Stock options and restricted stock units (RSUs) have become an increasingly valuable part of compensation for many professionals throughout Washington, particularly within the Seattle-Bellevue technology corridor. Companies ranging from established employers such as Amazon, Microsoft, and Google to emerging startups often award stock options and RSUs to executives, software engineers, managers, and other key employees. During a divorce, these assets can become one of the most valuable components of the marital estate, raising complex questions about ownership, valuation, vesting schedules, and division.
The divorce attorneys at S.L. Pitts PC have decades of experience helping Washington clients navigate property division matters involving stock options, RSUs, and other high-value assets. In this guide, you will learn how Washington courts evaluate these forms of compensation, the factors that influence their division, and the practical strategies that may help protect your financial future during divorce.
Are Stock Options and RSUs Community Property in Washington?
Stock options and RSUs can be community property, separate property, or a combination of both. How they are treated depends on the specific facts surrounding each award.
Community Property Depends on the Purpose of the Award
In general, property acquired during a marriage is presumed to be community property, while assets acquired before marriage may remain separate property. Stock options and RSUs can be more complicated because employers may grant them to reward past performance, encourage future employment, or both. That distinction can affect whether all or part of an award is subject to division.
Each Award Should Be Evaluated Individually
Many Washington professionals receive multiple stock option or RSU grants over the course of their careers, each with different grant dates and vesting schedules. Courts generally evaluate each award individually before determining whether it is community property, separate property, or a combination of both. The methods Washington courts use to make that determination are discussed below.
How Unvested Stock Options and RSUs Are Divided
Many stock options and RSUs remain unvested when a marriage ends. Rather than forcing a one-size-fits-all solution, Washington law allows several approaches to address these awards.
Deferred Distribution (“If and When” Division)
In some cases, the court may postpone distribution until the stock options or RSUs vest. Under this approach, the non-employee spouse receives their share if and when the awards become payable, helping ensure the division reflects the value ultimately received.
Cash Buyouts and Asset Offsets
In some cases, spouses agree that one party will keep the stock options or RSUs while the other receives assets of comparable value, such as retirement accounts, investment accounts, or equity in the family home. This can simplify the property division process and avoid future financial ties.
Negotiated Settlement Agreements
Many divorces involving stock options and RSUs are resolved through negotiated settlement rather than litigation. A carefully drafted agreement can address future vesting events, tax obligations, and payment procedures, reducing the risk of disputes after the divorce is finalized.
Important Tax and Employer Rules to Consider
Taxes and employer stock plan rules can affect how stock options and RSUs are divided during a Washington divorce. Overlooking these issues can change the value of an award or complicate how it is ultimately distributed. Some of the most important considerations include:
Income Taxes and Capital Gains
Different types of stock options and RSUs are taxed differently. The timing of vesting, exercising an option, or selling shares can affect the taxes owed, so it is important to consider the potential tax consequences before finalizing a property settlement.
Employer Plan Rules and Transfer Restrictions
Many employers have stock plans that restrict when stock options or RSUs may be transferred, exercised, or distributed. Although these rules do not determine how a Washington court divides marital property, they can influence how a settlement is structured and implemented.
Trading Windows and Company Policies
Employees of publicly traded companies may only be permitted to buy or sell company stock during designated trading windows. Blackout periods, insider trading policies, and other company rules should be considered when negotiating a settlement involving stock options or RSUs so both spouses understand when the assets can realistically be accessed or sold.
How a Washington Divorce Attorney Can Help Protect Stock Options and RSUs
Stock options and RSUs are among the more complex assets divided in a Washington divorce. A Washington divorce attorney can help by:
Reviewing Stock Option and RSU Documents
Grant agreements, vesting schedules, stock plan documents, and employment records can all affect how stock options and RSUs are addressed during a divorce. An attorney can review these documents to identify the terms that may affect property division, future vesting, transfer restrictions, and tax obligations.
Developing a Property Division Strategy
Every divorce presents different financial priorities. An attorney can evaluate the available division methods, including deferred distribution and asset offsets, and recommend an approach that aligns with your circumstances while accounting for Washington law, employer stock plan rules, and potential tax consequences.
Negotiating and Drafting Settlement Terms
A settlement agreement should clearly explain how stock options and RSUs will be divided, how future vesting events will be addressed, and how taxes and other obligations will be allocated between the parties. Careful drafting can reduce ambiguity and make the agreement easier to implement.
Representing You in Court
If a settlement cannot be reached, an attorney can present evidence regarding the stock options and RSUs at issue, including their value, vesting schedule, and any factors relevant to property division. The court will then determine a just and equitable division based on the facts of the case and Washington law.
Why Choose S.L. Pitts PC for Stock Options and RSUs in a Washington Divorce?
Stock options and RSUs should be carefully assessed during a divorce. Business owners, technology professionals, executives, and other professionals across Seattle and Washington turn to S.L. Pitts PC because we provide:
Experience With Complex Property Division
Complex property division is a core focus of S.L. Pitts PC’s family law practice. The firm regularly represents clients in divorces involving high-value assets, sophisticated financial issues, and property that requires detailed legal and financial analysis, including stock options and RSUs.
Recognized Leadership in Washington Family Law
S.L. Pitts PC is committed to advancing the practice of Washington family law through legal scholarship and professional education. Members of our firm have contributed to the Washington Family Law Deskbook, a leading resource published by the Washington State Bar Association for family law attorneys and judicial officers, and have presented continuing legal education programs on complex financial issues in family law litigation.
A Family-Centered Approach
Having families of our own shapes the way we represent our clients. We prepare every case for trial, yet we never lose sight of the value of resolving disputes efficiently, reducing unnecessary conflict, and preserving family relationships whenever the circumstances allow.
Frequently Asked Questions
Below are answers to some of the most common questions our Seattle divorce attorneys receive about dividing stock options and RSUs during a Washington divorce.
What is equity compensation?
Equity compensation is a form of employee pay that provides ownership interests in a company rather than, or in addition to, cash. Common examples include stock options, restricted stock units (RSUs), employee stock purchase plans (ESPPs), and performance stock units (PSUs).
How is equity compensation divided in a Washington divorce?
Washington courts consider factors such as when the equity was granted, why it was awarded, and when it vests to determine whether it is separate or community property. Depending on the circumstances, the equity may be divided between the spouses or offset with other marital assets.
Can a prenuptial agreement protect stock options or RSUs in Washington?
Yes. A valid prenuptial agreement can specify whether stock options, RSUs, or other forms of equity compensation remain separate property or how they will be divided if the marriage ends.
Do I need a forensic accountant to value stock options or RSUs?
Not always. However, if there is a dispute over the value, ownership, or disclosure of stock options or RSUs, a forensic accountant can provide the financial analysis needed to support a fair property division.
What documents should I gather if my divorce involves stock options or RSUs?
Documents such as stock plan documents, grant agreements, vesting schedules, account statements, employment agreements, and pay statements can help establish how stock options or RSUs should be treated. Tax returns and other compensation records may also provide important information.
If you have additional questions, our divorce attorneys will be happy to answer them during your initial consultation.
Learn More About Dividing Stock Options and RSUs in a Washington Divorce
Stock options and RSUs can play an important role in your financial future. At S.L. Pitts PC, we work to protect your personal, professional, and financial interests while minimizing conflict and reducing unnecessary stress throughout the divorce process.
To learn more, explore the resources on our website or contact our office to schedule a consultation with one of our experienced Seattle divorce attorneys.