Restricted Stock

I think we can agree that restricted stock units might not be the most exciting topic for a blog. However, you should likely change your mind on this issue if you are planning on getting divorced.  In the world of family law, the restricted stock unit, and the legal complications involved in valuing and equitably distributing same, have been the subject of heavily debated dispute amongst even the most experienced of practitioners.  As such, it is critical for everyone seeking a divorce to have at least some basic knowledge as to how your restricted stock units or your spouse’s restricted stock units, will be protected, valued and/or divided upon divorce.

First, let’s address the definition of a restricted stock unit.  A restricted stock unit is compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock immediately, but instead receives it according to a vesting plan and distribution schedule after achieving required performance milestones or upon remaining with the employer for a particular length of time.        Confusing?  Yes, just a tad.  Stated perhaps more simply, a restricted stock unit is stock that is theoretically “given” to an employee, but cannot be actually obtained or sold by the employee until a specific date in the future, and that date is linked to an employer’s length of time at a company or an employee reaching a requisite performance level.  When the employee is able to actually obtain and/or sell the stock is considered to be when the stock “vests”. 

Much of the knowledge you will need to know about the valuation and distribution of a restricted stock unit upon divorce has been provided in the recently published case of M.G. v. S.M..  In this case, the appellate division addressed the question of whether a spouse who was  given restricted stock units during the parties’ marriage was obligated to provide his spouse with a portion of those stocks even if the restricted stock units did not actually vest (or become available to the employee) until after the Divorce Complaint was filed.  The answer?  Of course, not a simple as a “yes” or “no”. 

The answer depends upon whether the spouse’s receipt (or vesting) of the stock is dependent upon whether the vesting of the stock was a result of job performance during the marriage or job performance after the Complaint.  As determined in M.G. v. S.M., where there is an award of restricted stock units during the marriage that were awarded as a result of work performed during the marriage, but do not vest until after the marriage, there is a rebuttable presumption that these restricted stock units were awarded for work performed during the marriage.  As such, the employed spouse would be obligated to equitably distribute a portion of his or her stock to his or her spouse. 

What is a rebuttable presumption?  A rebuttable presumption for purposes of restricted stock units means that a Court will presume that a restricted stock option awarded during a marriage, but not vesting until after the divorce was awarded as a result of work performed during the marriage and is subject to equitable distribution.  As noted by M.G. v. S.M., a spouse who wants to argue that he or she should not be obligated to share a portion of his or her restricted stock units with his or her spouse has the burden of proving to the court that the restricted stock units were not awarded as a result of work performed during the marriage, but were rather awarded because of future work or performance to be performed after the marriage.

What does all this mean?  It means that “why” a spouse receives a restricted stock unit is critical.  If you are spouse who has received restricted stock units during the marriage that do not vest until after the Complaint, there will be a presumption that your spouse is entitled to a portion of those stocks upon divorce.  If you are the spouse who is seeking restricted stock units from your spouse that will not vest until after the divorce, then you have the benefit of a presumption in your favor that you should be entitled to a portion of these stocks upon divorce.