RSUs and Stock Options in a Washington Divorce

In the Puget Sound corridor — home to Amazon, Microsoft, Meta, Google, and hundreds of tech employers — equity compensation often represents the largest single asset in a divorce. RSUs (Restricted Stock Units) and stock options create unique division problems that traditional property-splitting methods can't handle cleanly.

How RSUs Work in Divorce

RSUs are shares of company stock granted to an employee that vest over time — typically on a four-year schedule with annual or quarterly vesting. Once vested, they convert to actual shares you can sell.

In Washington, the community portion of RSUs is determined by when and why the grant was made:

Vested RSUs: If the shares vested during the marriage, they're community property. The vested shares (or their cash value) are divided like any other asset.

Unvested RSUs: This is where it gets complicated. Unvested RSUs are contingent compensation — the employee hasn't yet earned the right to the shares. Washington courts use a time-rule analysis to determine what portion is community property.

The key question is the grant's purpose: was it compensation for past service (making it partially community property for the marital portion of that service), future retention (making only the marriage-period portion community), or both?

The Time-Rule Formula

Washington courts apply the time-rule (also called coverture fraction) to allocate unvested equity between the community and the employee spouse's separate interest:

Community Fraction = Months of Marriage During the Vesting Period ÷ Total Months in the Vesting Period

Example: an employee receives a four-year RSU grant on January 1, 2023. The couple separates on January 1, 2025 — exactly two years into the four-year vest. The community fraction is 24/48 = 50%. Each spouse would typically receive half of that 50% community share — so 25% of the total grant.

For grants made before marriage, only the portion vesting after the wedding date has a community component. For grants made during the marriage with vesting extending past separation, the fraction captures only the marital overlap.

Stock Options: Additional Complexity

Stock options give the employee the right to purchase company shares at a fixed "strike" price. They come in two types:

Incentive Stock Options (ISOs) get favorable tax treatment if held long enough — taxed at capital gains rates instead of ordinary income. But exercising them may trigger Alternative Minimum Tax (AMT).

Non-Qualified Stock Options (NQSOs) are taxed as ordinary income on the spread between strike price and market price at exercise.

The same time-rule analysis applies to options as to RSUs. But options add a tax-timing dimension: who bears the tax when the option is exercised? If the non-employee spouse receives a share of options, the divorce decree must specify how taxes on exercise will be allocated.

The Double-Dipping Problem

"Double-dipping" occurs when unvested RSUs are both divided as community property AND counted as income for spousal maintenance calculations. The employee spouse effectively pays twice on the same asset.

Example: a court awards the non-employee spouse 25% of an unvested RSU grant worth $200,000 as community property. Then it also counts the full vesting value as income when calculating the employee spouse's maintenance obligation.

Washington courts are aware of this issue, but there's no bright-line rule prohibiting it. In practice, well-prepared parties argue against double-dipping by presenting clear documentation of which equity is being divided as property versus which is being treated as income.

Valuation Challenges

Unvested RSUs present a valuation problem: you're dividing something that doesn't exist yet and may never vest (if the employee leaves the company). Options:

Wait and divide as vested. Defer division until each tranche vests, then split the actual shares or cash. This is the most accurate but maintains a financial connection between ex-spouses for years.

Present-value offset. Calculate the current value of the unvested RSUs (typically the current share price multiplied by the number of shares, discounted for vesting risk and time value) and offset that amount with other assets. The employee keeps all the equity; the other spouse takes equivalent value in cash, home equity, or retirement funds.

Hybrid. Offset vested equity now and divide unvested grants as they vest over time.

For employees at pre-IPO companies, valuation gets even harder — there's no public market price. You may need to use the most recent 409A valuation, a secondary market estimate, or a negotiated value based on the last funding round.

Practical Steps

If you or your spouse has significant equity compensation:

1. Gather all grant documentation — offer letters, grant agreements, vesting schedules, and current account statements from the company's equity plan administrator (E*TRADE, Schwab, Morgan Stanley, etc.)
2. Identify every grant — many employees have multiple overlapping grants from different years
3. Calculate the community fraction for each grant separately using the time-rule
4. Decide on division method — wait-and-divide, present-value offset, or hybrid
5. Address tax allocation explicitly in the decree

The Washington Divorce Financial Split Guide includes worksheets for tracking multiple equity grants, calculating community fractions, and modeling offset scenarios so you can compare division methods before committing to one in mediation.

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