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How are restricted stock options treated in divorce?

Restricted stock options are a special kind of compensation that is generally provided to executives and other high-level employees, workers at startups, and some other categories. They can be highly valuable, but their limitations mean that it is complex to manage dividing them properly in a divorce in California.

Restricted stock and divorce

Restricted stock units are defined by the fact that they cannot be sold until they are vested. The vesting period can be long. This is to help incentivize executives to perform well in the future, not just boost the stock price for few quarters and then quit. Courts have treated restricted stock in varying ways in divorce cases.

The key dates are when a stock option was granted and when it became vested. Either of these can be points to argue about when the restricted stock became marital property and therefore subject to division in court during a divorce. More complex is whether the restricted stock was given as compensation for current work or as an incentive for future performance, which can change the color of the asset when a judge examines it.

If you are involved in a divorce where restricted stock is going to come up in court, then it is important to be aware of the salient facts when it comes to determining how much of the stock is marital property. The precedents for this vary and do not provide specific guidance for all restricted stock cases. That means each divorce with restricted stock is its own case and needs to be worked out with a judge that can make a decision based on the specific facts of the case.

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