Usually, a divorce can be a complicated matter. But whenever there are complex financial elements like Restricted Stock Units (RSUs), Stock Options, and Deferred Compensation, they have to be handled with care.
Unlike a savings account where the money is already there, these benefits are promises for the future. This makes it very difficult to decide how much each person is entitled to. In Georgia, the law seeks an equitable division, but to achieve this, we must first understand the timing and purpose of these bonuses.
The obstacle of unvested shares
The biggest problem is that, at the time of filing for divorce, many of these shares are not yet legally “yours”; you have to wait months or years to collect them.
- RSUs: These are promises from the company to give you shares in the future if you stay and work for them.
- Stock options: This is the right to buy shares at a cheap price and then sell them for more.
To decide whether these shares should be divided with your ex-spouse, Georgia courts ask a fundamental question: Why were they given to you? For instance, if the shares were given as a reward for goals you achieved while married, the court will usually say they are marital property and must be divided.
But if the company gave them to you to ensure that you continue working for them after the divorce, then there is a strong argument that they are personal property and should not be touched.
Valuation and tax traps
Valuing these assets is not as simple as looking at today’s stock price. According to IRS Publication 504, property transfers between spouses due to divorce are generally not taxed at the time of transfer, but the problem comes later.
If you receive the shares but are solely responsible for paying the capital gains tax when you sell them, the “equitable” division could leave you with much less money than you expected. It is essential that your legal strategy takes these IRS rules into account to avoid unpleasant surprises when filing your taxes.
To avoid assumptions, courts often use mathematical formulas (known as coverture fractions). These formulas calculate exactly what percentage of the shares were earned during the marriage based on time worked.
For example, if an option takes four years to vest, but you were only married for two of those years, the formula will help ensure that only the proportional portion is considered marital property.
Protecting your financial future requires a strategic approach that understands the nuances of SEC filings, grant letters, and the long-term tax consequences of asset transfers. When your compensation package is a cornerstone of your wealth, you need a legal team that is well-versed in complex financial matters.