What Are Restricted Stocks
Restricted Stock Meaning In TX
Restricted Stock Units (RSUs) are assets that are frequently encountered in a divorce, especially when a spouse is a higher level employee of a company with a long-term incentive performance plan. Restricted stock units are a more complex asset to divide and understand. RSUs are a promise to issue shares of employer stock once certain conditions have been met. The shares are “restricted” because they are subject to a vesting schedule based on length of employment or performance goals. However, RSUs are only transferable when certain conditions are met. The benefit of RSUs as compared to stock options is that once the conditions for vesting have been met, the stock shares are issued to the employee spouse. In comparison, with stock options, a “strike” price must be paid in order for the stock to be awarded to an employee.
Restricted Stock Units Restrictions
Restricted Shares In Texas
The vesting period is a restriction that specifies the length of time that must pass or an objective that must be accomplished before the restricted stock is vested. Since restricted stock is awarded to employees as compensation, getting fired or leaving a company before the vesting period is over usually means that their rights to the restricted stock units are forfeited.
Restricted Stock Units are an incentive to maintain as long term employees, key employees of a company, and the longer that the employee remains employed at the company, the more RSUs that vest. Typical RSU grants may involve a four year vesting schedule with 25% of the RSUs vesting each year. Whether or not the restricted stock units can be divided during a divorce depends on when the spouse was granted the RSUs and when the RSUs vest.
When Is Restricted Stock Community Property?
Restricted Stocks Laws In TX
The Texas Family Law Code Section 3.007 provides a formula to determine whether the restricted stock is community property or separate property. Under Tex. Fam. Code §3.007:
(d) A spouse who is a participant in an employer-provided stock option plan or an employer-provided restricted stock plan has a separate property interest in the options or restricted stock granted to the spouse under the plan as follows:
(1) if the option or stock was granted to the spouse before marriage but required continued employment during marriage before the grant could be exercised or the restriction removed, the spouse’s separate property interest is equal to the fraction of the option or restricted stock in which:
(A) the numerator is the sum of:
(i) the period from the date the option or stock was granted until the date of marriage; and
(ii) if the option or stock also required continued employment following the date of dissolution of the marriage before the grant could be exercised or the restriction removed, the period from the date of dissolution of the marriage until the date the grant could be exercised or the restriction removed; and
(B) the denominator is the period from the date the option or stock was granted until the date the grant could be exercised or the restriction removed; and
(2) if the option or stock was granted to the spouse during the marriage but required continued employment following the date of dissolution of the marriage before the grant could be exercised or the restriction removed, the spouse’s separate property interest is equal to the fraction of the option or restricted stock in which:
(A) the numerator is the period from the date of dissolution of the marriage until the date the grant could be exercised or the restriction removed; and
(B) the denominator is the period from the date the option or stock was granted until the date the grant could be exercised or the restriction removed.
(e) The computation described by Subsection (d) applies to each component of the benefit requiring varying periods of employment before the grant could be exercised or the restriction removed.
If RSUs exist in your estate, it is important to obtain the RSU issuance documents for each grant, which set out the vesting schedule so that the correct calculation can be done to determine separate property and community property RSUs. RSUs are fairly common for employees of publicly traded companies.