Dividing Stock Options or Restricted Stock Units 

In California, stock options or Restricted Stock Units (RSUs) that are granted to a spouse during a marriage are community property. They are part of the marital property that gets divided es in a divorce.


The division and/or valuation of stock options is a complex issue.  There are various approaches, depending on the nature of the grant – was it to retain talent, or as a reward for good performance, or both?

“Finally, by approving a time rule allocating community and separate property interests in employee stock options in this case, we reach a result which continues Paul and Maria’s joint ownership interests in the community options. We do not suggest that this will always be the proper method of distribution of employee stock options.”  Marriage of Hug

Hug or Nelson?

There are two primary methods for allocating the community versus separate property interests in intermediate stock options / RSUs (grants that were awarded during the marriage but will vest after the date of separation) – namely: the Hug formula (from the Marriage of Hug case) and the Nelson formula (from the Marriage of Nelson case).

The Hug formula is typically more favorable to the community, while the Nelson formula is typically more favorable to the employee spouse.  Hug is used generally when the grant is a reward for past performance or a hybrid of past performance and retention, and Nelson is generally used when the intent of the grant is to reward future performance.  If the purpose was to reward past efforts, that compensation is for work during the marriage, which is why Hug gives the community a larger share.

How to calculate?

Hug formula:  The number of options determined to be community property is the product of the following fraction: the numerator is the total months between commencement of employment and the date of separation, and the denominator is the total months between the commencement of employment and the date when each option vested; this fraction is then multiplied by the number of shares of stock which could be purchased on the date each option vested.

Nelson formula: The numerator is the number of months from the date of grant of each block of options to the date of separation, and the denominator is the period from the time of each grant to its date of exercisability.

Deciding how to divide.

Once the community interest is determined, there are various methods to divide the options/RSUs.  One option, if allowable, is to transfer the options or shares to the other spouse. 

If this is not possible, the options/RSUs can be values, and a buyout negotiated.

Is it Income, Property, or Both?

Dividing Options / RSUs can impact both Child Support and Spousal Support, as they are considered income for who ultimately receives them.  In addition, there can be tax complications for either or both parties, depending on when they are actually divided.

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