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Executive compensation constitutes one of the most complex, contentious areas of high-net-worth divorce law. Not only do valuation dates and tax implications come into play, but the details of executive compensation rarely appear on standard pay slips or tax returns, making them difficult to track. Find out what you need to know about dividing stock options, RSUs, and deferred compensation in an Oklahoma divorce before you move forward with yours.
Future, Contingent Compensation
Executives and other high earners are often compensated through RSUs, stock options, deferred bonuses, private equity interests, carried interest, and long-term incentive plans. These forms of compensation are typically connected to continued employment, future liquidity events, or company performance, and they may not pay out for years. Despite that fact, they are still considered marital assets if they were accrued during a marriage.
Understanding the Forms of Executive Compensation
The first step toward determining how executive compensation will be split in a divorce is to get an understanding of the different forms that stock-based compensation takes. They can include:
- Stock options. Stock options confer the right, rather than the obligation, to buy. They allow executives and other high earners to purchase company stock at a strike or exercise price for a specific period. Think of them like coupons that allow executives to purchase products in the future at today’s price.
- Restricted stock units. RSUs grant an actual stock or a promise to deliver stock that is subject to restrictions, including vesting requirements. The concept is like placing the stock shares in a locked box and allowing the employee to receive the key only after certain conditions are met, such as remaining with the company for a predetermined number of years.
- Performance stock units. PSUs are similar to RSUs, but their vesting is contingent on achieving specific individual or company performance goals. Those goals can include revenue targets, total shareholder returns, or earnings per share. PSUs directly align executive pay with company performance.
- Stock appreciation rights. SARs grant holders the right to receive payments in cash or stock equal to the increase in the company’s stock price over a specific period.
Options for Dividing Deferred Compensation
There are several ways that deferred compensation can be divided. They include:
- Immediate buyout. The employee keeps their shares of RSUs or other stock options and pays their spouses their fair share of the value in cash.
- Deferred distribution. The spouse will receive their fair share of the stock options when they vest.
- Asset offset. The spouse receives other assets that are commensurate in value with their share of the executive’s deferred compensation.
You can either come to an agreement with your spouse about the ideal way to divide stock options and other forms of deferred compensation, or you can contest the terms of your divorce agreement and leave it up to the court to decide how to handle the issue. Either way, you can benefit from having an Oklahoma divorce lawyer on your side to represent your rights and interests.
Understanding the Tax Implications
Selling or transferring assets, including stock options, can trigger significant capital gains taxes. Oklahoma taxes capital gains as income and offers a deduction for people who pay taxes on capital gains from the sale of stock in companies based in Oklahoma or properties based in the Sooner State. In 2022, 20,206 people claimed the state’s capital gains deduction on their tax returns. If you’re eligible to claim this deduction, you’ll still have to pay the federal taxes.
Your attorney can help you find an accountant to work with to minimize the impact of capital gains taxes and understand their implications when it comes to what you can expect to gain from the division of executive compensation.
FAQs
Are RSUs Split in a Divorce?
RSUs are generally split in a divorce if they were earned during the marriage. They can be divided by an immediate buyout, in which the employee keeps shares and pays their spouse cash, or a deferred distribution, in which the spouse receives their share of the restricted stock units when they vest. Vested RSUs are less complex than unvested RSUs, which are typically treated as partially marital and partially separate property.
What Assets Are Untouchable in a Divorce?
The assets that are untouchable in a divorce are known as separate property. Separate property includes any assets that you owned before you got married or acquired after you separated, inheritances, and gifts made to you exclusively. Just be careful with your separate assets. If you commingle them with marital funds, they could be considered community property when it comes time to divorce.
Are Stock Options Split in a Divorce?
Stock options are generally split in a divorce because they are considered marital property even if they vest after the divorce is finalized. The courts treat them as deferred compensation for work that was completed during the marriage. They can be divided via deferred distribution, offset by other assets, or sold so that their profits can be divided.
How Are Assets Divided in a Divorce in Oklahoma?
Assets are divided according to the doctrine of equitable division in Oklahoma. That means while it’s not uncommon for the courts to issue an order requiring a 50/50 split, that won’t necessarily be the way your marital property is divided. Instead, the court will consider what’s fair by factoring in things like each spouse’s contribution to the marriage, earning potential, age, and health, and which spouse retains custody of the children.
Hire a Divorce Lawyer Today
If you’re concerned about dividing stock options, RSUs, and deferred compensation in an Oklahoma divorce, your next step is clear. Hire a divorce lawyer who can help protect your financial interests throughout this difficult process.
The team here at Bundy is here and ready to help. Aaron Bundy is the only IAFL lawyer in Oklahoma, and our entire team has extensive experience in assisting high-net-worth clients with their divorce proceedings, including complex asset divisions. You can trust us to protect your rights and interests, helping to make sure that you get your fair share of the marital assets. Contact us to schedule an initial consultation with an Oklahoma divorce attorney today.
