Restricted Stock vs. Restricted Stock Units
If you and your spouse are going through the process of divorce and are working through dividing assets, you may have questions about restricted stock vs. restricted stock units. You may also be wondering about how both options are valued in a divorce. In the guide below from Conniff & Keleher, we cover the difference between the two as well as how these assets are divided.
Stock-based compensation is increasingly common among executives, tech professionals, and management-level employees. Because vesting can occur years after the divorce is finalized, Illinois courts must determine what portion is marital property and how future payouts should be shared.
What is Restricted Stock?
Restricted stock is company stock that is typically provided by the employer as part of a bonus or additional compensation. In most cases, the stock will follow a vesting schedule. What this means is that the employee will receive partial grants of shares in increments over a period of time. After restricted stock shares vest, the receiver owns the stock outright and has the freedom to sell such stock at any time.
Vesting schedules are important during divorce. Only the portion earned during the marriage is usually marital property. However, shares tied to future service or performance may be classified as non-marital property.
What are Restricted Stock Units (RSUs)?
On the other hand, restricted stock units (RSUs) allow the employee to own company stock when certain vesting conditions are met. Unlike restricted stock, restricted stock units (RSUs) are not actual company stock. They promise to give a specific number of shares in the future once the vesting conditions are complete.
RSUs are often used as long-term incentive compensation. Their vesting may depend on continued employment, performance metrics, or time-based conditions. This makes determining the marital portion more complex, especially when awards vest after divorce.
Compare the two more in-depth below:
Restricted stock:
- Share issued at grant and held in escrow until vested
- Recipient often has voting rights even before the stock has vested
- Taxation cannot be deferred beyond vesting
- Restricted stock helps manage capital gains
Restricted stock units (RSUs):
- Shares are not issued until the payout date
- Recipient does not have voting rights before payout
Key Legal Differences During Divorce
• Restricted stock represents actual shares and is easier to value.
• RSUs may not convert to shares until years later, making valuation more speculative.
• Both may include marital and non-marital portions depending on grant date and vesting criteria.
• Courts often apply time-rule formulas to determine what portion is marital.
Restricted Stock vs. Restricted Stock Units During Divorce
Dividing stock during a divorce can be challenging because it requires determining how much of a stock option is marital property and how much is non-marital property. However, no one accurately knows the true value of a stock option until it is exercised. This may not happen until well after a divorce has been finalized.
How Are These Assets Valued?
Courts may analyze:
• Grant dates and vesting timelines
• Current vs. projected value
• Whether awards compensate for past, present, or future work
• How many shares vested during the marriage vs. after
RSUs especially may require expert valuation because their eventual value is uncertain.
According to Illinois law, a court must presume that stock options granted during the marriage are marital property. It is the duty of the employee spouse to show which options should be considered non-marital property. A court must also allocate stock options and restricted stock between the parties at the time of the judgment (the date of your divorce), even if the true value is not yet known and the options themselves might not be divisible until sometime in the future.
Even when stock awards were granted before marriage, portions that vest during the marriage may still be marital. Courts look at what the award was meant to compensate—past service, current performance, or future incentives—to determine classification.
Example
If an employee receives 100 RSUs during the marriage but they vest over four years, only the portion earned during the marriage counts as marital property. A time-rule formula may find, for example, that 60% is marital and 40% is non-marital, depending on how much of the vesting period occurred during the marriage.
Frequently Asked Questions About Restricted Stock & RSUs
Often yes—especially if granted or vesting during the marriage. The employee spouse must prove any portion is non-marital.
Courts may use a time-rule or coverture formula to divide only the marital portion, with payouts occurring when shares vest.
Courts may award shares directly when feasible or assign future payouts.
No. Stock plans are documented in employer compensation records, which can be subpoenaed if needed.
Set Up a Consultation with Conniff & Keleher
If you still have questions about the difference between restricted stock vs. restricted stock units and how each is divided during a divorce proceeding, set up a consultation with Conniff & Keleher today.
