California is a community property state. Understanding the rules about marital property and asset division that apply to divorces filed in the state may help people to better predict what to expect in the future both during divorce proceedings and as they rebuild their lives later on.
Community property laws generally give both spouses an interest in the income and assets that either acquires during the marriage. Couples are broadly required to report their assets and their financial obligations to one another and the courts before either reaching a settlement where they agree on certain financial terms or a judge orders them to split their resources in a specific way.
Those with higher income levels and more complex personal holdings may have a harder time figuring out a fair way to manage the process. Complex compensation packages can often be a source of conflict in California divorces. Restricted stock units are a common inclusion in modern compensation plans and can unfortunately prove challenging during the property division process.
Why are restricted stock units difficult to divide?
The name used for restricted stock units provides an answer for why they can be such a challenge during a divorce. Those promised stock as part of their employment arrangement will need to fulfill certain standards. Typically, they will need to remain employed throughout a lengthy, multi-year vesting period.
They may accrue a small amount of stock each year, but they will not be able to access or sell that stock until the end of the vesting period. If a divorce occurs before someone has the right to sell their restricted stock units, there will be two main challenges.
The first will be determining how much of the stock is part of the marital estate and how much will be the separate property of the spouse with the complex compensation package. The second will be putting a price on the stock. Perhaps the organization has not yet had its IPO, so there isn’t a current stock value to use. Maybe the business has grown rapidly in recent years, so there is reason to expect that stock value will increase drastically before the end of the vesting period.
Spouses may find it rather difficult to agree on the actual financial worth of those restricted stock units. Determining their value will be important because actually dividing the stock is not possible if someone cannot sell it.
High-asset couples could face a high-conflict divorce
The unfortunate truth about high-asset marriages is that they often lead to very complicated divorce proceedings. Couples have more to fight over, and it can be very difficult for them to take a pragmatic approach to assets like restricted stock units that have a direct relationship with someone’s professional success.
Identifying the assets that can prove challenging early in a California divorce may help people as they prepare for their unique divorce process.