers. Even though their structures vary, courts analyze all of them using the same equitable-distribution principles that apply to stock options and RSUs.
How New Jersey Courts Divide Stock Options and RSUs
When couples divorce in New Jersey, they divide marital assets and debts equitably, meaning fairly. An equitable division may be 50-50, but it may not be strictly equal.
Courts determine what qualifies as marital property based on when and how the spouses acquired each asset. If a spouse acquired or earned the property during the marriage, it is typically marital. By contrast, separate property includes assets a spouse obtained:
- Before marriage,
- After separation,
- Through a gift or inheritance, or
- From or in exchange for separate property.
Once the court classifies assets as marital and separate, it divides marital property between spouses using factors like each spouse’s contributions, income, and standard of living.
When compensation involves stock or deferred benefits, valuation and timing become central to achieving a fair division of assets. A benefit one spouse earns while married but does not receive until after divorce may still qualify as marital property.
Timing and Handling Restricted Shares in Divorce
When handling restricted shares in divorce, courts primarily consider whether the compensation rewards work performed during the marriage. Courts may classify stock awards into shares issued for:
- Past service—work completed during the marriage (marital property);
- Future service—intended to encourage continued employment (separate property); or
- Mixed purpose—designed to compensate both past and future service (partly marital and partly separate, depending on how much of the vesting period occurred during the marriage).
Courts often apply an equation comparing the expected vesting timeline to the portion of the timeline the couple was married to determine what percentage of the asset counts as marital.
Valuation
Stock options and RSUs do not have a fixed present value, so courts often rely on forensic accountants or valuation experts to determine a fair value.
Factors that guide the valuation analysis include:
- The date the company issued the stock option or RSU;
- The vesting schedule;
- The company’s share price on the valuation date; and
- Any restrictions or contingencies on the shares.
Each of these details affects how and when a spouse may receive value from the asset.
Methods for Distributing Stock Options and RSUs
Judges and attorneys use several approaches to divide stock options and RSUs:
- Deferred distribution—non-employee spouse receives their share when the stock options vest or RSUs convert to shares;
- Immediate offset—employee spouse keeps the stock options or RSUs and pays the other spouse their share in cash or through other assets of equal value; and
- Hybrid approach—combines an immediate payment with deferral of the remaining portion until vesting.
These methods can involve complex allocations of both time and value.
Protect Your Financial Future with Weiner Law Group
If you are facing divorce and need guidance on dividing stock options in divorce or handling RSUs and other executive compensation, the attorneys at Weiner Law Group can help. Our firm has represented New Jersey clients with diligence, integrity, and personalized attention for over three decades.
We approach every case through collaboration between our attorneys, clients, and financial professionals to promote practical problem-solving. Our goal is to help you reach a fair outcome and maintain long-term stability after divorce. Contact Weiner Law Group to discuss your situation and learn how our experience and strategic insight can help protect your financial future. Call now 973-403-1100.