How to Divide Stock Options in a California Divorce
Stock options and restricted stock units (RSUs) are common compensations, but in divorce they can feel like a maze. In California, the basic rule is straightforward: stock options and RSUs earned during the marriage are usually community property. The hard part is separating the community portion from any separate property. This article explains how courts and attorneys approach that question, why the time rule matters, and what you should do to protect your fair share.
Are stock options and RSUs community property in California?
In California, stock options earned during the marriage are usually considered community property—even if they are unvested.
That means stock compensation granted or earned while you were married is typically treated like income, retirement, or other community assets. But not every option or RSU is automatically split 50/50. The distinction between community and separate property depends on when the option was earned and how much of its value was accrued during the marriage.
Why dividing stock options is tricky
- Many awards vest over time. An option granted before marriage may vest during the marriage or after separation.
- Unvested awards still have potential value, and courts often treat vested and unvested awards similarly for division purposes.
- Valuation can be complicated. Market value, strike price, tax implications, and timing of exercise all affect value.
- Company rules, termination clauses, and change of control provisions can change the real-world value of the award.
The time rule: how courts determine the community portion
The most common method to divide options and RSUs is the time rule. The idea is simple: determine how much of the award was earned during the marriage and allocate that portion to the community estate.
A basic version of the time rule formula looks like this:
- Identify the total vesting period for the award (for example, a four year vesting schedule).
- Measure how much of that vesting period occurred while the couple was married.
- Community portion = time vested during marriage divided by total vesting period.
Example: Suppose an RSU grant vests over four years. If the couple was married for two of those four years, the community portion is 2 divided by 4, or 50 percent. That means half of the award is treated as community property and subject to division.
This formula can be adjusted for grants made before marriage, after marriage, or in situations where employment and vesting cross the date of separation or divorce. Courts and attorneys will carefully define the start and end dates used in the calculation to avoid disputes.
A real-life example
We helped a client who faced a spouse with a large number of unvested RSUs. By applying the time rule we were able to determine exactly what portion of the RSUs had been earned during the marriage. Then we wrote that allocation into the settlement agreement with clear, precise language. The court approved the agreement without issue because the community versus separate allocation and the mechanics for implementing it were spelled out clearly.
Unvested versus vested awards: what to watch for
- Unvested awards can still be community property if the vesting or grant overlapped the marriage.
- Vested awards are easier to value, but factors like exercise windows and tax consequences still matter.
- Make sure the agreement addresses who pays taxes, who pays exercise costs, and what happens if employment ends before exercise.
How to protect yourself in the agreement
A well-drafted settlement agreement reduces the chance of future litigation. Key items to include are:
- Exactly which grants are being divided and how the community share is calculated
- The method and timing for transferring or allocating the community share
- Responsibility for taxes, withholding, and exercise costs
- Contingencies for change of control, termination of employment, or company actions
- Clear definitions of dates used in any time rule calculations
Vague or incomplete language invites disputes down the road. If the agreement does not clearly explain who gets what and how it will be implemented, future courts or accountants may interpret it differently.
Why professional guidance matters
Stock options and RSUs involve technical valuation, tax consequences, and precise drafting. Experienced legal guidance helps ensure you get a fair division and that the agreement is enforceable. Professionals can:
- Identify which portion of stock awards is community versus separate
- Apply the correct formulas and define dates precisely
- Draft agreement language so there is no confusion later
- Handle all paperwork and court submission requirements
If you or your spouse has stock options or RSUs, do not leave this to chance. Having an attorney or team who knows how to apply the time rule and draft clear, court‑ready provisions will protect your fair share.
Ready to get your fair share?
We handle identification, valuation allocation, and drafting for stock options and RSUs so your settlement is clear and court approved. We offer flat fee services for amicable divorces and will walk you through the steps to ensure your assets are divided correctly.
Take action today. Visit Divorce661.com to schedule a free consultation and secure the guidance you need to divide stock options fairly and avoid complications later.
