Dividing RSUs, Stock Options, and Startup Equity in a California Divorce

Why Equity Compensation Matters in Bay Area Divorces

Equity compensation is a central feature of many Bay Area careers. Employees at public companies receive restricted stock units that deliver shares on a schedule. Startup professionals hold incentive or nonqualified stock options that may or may not be in the money. Many households participate in employee stock purchase plans or receive cash or stock bonuses tied to company performance. When a marriage ends, these benefits raise characterization, valuation, and division questions that do not arise with ordinary wages. This article explains how California treats equity compensation in divorce and how our Oakland based team helps clients navigate the process. For a broader overview of property topics, see our post on Property Division in California Divorces.

Community and Separate Interests

California divides marital estates into community and separate property. Community property is generally what you acquire or owe between the date of marriage and the date of separation. Separate property is generally what you brought into the marriage, what you acquired after separation, or what you received as a gift or inheritance. 

Equity awards often contain both community and separate components inside a single grant. The starting point is the grant document and the purpose of the award. If an award primarily compensates past service during the marriage, a larger share may be treated as community. If the key purpose is to retain future service, a larger share may be treated as separate to the extent vesting requires work after separation. 

California courts frequently allocate unvested portions based on time worked before and after separation so the community share reflects service during the marriage.

Disclosures and the Paper Trail

Before you negotiate division terms, each spouse must serve a preliminary declaration of disclosure that identifies all assets and debts. In equity cases that means producing plan documents, grant notices, vesting schedules, brokerage confirmations, and any agreements that address change in control, clawbacks, or blackout rules. 

California’s disclosure statute sets timelines. The petitioner must serve the preliminary disclosure with the petition or within sixty days of filing. The respondent must serve the preliminary disclosure with the response or within sixty days of filing. The court expects proof of service, and nondisclosure can be grounds to set aside a judgment. Many families use two Judicial Council forms to organize this paper trail. The Schedule of Assets and Debts lists what is owned and owed, and the Property Declaration organizes how each asset should be divided for judgment. 

Valuation and Division Mechanics

Public company RSUs are usually the most straightforward because vesting delivers shares that can be sold and taxed through payroll withholding. Even with RSUs, you need settlement language that clarifies when shares will be sold, how tax withholding will be handled, and how proceeds will be delivered to the nonemployee spouse. 

Private company options and startup equity can be more challenging. There may be no liquid market because the company is not yet public and because company bylaws can restrict transfers to third parties. In those cases, parties often agree on a structure that defers distribution until liquidity, holds back a percentage of future sales, or uses a constructive trust so the employee spouse sells and then pays the community share according to a formula. Orders should describe how the employee will document future sales and how the nonemployee will receive proceeds to avoid disputes months or years after judgment.

Service based vesting introduces a second layer of complexity. A single grant can be part community and part separate. Settlement language typically assigns a fraction of each vesting tranche to the community based on time worked between grant and separation and assigns the balance to separate property. That fraction can be tailored to the plan language and to the employer’s stated purpose for the award. If there are performance conditions or a risk of forfeiture tied to employment, the agreement should explain how forfeitures affect future obligations so neither spouse bears an unfair windfall or penalty.

Trading windows and blackout periods also affect how and when an employee can sell. Your order should incorporate realistic compliance obligations and timing. For example, many Bay Area companies open quarterly windows shortly after earnings announcements. A judgment that requires immediate sale outside a window will be impossible to perform. When awards are subject to company policies that prohibit transfers, you can avoid that problem by assigning the economic value rather than the shares and by requiring the employee to execute sales and remit the community portion when sales are permitted.

Taxes, Support, and Practical Timing

Equity awards often create ordinary income at vesting or at exercise. The cash to pay that tax can come out of withholdings for RSUs or out of the sale proceeds after a same day sale. Your judgment should specify who bears tax on the community portion of future vesting or exercises and how to handle estimated tax if withholdings are insufficient. When equity is sold after separation, the proceeds can still count as income for support purposes, which is one reason to coordinate property division language with your child support and spousal support calculations. The California Child Support Services guideline estimator is a helpful way to preview how equity income affects child support when it is sold. 

Timing matters when a liquidity event is on the horizon. If your spouse’s company is rumored to be filing for an initial public offering or to be acquired, your settlement should state how new information will be shared and whether either party can request a brief delay in sales to remain within trading policies. On the other hand, if options are close to expiration and out of the money, a judgment can make clear that the nonemployee spouse will not share in a grant that later expires without value. These details avoid confusion and reduce the chance of post judgment motion practice.

A Roadmap for Documents and Orders

A complete equity division packet usually includes copies of the grant notices, the plan summary, statements showing vesting and delivery history, and any relevant company policies. The exhibits to a judgment typically attach the portion of the plan or grant that controls transfer rules and blackout periods so everyone can see the constraints. The judgment then assigns the community share of future vesting and requires the employee spouse to provide periodic confirmations and to deliver proceeds within a fixed number of days after a sale. The more specific you are about the process, the less likely you are to have a disagreement later about timing or accounting. The California Courts provide standard disclosure forms that help you organize information, including the Schedule of Assets and Debts and the Property Declaration. 

How Our Oakland Team Can Help

We routinely help Bay Area professionals and their spouses divide RSUs, stock options, ESPP shares, bonuses, and other compensation. We collaborate with financial experts when needed, draft orders that address vesting and trading constraints, and coordinate property language with support so you know what to expect. If relocation or a job change may prompt a parenting move, our article about Move Away Requests in Bay Area Custody Cases explains how courts evaluate moves that affect parenting time. For a general overview of how California views community and separate property, the California Courts Self Help page on property and debts in a divorce is a reliable starting point. 

For help, contact the Law Offices of Janice Cho, APC or call (510) 925-2651 for a confidential consultation.