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.

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 them outright and has the freedom to sell them at any time.

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.

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

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. What’s more? 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.

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.

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.