What are RSUs, and How Do They Get Divided in a Divorce?

In divorce, you need to know what assets make up your “marital estate,” or all the marital property you own jointly with your spouse. Often, understanding your assets includes navigating the complex world of deferred compensation plans. Most people have probably heard of a 401(k) plan, in which an employer gives an employee the chance to defer income and invest that money for a future retirement. Another form of deferred compensation growing in popularity is a Restricted Stock Unit (RSU) plan.

RSU plans let employers compensate employees with common stock as well as a salary, as part of the employee’s total compensation package. The employee receives an Award Statement granting a certain number of RSUs along with a schedule of when those RSUs convert to common stock and are delivered to the employee. This conversion process is called vesting. Vesting is generally linked to time, for example, RSUs might vest quarterly over a few years, however some RSU plans might include performance metrics.

While it is clear that 401(k) retirement plan assets saved during the marriage are subject to division, what happens to RSUs that haven’t vested yet? Under Illinois law, so long as the RSUs were granted to one party during the marriage they are marital property and must be split at the time of judgment, or when the divorce becomes final. But, this does not necessarily mean that 100% of the common stock that eventually vests from an RSU is marital property. Depending on the employment terms that apply to the spouse who earns the RSUs, the common stock might be part marital property and part separate property. RSU plan administrators, unlike 401(k) plan administrators, will not create a separate spousal account or work within the parameters of a divorce decree to divide the assets. So, how are RSUs generally divided in divorce? Your options include a buy-out or setting up a constructive trust, which will distribute assets to the former spouse when the RSUs convert to common stock. The common stock will then be divided using a formula to split up only the part of the common stock that is marital property, and then the former spouse’s share of stock can be distributed.

Our Evanston divorce lawyers at O. Long Law work with clients just like you to find the division solution that best fits each unique situation, keeping in mind the complexities of vesting and formulas (called a coverture fraction or formula) dividing marital and separate property. If you have an RSU plan as part of your marital estate or have other questions on deferred compensation plans in divorce, please reach out to our office for a consultation. At O. Long Law, we are committed to helping set you on your best path forward.