In many New Jersey divorce cases, one or both parties have restricted stock options or restricted stock units.
What are they? Must they be shared in a divorce? If so, how should they be valued?
The answers to those questions can have a very significant effect on your New Jersey divorce.
For this reason, it is absolutely essential that, whether you are seeking distribution of those assets or are looking to preserve and protect them in a divorce, your New Jersey divorce lawyer have a complete working knowledge of these issues and be able to assist you in formulating the best possible result.
Restricted stock options and restricted stock units are additional forms of compensation which are often given to certain employees at publicly-held companies. They are “restricted” because the employee is prevented from exercising the options or selling the stock until a future date.
In addition, only a percentage of those options and stock vest each year and, if the employee leaves the company before all of the options or stock units have vested, the employee forfeits any unvested portion.
Consider the following scenario:
In 2013, the husband is hired to head a Division of a large publicly-held company.
On March 15, 2014, because of the husband’s excellent job performance in 2013, the company awards him restricted stock options which gives him the right to purchase 5,000 shares of company stock at $20 per share each year for three consecutive (3) years, beginning on March 15, 2015. The company stock is then trading at $25 per share. However, if the husband leaves the company before all of the stock options have vested, he will forfeit any unvested portion of the options.
The husband files a Complaint for Divorce in New Jersey on January 2, 2015.
On March 15, 2015, the husband is awarded 9,000 restricted stock units in the company, because of his excellent performance in 2014. One-third of those RSU’s will vest each year, beginning on March 15, 2016. Again, however, if the husband leaves the company before March 15, 2018 (before all of the RSU’s have vested), he will forfeit any portion of the RSU’s which have not vested.
Unless the wife’s lawyer advises her otherwise, the wife will likely think that neither the options nor the stock are marital assets in which she is entitled to share in the New Jersey divorce, because:
–None of the options awarded to the husband in 2014 had yet vested; and
–The restricted stock units were awarded to the husband after the filing of the Divorce Complaint, they are not marital assets in which she is entitled to share in the New Jersey divorce.
Neither of those things is correct.
–The 2014 award, not the vesting of that award, created a marital asset–albeit one that may or may not vest and whose value is as yet uncertain.
–The 2015 award was made in recognition of the husband’s 2014 job performance—prior to the filing of the Divorce Complaint.
Unless the husband’s lawyer advises him of the proper way to handle the distribution of the restricted stock options and stock, the husband may find himself shouldering all of tax burden resulting from the exercise of the options and the sale of the stock.
Moreover, the husband should be advised of his option to seek to retain those assets–which he may want to do because of his belief that the price of the stock will increase. If that is the husband’s choice, the options and stock must be properly valued.
Choosing the right law firm in a New Jersey divorce case makes all the difference.
Salvaggio Law Group LLC handles only a limited number of cases at one time. Because of this, we can give you the attention you deserve. If you want to talk, please call us at (973) 455-1220 or fill out the Contact Form on our website.