Well-compensated professionals in the Red Bank, New Jersey area may feel trapped in their marriages partially due to their executive employment contracts. Their compensation packages provide them with pay based on their future job performance.
Restricted stock units (RSUs) may vest over time based on job performance or tenure at the company. Professionals may also eventually become eligible for stock options after they meet certain contractual criteria. Those in the tech sector are among the professionals most likely to have stock options and RSUs integrated into their compensation packages.
These valuable future windfalls are potentially vulnerable in a divorce. Understanding how New Jersey applies equitable distribution rules to deferred compensation can help well-compensation professionals understand how to protect their finances during a divorce.
What is the New Jersey approach to RSUs and stock options?
There are two key prior court rulings that influence how the courts address unvested RSUs and stock options during divorce proceedings. Property owned by either spouse, including marital income, is typically subject to equitable distribution rules.
The Callahan V. Callahan decision from 1976 confirms that even non-vested stock options are marital assets subject to equitable distribution during a divorce, even though the stock option may not yet be available to the employee spouse. They are a form of earned compensation, so the portion earned during the marriage is divisible.
The courts may create a so-called Callahan Trust. This is a constructive trust to address resources earned during the marriage but held in the name of only one spouse to ensure the appropriate distribution of those assets at the time that the employee spouse acquires them.
The M.G. v. S.M. Appellate Division ruling from 2018 established a rebuttable presumption that stock options acquired during marriage are marital property. The spouse entitled to those stock options can present evidence to challenge that presumption.
The key factor separating what portion of the RSUs or stock options are separate versus marital is how much of the deferred compensation relates to prior job performance as opposed to future performance from the employee spouse. The process of valuing RSUs and stock options may require a valuation performed by an expert professional, as market volatility makes predicting the future value of stock all but impossible.
Tech professionals and other well-compensated workers concerned about protecting their unvested RSUs and stock options need help evaluating what portion of their resources may be vulnerable, the value of their deferred compensation and the tax considerations of acquiring RSUs or stock options. Working with attorneys who have experience handling complex assets, deferred compensation and other high-asset divorce challenges can help to ensure a fair outcome during property division proceedings.
