When couples divorce, one issue may be dividing the marital portion of stock options & RSUs (restricted stock units). Stock-based compensation can have an effect on the financial outcome of a split in Illinois. Also, these assets may vest over time and be linked to future job performance. Dividing them equitably requires careful legal and financial analysis.
An Illinois divorce attorney can help with asset division. Call Erlich Law Office at 630-538-5331 for help in Oakbridge Terrace.
How Illinois Courts Classify Stock Options and RSUs in Divorce
In Illinois, marital property usually includes all assets either spouse acquires during the marriage, with limited exceptions such as inheritances or gifts to one spouse kept separate. Whether stock options and RSUs granted or earned during the marriage count as marital property depends on whether they represent past, present, or future earnings. They are generally marital property if the purpose is to reward past performance or work done during the marriage. If they are for future work after the divorce or as part of a retention incentive, they may be separate property belonging solely to the employee spouse.
This distinction can be one of the biggest areas of conflict in high net worth divorces. The spouse who received the stock grant may argue that much of it is tied to future employment, while the other spouse may claim it reflects contributions made during the marriage. Courts examine the timing of the grant, the vesting schedule, and the purpose of the award.
For instance, if a stock option was granted two years before the divorce but vests over five years, part of it may be treated as marital property, while the remainder could be separate property. Illinois judges frequently apply a “coverture fraction” formula to apportion these interests.
Methods for Valuing and Dividing Stock-Based Compensation
Valuing and dividing stock options and RSUs can be complex because they often represent potential rather than current wealth. Unlike cash or bank accounts, their worth may depend on the company’s future performance or whether the employee remains with the employer long enough to vest the shares.
Vested vs. Unvested Options
Vested stock options are easier to value since the employee already has the right to exercise them. Courts typically determine their value based on the difference between the exercise price and the current market value of the stock.
Unvested stock options or RSUs are trickier. Some Illinois courts treat them as contingent assets that cannot be valued precisely until they vest. Others estimate their present value using financial modeling, such as the Black-Scholes method, which factors in volatility, time to maturity, and other variables.
Division Methods
When dividing stock options in divorce, courts and attorneys use a few common approaches.
- Deferred distribution: The non-employee spouse receives his or her share only when the stock vests or is exercised. This approach ensures that both spouses share in the actual realized value.
- Present value buyout: The employee spouse pays the other spouse the current estimated value of the other spouse’s portion now, avoiding future entanglement.
- Hybrid approach: A combination of both may work when some options are vested and others are not.
Some spouses may prefer deferred distribution for RSU division in Illinois divorce. It does require the spouses to maintain a degree of financial connection after divorce.
Tax Considerations
Tax implications play a major role in dividing stock options & RSUs. The spouse who receives the shares or options may owe taxes when they vest or are exercised, depending on the company’s plan and federal tax rules.
Employer Restrictions
Employers may restrict the transfer of stock options or RSUs to non-employees. In these cases, courts often use alternative solutions, such as constructive trusts, where employee spouses hold and later distribute non-employee spouses’ shares once the assets vest or are sold.
Every company’s compensation plan is different. Careful review of plan documents is important to accurately divide stock options & RSUs in high net worth divorce proceedings.
How an Illinois Divorce Lawyer Helps Protect Your Financial Interests
Chicago is home to about 127,100 millionaires. For many people, including executives, tech professionals, and their spouses, stock options and RSUs represent a significant portion of total wealth. Failing to identify and value these assets properly can lead to major financial losses.
An Illinois divorce attorney helps protect your share of marital property and ensures you understand the nature and value of the assets involved in your divorce. For example, divorce attorneys can analyze grant documents to determine when and why an employer awarded stock options or RSUs and work with financial experts to calculate accurate valuations, especially for unvested or performance-based awards.
Attorneys can negotiate fair settlements that account for taxes, vesting schedules, and employer restrictions. They advocate to ensure that the classification of marital vs. separate property reflects the true intent of the compensation, which helps with protecting your assets.
Erlich Law Office can help with dividing stock options & RSUs in an Oakbridge Terrace divorce. Contact us today.
FAQs About Dividing Stock Options & RSUs in Divorce
Are unvested stock options considered marital property in Illinois?
If stock options are tied to work performed during the marriage, Illinois courts may treat unvested options as marital property subject to division.
How do courts determine the value of stock options during divorce?
Courts may use market-based estimates or financial models such as the Black-Scholes formula to calculate present value, or they may defer division until the options vest and their value becomes certain.
Can my spouse claim stock options granted before our marriage?
Generally, stock options granted and earned before marriage are separate property and not divided in divorce. However, any increase in value during the marriage might be subject to partial division.
