High-net-worth individuals in Austin face unique challenges when it comes to dividing complex financial assets such as restricted stock units, RSUs. Understanding how RSUs and business equity are treated in a divorce is important so you can make the most-informed decisions moving forward.
What Are RSUs and Why Do They Matter in Divorce?
RSUs, are a form of compensation that many high-level executives, tech professionals, and business leaders receive. Unlike stock options, restricted stock units are actual shares granted to an employee, usually with conditions such as a vesting schedule.
When it comes to divorce, restricted stock units can be tricky to divide because:
- Vesting Schedules: Some stocks may not be fully vested at the time of divorce.
- Valuation Challenges: The value of the stock can fluctuate with the market.
- Separate vs. Community Property: Texas is a community property state, but the timing of when the stocks are granted and vested can determine whether they are classified as separate or community property.
The courts in Austin must carefully analyze when the stocks were awarded and what they were intended to compensate before deciding if they are subject to division.
Understanding Business Equity in Austin Divorces
Business equity refers to ownership interest in a business, whether it’s a privately owned company, a partnership, or a corporation. In Austin, equity is divided based on whether it is classified as separate or community property:
- Separate Property: If the business was owned before marriage, acquired by gift or inheritance, or initially capitalized with separate property, it may be considered separate property.
- Community Property: If the business was created during the marriage, at least a portion of the equity may be considered community property.
Even if one spouse founded the business before marriage, claims may still be made against the business being entirely that spouse’s separate property. It’s important to discuss the business with an experienced family law attorney to determine what could happen with the overall division in divorce..
How Austin Courts Divide RSUs in Divorce
When dividing restricted stock units (RSUs) in a divorce, Austin courts apply Texas community property principles and often rely on the formula outlined in Texas Family Code Section 3.007. This provision helps determine how much of the unvested stock options and RSUs belong to the marriage, based on what was earned while you were married.
Key factors the court will consider include:
- Grant Date vs. Vesting Date: Austin courts distinguish between RSUs granted for past services (which may be community property if they were during the marriage) and those meant to reward future services (which could be considered separate property).
- Vesting Schedules: Unvested RSU may still be divided in the divorce, so it’s important to analyze the vesting schedule of all unvested shares with an experienced family law attorney.
Ultimately, dividing restricted stock units fairly requires a detailed analysis of employment agreements, stock grant documents, and vesting schedules.
Common Solutions for Dividing RSUs and Business Equity
Dividing RSUs and business equity during divorce doesn’t always end at the final decree. In some cases, ongoing arrangements are necessary to manage these assets after the divorce is finalized. Some common solutions include:
- Deferred Division Agreements: For unvested RSUs, courts in Austin or settlement agreements may specify how the shares will be divided once they vest. This often includes a formula pursuant to Texas Family Code section 3.007 for distribution based on the portion earned during the marriage versus after.
- Trust or Escrow Arrangements: In some cases, restricted stock units or equity may be placed in a trust or escrow account until certain conditions are met, ensuring fair division without requiring one party to liquidate the asset immediately.
- Buyouts: One spouse may choose to buy out the other’s interest in the business equity or restricted stocks. A lump-sum payment or structured payout can help avoid joint ownership issues post-divorce.
- Co-Ownership Agreements: If a complete buyout isn’t feasible, divorcing spouses may agree to continue co-owning the business, at least temporarily. These agreements usually include detailed terms to avoid future disputes over management or profit distribution.
- Tax Allocation Provisions: Since both restricted stock units and equity can create significant tax events, it’s common for divorce settlements to include provisions on how taxes will be handled when the stocks vest or when the business is sold.
Handling restricted stock units and business equity after divorce in Austin often requires careful, ongoing management. Clear agreements and experienced legal guidance can help minimize future conflicts and make sure each party receives their fair share.
Work with an Austin High-Net-Worth Divorce Attorney
RSUs and business equity are not ordinary assets, and high-net-worth divorces require attorneys who are familiar with these intricate financial issues. At Deyerle Silva Smith, PLLC, we have experience representing high-net-worth individuals in Austin divorce cases. Whether you are a business owner, an executive with restricted stock units, or the spouse of one, we are here to help you navigate the process. Contact our team today to schedule a consultation.