A Guide To Dividing Executive Comp (RSUs, Stocks, & Bonuses) In IL & MI
In a high-net-worth divorce, the real money often is not in the checking account. It’s on a vesting schedule.
If you or your spouse is an executive in Chicago’s Loop or a leader in Detroit’s auto or tech scene, your actual wealth is tied up in a complex alphabet soup: RSUs, PSUs, ISOs, and NQSOs (Restricted Stock Units, Performance Stock Units, Incentive Stock Options, etc.).
Not to mention the discretionary annual bonus that’s bigger than most salaries.
Now you’re getting divorced, and your spouse is saying, “Don’t worry about those RSUs, they’re not vested yet. They’re mine.”
Not so fast. That is, by far, one of the most common and most expensive misconceptions in all of divorce law, and our Chicago, IL complex divorce lawyer is here to help you protect yourself and your interests.
Myth: “It Hasn’t Vested, So It’s Not Marital Property”
Fact: In both Illinois and Michigan, if that compensation was granted (promised) during the marriage, it is almost certainly a marital asset, even if it vests after the divorce is final.
Those grants are compensation for work you did during the marriage. Your bonus isn’t a surprise gift. It’s a delayed payment for your 60-hour work weeks. Your spouse, who managed the house, the kids, or their own career, was your partner during that earning period. They have a right to a fair share.
How Do We Divide Something That Doesn’t Exist Yet?
This is where the fight is. The other side will argue the grant is an “incentive for future performance,” not a “reward for past work.” This is where you need a smart attorney on your side.
We use a formula, often called a coverture fraction, to figure out the marital portion. It looks complicated, but the concept is simple: We build a fraction based on the time the grant was “earned” during the marriage.
This is complex and very high-stakes. The difference in how you value a stock option (using the Black-Scholes model vs. intrinsic value) or how you structure that coverture fraction can mean a difference of hundreds of thousands, or even millions, of dollars.
The 3 Ways To Settle The “Golden Handcuffs”
- The If and When Approach: This is the most common. We can’t divide the stock now (it’s not vested), so we put a “constructive trust” in place. Your divorce judgment will legally require your spouse to turn over your share to you “if and when” they vest.
- The Buyout / Offset: This is cleaner but riskier. We calculate the present value of those future assets (a very complex calculation). You get your share now in the form of another asset. For example, you get more of the 401(k) or a larger share of the house equity, and they keep all the stock.
- The Hold (for Stock Options): In some cases, the court can order the employee spouse to “hold” the options and exercise them only when the non-employee spouse directs.
This is absolutely not a DIY-friendly part of your divorce. It requires financial experts and attorneys who know the difference between an RSU and an ISO.
Your compensation is complex. Your divorce strategy needs to be as well. If your assets are on a vesting schedule, you need a team that speaks the language. Connect with Merel Family Law today and let’s get your story straight.
