Dividing property in a divorce is rarely straightforward, especially when that property includes stock options, restricted stock units (RSUs), or other types of deferred compensation. These assets often don’t show up on tax returns or bank statements, but they can carry significant value now or in the future. If you or your spouse has received stock-based compensation through work, it’s important to understand how Illinois law treats these assets during divorce.
What Are RSUs, Stock Options, and Stock Grants?
Restricted Stock Units (RSUs) are a form of employee compensation. They are called “restricted” because they are subject to a vesting schedule. That means the employee must meet specific conditions, such as staying with the company for a certain period, before they fully own the shares.
Stock options allow an employee to purchase company stock at a fixed price in the future. If the company performs well and the stock price rises, these options can be extremely valuable.
Stock grants are direct awards of stock. Some are fully vested when granted, while others also have vesting conditions.
All of these assets may be considered in the property division during a divorce, but whether they are divided depends on how and when they were earned.
Marital or Non-Marital Property?
Illinois is an equitable distribution state, which means marital property is divided fairly, though not necessarily equally. Under Illinois law, marital property includes most assets acquired by either spouse during the marriage.
This is where things get complicated with RSUs and stock options. These assets often have delayed value and may not fully vest until after the divorce. The grant date is what controls for purposes of determining whether same is marital or non-marital. So if it was granted during the divorce, then it is marital property.That is to say, if the stock-based compensation was awarded for work performed during the marriage, it is typically considered marital property, even if it has not vested yet. Illinois statute 750 ILCS 5/503 provides guidance on classifying and dividing property this type of property.
Valuation and Enforcement
One of the biggest challenges with dividing stock-based compensation is that the value can change dramatically over time. Because of this, courts will generally avoid assigning a set dollar value and instead order a proportional division when the asset becomes liquid.
It is also important to understand that many RSUs and stock options cannot be transferred. If the stock cannot be directly split, the court may require the employee spouse to make a payment to the other spouse upon vesting or sale of the stock. This arrangement should be outlined clearly in the divorce judgment to avoid disputes later.
Full Financial Disclosure Matters
Because these types of assets are not always obvious, it is essential to disclose them during the divorce process. If you believe your spouse has been awarded stock compensation, your attorney can request employment contracts, grant documents, or financial records during discovery. Subpoenas are often required to obtain the details needed in a divorce.
Tax Considerations
Stock-based compensation comes with tax implications. RSUs are typically taxed as ordinary income when they vest. Stock options may trigger capital gains taxes.
When negotiating a divorce settlement, it is important to consider these tax factors to avoid future surprises. Consulting a tax professional in addition to your attorney is often a good idea.
Stock options, RSUs, and stock grants may not seem significant at first glance, but they can be a major financial factor in a divorce. If you or your spouse holds these types of assets, it is important to ensure they are properly identified, valued, and divided in a way that is fair and enforceable.
At Sterk Family Law, we know that every detail matters. We’re here to guide you through the legal and financial complexities of divorce, so you can move forward with confidence and peace of mind.