By Michael Rivers
Family law attorneys, mediators, judges, and divorcing parties often confront this issue in divorce cases that involve Restricted Stock Units (RSUs), as RSUs can function as both property and income. This article addresses that problem by showing how professionals can apply the analysis correctly in real-world divorce cases. The issue matters because a person can easily double count the same RSU value during property division and spousal maintenance, which can produce an unfair result. This article explains how that happens and how to avoid it by walking through a series of examples that build from simple asset division to more complex RSU scenarios.
Restricted Stock Units are a form of compensation. An employer grants them to an employee, usually subject to a vesting schedule. Before vesting, the employee does not fully own the RSUs. If the employee satisfies the vesting conditions (typically by remaining employed for a required period of time), the RSUs convert into shares of stock or their cash equivalent. In divorce cases, RSUs create difficulty because they can function as both property and income.
Stock shares, including unvested shares, can be awarded as property. Vested RSUs are also treated as income for tax purposes (Internal Revenue Code (IRC) Section 83) and when determining spousal maintenance and child support (RCW 26.19.071). That overlap creates the risk of double counting. Most judges and family law attorneys are aware of this issue, but often cannot analyze the solution on hour twelve of mediation or day four of trial.
It is difficult to discuss these issues in a meaningful way without using detailed numerical examples. Even experienced family law attorneys may recognize the problem in theory without fully understanding the correct way to solve it in practice. The examples below build on each other, starting with the most basic division of assets and moving step by step toward the final demonstration of how mishandling RSUs can lead to double counting and inequitable results.
The Basic Property Problem
This issue does not usually come up with simpler assets. Cash is straightforward. One hundred dollars in one bank account equals one hundred dollars in another account. Investment accounts can create more complexity because they may hold different securities, but courts and attorneys still usually start with the same basic idea: if two accounts have the same value on the date of division, they generally represent the same value of property. The nuances of tax issues, account type, and liquidity may matter, but the starting point stays the same.
That is important because courts usually do not divide every asset exactly in half. Instead, they divide the overall net community estate in a fair way. One spouse may keep one account, while the other spouse receives more cash or a different asset to balance things out. As long as the total values line up, the division can still work.
For all future illustrations, assume the judge intends to divide the spouses’ community property equally and to award spousal maintenance for two years that equalize the parties’ net incomes. In these scenarios, only one spouse (Spouse 1) is employed and earns $200,000 net per year, while the other spouse (Spouse 2) is not working.
In a simple example, the parties have three community assets: an investment account worth $280,000, another investment account worth $120,000, and a bank account worth $200,000. The total community estate is $600,000. If the court divides each account equally, each spouse receives $300,000.
In a more typical scenario, the court allocates entire accounts to one spouse and balances the division using other assets. For example, one spouse may receive the $280,000 account, while the other receives the $120,000 account and a larger share of the bank account. Even though the assets are distributed differently, each spouse still receives $300,000 in total value.
The same approach applies when an asset includes both community and separate interests. If part of an account is separate property, the court awards that separate portion to the owning spouse and divides only the community portion. The total distribution still results in each spouse receiving equal community value.
RSUs make this process more complicated because they do not fit neatly into one category. They are not just property, and they are not just income—they can be both.
Why RSUs Create Trouble
A simple example illustrates the issue. Assume the parties divide $600,000 in community assets equally, so each receives $300,000. If Spouse 1 later earns $200,000 per year and pays $100,000 per year in maintenance, both spouses receive $100,000 annually and remain equal overall. The property division and maintenance both work as intended.
After Year 1, each spouse has $400,000 total. After Year 2, each has $500,000 total.
The analysis remains straightforward when unvested RSUs are entirely separate property. The parties divide the community estate. Later, Spouse 1’s separate RSUs vest. The court can treat those vested RSUs as income for maintenance purposes. No one counted those RSUs earlier as a community asset, so no double counting occurs.
The harder case involves unvested RSUs that have a community component. Suppose Spouse 1 earns some unvested RSUs during the marriage, and $50,000 of those RSUs is determined to be community property. In that situation, the total estate increases to $650,000. Each spouse receives $300,000 in current, liquid assets, along with the right to receive $25,000 in community RSUs if and when those units vest.
Under this scenario, Spouse 1’s income remains $200,000 per year, with $150,000 base salary and $50,000 vested RSUs. When those RSUs vest in Year 1, they are received by Spouse 1 but represent value that was already divided between the parties as community property. If the RSUs are properly accounted for, each spouse effectively receives $25,000 from that vesting event, consistent with the earlier division.
If maintenance is calculated correctly—based only on the $150,000 separate income—both spouses remain in equal positions; both parties receive $25,000 in vested RSUs and $75,000 net income. However, if maintenance is calculated incorrectly based on total income, including the RSU vesting, the same value is effectively counted twice. This can lead to unequal outcomes. For example, Spouse 1 may end up with $375,000 while Spouse 2 has $425,000 after Year 1 because both parties received $25,000 in RSUs, but Spouse 1 made a $100,000 maintenance payment to Spouse 2.
This happens because the $50,000 RSU vesting includes $50,000 of value that was already divided as community property. Spouse 1’s true separate income in that year is only $150,000. Maintenance should therefore be calculated based on that $150,000, not the full $200,000.
When maintenance is calculated using only separate income, both spouses again reach equal totals in Year 1 and Year 2.
Why Double Counting Happens
The two examples above demonstrate the pitfall when dividing unvested community RSUs and also awarding spousal maintenance. Listing the financial results makes it clear that only the separate portion of each spouse’s income should be used to determine support.
In practice, however, parties do not usually divide each asset equally. It also may not be possible to transfer unvested RSUs due to legal or administrative restrictions. In many cases, the employee spouse keeps all of the unvested RSUs, and the other spouse receives an offset from another asset, such as cash from a bank account.
For example, one spouse may receive all unvested RSUs, including the $50,000 community portion, while the other spouse receives additional funds from a bank account to offset that allocation. Although this preserves equality at the time of division, it creates a potential trap later.
When the RSUs vest, only the employed spouse receives them. If the full value of that vesting is treated as new income for maintenance purposes, the same RSU value is counted twice. First, it is counted in the property division when the non-employee spouse receives the offset. Then it is counted again as income when maintenance is calculated.
Even though the form of the asset has changed—from a future RSU to cash—the underlying value has already been divided. Treating the vesting as entirely new income distorts the outcome.
To avoid that problem, lawyers must distinguish between the portion of RSU vesting that represents previously divided community property and the portion that represents new, separate compensation.
The Practical Fix
The solution is conceptually simple, even if the math can be complex. Lawyers must separate community vesting from separate income. When RSUs vest, they should identify which portion represents previously divided community property and which portion represents new, post-separation compensation.
Only the separate portion should be included in the maintenance calculation.
This may require a tailored approach. In some cases, maintenance may change over time depending on the vesting schedule. In others, maintenance may be based solely on base salary, with RSUs handled separately. Different approaches can work, but the key principle remains the same: the same RSUs should not be counted once as property and again as income.
Conclusion
This issue is not about abstract legal theory. It is about applying the math correctly. RSUs blur the line between property and income, so lawyers must remain disciplined when structuring a divorce resolution. Otherwise, they risk undermining a fair property division through an inflated maintenance calculation.
The key question is simple: does the vested RSU value represent new separate income, or does it represent the later payout of a community asset already divided? If that question is answered correctly, double counting can be avoided and the intended result achieved.
Michael Rivers is an attorney with Meridian Family Law. He is licensed in New York and Washington and has a background in criminal defense, estate planning, and family law. Since 2017, he has drawn on his degrees in accounting and financial analysis to focus on the financial issues that arise in family law cases. Michael can be reached at MRivers@MeridianFamilyLaw.com.
