Dividing RSUs and Stock Options in Texas Divorce: A Guide to Complex Assets

Quick answer

In a North Texas divorce, RSUs and employee stock options granted during the marriage are often community property. The court can divide them under Texas’s “just and right” rule (Texas Family Code § 7.001). Texas law also uses clear time-based formulas to decide what part of each award is separate property and what part is community property. These rules appear in Texas Family Code § 3.007(d).

Taxes matter too. RSUs are taxed as ordinary income when they vest. Stock options can create ordinary income when exercised and later capital gains when sold. These rules come from IRS Topic No. 427 and IRS Publication 525.

If you or your spouse have equity compensation, do not guess. Our North Texas divorce attorneys handle RSU and stock-option division in Dallas, Collin, Denton, and Tarrant County. Call (888) 584-9614 for a free consultation. We will review your grant documents, explain the law, and build a clear plan for division that fits your goals.

Introduction to complex asset division

Dividing complex assets in a Texas divorce starts with understanding community versus separate property and how that framework applies to RSUs and stock options. Texas is a community property state: most property acquired during marriage is community property and is subject to a “just and right” division between the spouses in a divorce (Texas Family Code §§ 3.002, 7.001).

Company equity—such as RSUs, restricted stock, and employee stock options—often represents a large part of a family’s net worth. The presence of stocks and equity awards can complicate division because these assets have unique characteristics, including vesting schedules, fluctuating values, and specific legal considerations for equitable distribution. These assets usually can’t be divided with a simple “sell and split” approach. Instead, the court and the parties must account for grant dates, vesting schedules, forfeiture risks, plan restrictions, and tax treatment.

Importance of Texas Family Code § 3.007(d)

The code specifically addresses employee stock option plans and employer-granted restricted stock. It provides fractions for identifying the employee’s separate property interest, based on the timing of the grant, the marriage, and when the option can be exercised or the restriction removed. The remaining portion is community property that can be divided. Documentation of employment and vesting schedules is crucial to ensure proper valuation and division of RSUs and stock options during divorce proceedings.

Because these issues are technical and high-stakes, divorce cases involving complex assets demand experienced legal guidance. A well-planned strategy can protect both spouses, reduce tax surprises, and prevent enforcement problems with the company’s plan administrator.

If you are facing a divorce in Dallas, Collin, Denton, or Tarrant County and you or your spouse receive equity compensation, call (888) 584-9614 for a free consultation with Warren & Migliaccio, L.L.P. Since 2006, we have helped North Texas families divide complex property fairly. Our goal is to achieve fair division and equitable distribution of stocks and other complex assets in accordance with Texas law. We are Lead Counsel Verified in divorce and family law.

Community and separate property

Texas law says all property gained during the marriage is community property unless it qualifies as separate property. Separate property includes anything a spouse owned before marriage. It also includes anything received during marriage as a gift or inheritance. All property a couple holds during the marriage or at divorce is presumed community. The spouse claiming separate property must prove it with clear and convincing evidence.

• This rule also applies to RSUs and stock options.
• Equity granted during the marriage often includes a community share, even when it vests after divorce.
• Equity granted before marriage may include a separate share, even when it vests during the marriage.
• Awards tied to past work lean toward separate property. Awards meant to reward future work or retention lean toward community property.

Two situations appear often. First, the employer grants equity before marriage, and it vests during the marriage. Second, the employer grants equity during the marriage, but it vests after the divorce. Both situations require careful review because the mix of community and separate interests can shift.

Clarity on stock options and plans

Texas Family Code § 3.007(d) now gives clear formulas for employee stock options and restricted stock plans. In simple terms, the separate property fraction for stock options looks at the time from the grant date to the divorce date. It divides that period by the time from the grant date to the first date the option can be exercised or the restriction removed. The remaining share becomes community property. Restricted stock follows a similar approach.

Getting this classification right matters. If a spouse does not prove a separate share, the court must treat the entire award as community property. The court then divides it under the “just and right” standard. Judges may also look at the length of the marriage, each spouse’s contributions, their needs, and other facts.

This analysis becomes complex with many grants, overlapping vesting schedules, and performance rules. Because of that, most families need two things:

• A North Texas family law attorney who understands Texas Family Code § 3.007, and
• A financial professional who can trace and model the awards.

If you are unsure how your RSUs or options should be classified, call (888) 584-9614 for a free consultation. We will review your grants and explain how Texas law applies to your case.

A personal story from Attorney Migliaccio

I remember meeting a software engineer who brought a stack of grant notices and plan documents to my office. He was nervous and embarrassed, even though he was clearly successful in his career. Several RSU awards had different vesting schedules, and two option grants were still unvested.

As we spread everything out on the table, I saw that some grants were issued before the marriage and others during the marriage. That timing was critical under the Texas Family Code. I explained how the community presumption works, how Section 3.007 uses time-based fractions to separate community and separate interests, and why unvested units often require an “if and when” approach tied to vesting.

We then drafted decree language that covered each tranche and spelled out notice and payout steps. Months later, an award vested, and both sides avoided a tax surprise and a new dispute. Careful planning made a stressful situation manageable.

Valuing complex assets

Valuing RSUs and stock options in a divorce takes more than checking today’s stock price. You must look at many factors. These include the grant date, the vesting schedule, any performance rules, and the expiration date for options. Company performance, volatility, plan restrictions, and tax treatment also matter.

Stock options and RSUs need careful and accurate valuation. Stock options often require financial models and legal guidance. RSUs usually depend on the stock’s value at vesting. Options often need deeper calculations, such as the Black-Scholes model.

When spouses divide stock options in a Texas divorce, they must agree on a method. They also must consider the vesting date and vesting period. These details control when the award becomes marital property and how it should be split.

For vested options, the simple way is to multiply the number of options by the difference between the market price and the strike price. For unvested or long-dated options, experts may use Black-Scholes or binomial models. These models are similar to those used in financial reporting under ASC 718. Dividing stock options often demands careful review of how and when the award vests.

For RSUs, the value at vesting comes from the fair market value of the shares on the vest date. Taxes and sale restrictions may reduce the net value. Before vesting, RSUs are not transferable. They remain a promise of future shares or cash if conditions are met. Long vesting timelines make valuation harder, especially when awards stretch over several years.

Why expert valuation matters

Valuation affects negotiation, offsets against other assets, and long-term planning. Because of that, many people hire an expert appraiser or financial analyst. This is useful when options are deep in the money, the stock is volatile, or the employee has many grants.

A proper valuation must also weigh taxes, expected growth or risk, and the chance that the employee will stay long enough to vest future awards. It also matters which spouse received the award, because that detail shapes how the asset is divided.

If you need help understanding the value of your RSUs or stock options, our team can connect you with valuation professionals. We explain the results in plain language and build a legal strategy around them. Correct valuation is key to a fair outcome for both spouses.

If you want guidance or a detailed review of your equity compensation, please contact us to schedule a consultation.

Contacting the professional is compulsory

It is often wise to involve an expert appraiser or financial analyst, especially when the options are deeply in the money, the stock is volatile, or there are numerous overlapping grants. Additionally, valuation should take into account:

• Expected taxes (ordinary income and capital gains)
• Future growth potential or downside risk
• The practical likelihood that the employee spouse will stay long enough to vest unvested awards

For more guidance on maximizing the value of these assets in your divorce settlement, consult with an experienced divorce attorney.

It is also important to determine which spouse received the stock options or RSUs, as this affects how these assets are divided in the divorce.

Tax implications

Taxes can heavily influence how RSUs and stock options should be divided in a Texas divorce. In many cases, the after-tax value matters more than the headline number. Reviewing tax returns is essential. These documents show how past awards were reported, reveal possible tax liabilities, and help ensure IRS compliance.

RSU Taxation

RSUs are usually taxed as ordinary income when they vest. The tax is based on the fair market value of the shares on the vesting date. The employer withholds income and payroll taxes at vesting and reports the amount on the employee’s Form W-2.

If the employee later sells the shares, any gain or loss from the vesting value to the sale price becomes capital gain or loss. The holding period decides whether it is short-term or long-term.

There is a narrow deferral option for some private-company stock under Internal Revenue Code § 83(i). It allows certain employees to delay income taxes for up to five years. However, few companies use it, and it requires specific corporate elections and employee actions.

If you need help understanding the tax impact of dividing RSUs and options, our team can review your documents and explain your choices.

Stock option taxation

Tax treatment differs between incentive stock options (ISOs) and nonstatutory (non-qualified) stock options (NSOs):

• ISOs
  • Potentially qualify for favorable tax treatment if certain holding periods and other requirements are met (Internal Revenue Code § 422).
  • The “bargain element” at exercise may be an adjustment for alternative minimum tax (AMT).
  • If the ISO rules are followed, gain may be taxed as long-term capital gain when the stock is sold.
• NSOs
  • Typically create ordinary income at exercise equal to the difference between the stock’s FMV on the exercise date and the strike price (IRS Topic No. 427; Publication 525).
  • Later sale of the stock produces capital gain or loss on any additional change in value.

Divorce-planning implications

When dividing RSUs and options, spouses and their attorneys should consider:

• Who will be treated as the income recipient for federal income tax purposes when an award vests or an option is exercised after the divorce.
• How withholding and estimated tax payments will be handled.
• Whether the decree should require the employee spouse to pay net proceeds (after tax) to the non-employee spouse or whether a gross percentage will be applied.
• The effect of timing: vesting or exercise before the divorce decree may pull more value into the community estate; vesting or exercise after the decree requires clear decree language.

Because tax law is complex and fact-specific, we often recommend that clients also speak with a tax professional or CPA. Our role is to build a family-law structure that coordinates with federal tax rules so no one is blindsided later.

If you are worried about the tax hit from equity awards in your divorce, call (888) 584-9614 to schedule a free consultation. We regularly coordinate with tax professionals to help North Texas families make informed decisions.

Family law considerations

In every divorce, Texas courts must divide the community estate in a manner that is “just and right” having due regard for the rights of each party and any children of the marriage (Texas Family Code § 7.001). The court is not required to divide everything 50/50; it can consider many factors, including earning capacity, fault, and the nature of specific assets.

For equity compensation, there are several key legal points:

• Texas courts are expressly authorized to determine the rights of the spouses in pension plans, retirement plans, and employee stock option plans, and in employer-granted restricted stock (Texas Family Code § 3.007).
• Separate property cannot be awarded to the other spouse. The Texas Supreme Court reaffirmed in Eggemeyer v. Eggemeyer, 554 S.W.2d 137 (Tex. 1977), that a trial court may not divest a spouse of separate property.
• Courts have long recognized that unmatured employment benefits (like pensions) can be divided using a fractional formula and paid out “if and when” the benefit is received in the future. Cases such as Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976), and Taggart v. Taggart, 552 S.W.2d 422 (Tex. 1977), apply this principle to retirement benefits; the same concept is often adapted to RSUs and options using the statutory framework of § 3.007(d).

The court’s primary goal is to reach an equitable division of complex assets, considering all relevant facts, including whether the award rewards past service, future service, or both. Ensuring fair division and equitable distribution of all marital assets—including RSUs and stock options—requires careful valuation, documentation, and legal analysis to protect both parties’ interests. Understanding those principles—and how they apply to your specific grants—is critical to protecting your rights.

Dividing assets in divorce

Dividing assets in divorce, including complex assets like RSUs and stock options, requires a strategic, step-by-step approach. Divorcing spouses must also address the division of the marital home and personal property, such as vehicles, jewelry, and collectibles, alongside equity awards to ensure all assets are properly identified and classified.

Understand the asset types.

• Community property vs. separate property
• Vested vs. unvested
• RSUs vs. options vs. other incentives

Identify each grant.

• Grant date
• Number of units or options
• Vesting schedule and any performance conditions
• Expiration dates and plan restrictions

Classify each grant under Texas law.

• Apply the community property presumption and separate property rules (Texas Family Code §§ 3.001–3.003).
• Use § 3.007(d) to allocate separate and community interests.

Evaluate tax and timing.

• When will the awards likely vest or be exercised?
• What are the expected ordinary income and capital gains consequences?

Choose a division method.

• “If and when” percentage of future vesting or exercises
• Net present value (NPV) offsets against other assets
• Hybrid approaches for different tranches

The division process must balance the interests of both spouses, recognizing that the employee spouse bears employment risk, while the non-employee spouse may depend on these assets for future stability. In some cases, creative solutions—such as awarding more home equity in exchange for a smaller share of uncertain future equity—are appropriate.

Complex asset division process

The complex asset division process generally involves the following stages:

1. Identification and characterization of assets: This includes real estate, retirement accounts, investment portfolios, business interests, intellectual property, and executive compensation such as stock options and restricted stock. Business owners may face additional challenges in valuing and dividing business interests during divorce, especially when personal and business assets are mixed or when partnership agreements contain buy-sell provisions.
2. Valuation: Accurate valuation is critical, particularly for assets like closely held businesses, intellectual property, and restricted stocks. Restricted stocks are subject to specific legal and regulatory considerations, including how Texas Family Law classifies them as separate or community property and the impact of vesting schedules and employee stock plans.
3. Negotiation or litigation: Parties may negotiate a settlement or proceed to trial if agreement cannot be reached.
4. Drafting and implementing the decree: The final decree must clearly specify the division of each asset, including any required transfers or future actions. When dividing stocks and stock options, it is important to comply with SEC regulations and other applicable laws to ensure proper transfer and avoid unintended tax or legal consequences.

Identification

Spouses and their counsel must first identify all complex assets, including:

• RSUs, restricted stock, and performance shares
• Incentive stock options (ISOs) and nonstatutory stock options (NSOs)
• Employee stock purchase plans (ESPPs)
• Any other equity-based incentives

This usually requires gathering:

If you are going through a divorce, it’s important to carefully review the following financial documents, as dividing assets can have significant tax consequences:

• Plan documents and summary plan descriptions
• Grant notices and award agreements
• HR or stock-plan portal statements
• Brokerage account statements

Characterization

Next, each asset is characterized as:

• Entirely separate property
• Entirely community property
• Or a mix of both

Separate property claims must be supported by evidence and must overcome the community property presumption by clear and convincing evidence. Texas Family Code § 3.007(d) then provides specific formulas to separate out the separate property fraction for stock options and restricted stock.

Valuation

As discussed above, the parties must determine:

• How to value vested options and RSUs
• Whether to apply Black-Scholes or similar methods to unvested options
• How to account for taxes and future growth

Division

Finally, the parties and the court must decide how to allocate these assets:

• Immediate offsets using NPV
• Deferred “if and when” division tied to future vesting or exercises
• Specific decree language that is consistent with the employer’s plan and administratively workable

Clear drafting is essential. The decree should address:

• Notice obligations when awards vest or options are exercised
• Who chooses when to exercise options
• How net proceeds will be split and over what time frame
• Remedies if a party fails to comply

Effective communication and negotiation between spouses and their attorneys are critical to achieving a fair and equitable division of complex assets.

If this post-divorce process sounds overwhelming, you are not alone. Our North Texas family law team has nearly two decades of experience guiding clients through complex property division. Call (888) 584-9614 for a free consultation and a step-by-step plan.

Considerations for restricted assets

Restricted assets like RSUs and restricted stock create special challenges in a divorce. These assets often depend on future events and carry real risk. Because of this, courts and spouses must handle them with care.

Vesting conditions and forfeiture risk

Many awards require the employee to stay with the company to vest. If the employee leaves early, the award may be lost. Some plans also include performance goals that may or may not be reached. These conditions make the value of the asset uncertain.

Non-transferability before vesting

Most companies do not allow RSUs or restricted stock to transfer before they vest. The company may refuse to honor a decree that tries to assign the award itself. Instead, the decree must use a practical method, such as a “divide on vesting” approach, to split the future value.

Tax timing

RSUs are taxed as ordinary income at vesting. They are not taxed at the time of grant. Because of this, the divorce decree should clearly state who pays the taxes and how payroll withholding will be handled.

Future value uncertainty
Restricted assets can rise or fall with the market and company performance. Their value may change sharply over time. Spouses should plan for this uncertainty when dividing these assets.

If you need help understanding how restricted assets should be handled in your divorce, our team can guide you through each step.

Restricted Stock Units (RSUs) – complex assets

RSUs are complex assets that are frequently encountered in a divorce, especially when a spouse is a higher-level employee of a company.

• Vesting conditions and forfeiture risk
  Many awards require continued employment and may be forfeited if the employee leaves before vesting. Some have performance targets that may or may not be met.
• Non-transferability before vesting
  Most plans do not allow transfer of RSUs or restricted stock before vesting. The company may not recognize a divorce decree that purports to assign the award itself.
• Tax timing
  RSUs are typically taxed as ordinary income at vesting, not at grant. The decree should allocate responsibility for income taxes and any payroll withholding.
• Future value uncertainty
  The value of restricted assets can increase or decrease dramatically with market conditions and company performance.

Because of these factors, courts and attorneys often favor “if and when” division for RSUs and restricted stock. Instead of trying to assign a fixed dollar value today, the decree may award the non-employee spouse a stated percentage of:

• Shares or cash actually delivered at vesting, or
• Net proceeds after sale, once the award is free of restrictions and taxes have been withheld.

The division of RSUs in a divorce often does not involve an actual transfer of stock from one spouse to another; rather, they are generally held in trust by the employee spouse for the other spouse’s benefit.

This approach can be combined with:

• Explicit notice requirements
• Instructions for selling and dividing shares when the plan allows
• Provisions for escrow or constructive trust if necessary

A constructive trust may be used, requiring the employee spouse to hold vested shares for the benefit of the non-employee spouse.

Expert guidance is necessary to navigate these issues and to ensure a fair and enforceable outcome.

Strategies for dividing assets

Several strategies can be used to divide RSUs and stock options in a Texas divorce:

Use of statutory formulas

Texas Family Code § 3.007(d) is the starting point. The statutory fractions provide a consistent way to calculate the separate property interest in stock options and restricted stock. The remaining portion is community property.

Deferred “if and when” division

For awards that are:

• Unvested
• Subject to forfeiture
• Or tied to future performance

an “if and when” approach is often the most realistic:

• The decree awards the non-employee spouse a specified percentage of whatever community portion ultimately vests or is exercised.
• Payment occurs if and when the award pays out.
• This method is similar in spirit to Cearley and Taggart for retirement benefits and is widely used for other employment-related assets. For a broader understanding of property division in divorce, including the potential forced sale of real estate, see this essential guide.

Net present value with offsets

When the parties prefer certainty now, they may use net present value (NPV) to discount:

• The expected future value of the community portion of the awards
• By the risk of forfeiture and appropriate tax assumptions

The employee spouse then keeps the equity but “buys out” the non-employee spouse’s share with other community assets, such as:

• Additional home equity
• More of a retirement account
• Or cash, if available

Hybrid and creative solutions

Often, a combination of strategies works best. For example:

• Use an NPV offset for fully vested, in-the-money options, and
• Use an “if and when” approach for unvested RSUs.

Creative solutions can also include:

• Trading one asset for another (e.g., more retirement funds for fewer future RSU payments)
• Agreeing on trigger events that require immediate notice and payout
• Setting up clear procedures for brokerage sales and tax payments

When choosing a strategy, it is important to consider:

• Tax implications for both spouses
• Volatility of the underlying stock
• The employee spouse’s realistic employment plans
• Each spouse’s need for present certainty versus future growth

Navigating complex asset division

Navigating complex asset division in divorce requires expertise in family law, finance, and taxation. For RSUs and stock options in particular, you need to:

• Understand the unique characteristics of each award
• Correctly apply Texas community property rules and the specific guidance in Texas Family Code § 3.007(d)
• Coordinate with federal tax law and employer plan rules
• Balance risk, reward, and liquidity needs for both spouses

Successful outcomes often involve:

• Early identification and full disclosure of equity compensation
• Collaboration with valuation experts and tax professionals
• Thoughtful, realistic negotiation between spouses and their lawyers
• Clear, plan-compatible decree language that can actually be carried out

If you are facing a divorce in Dallas, Collin, Denton, or Tarrant County and have questions about RSUs, stock options, or other complex assets, we are here to help. Since 2006, Warren & Migliaccio, L.L.P. has been protecting what matters most for North Texas families.

Call (888) 584-9614 today for your free consultation. We will listen carefully, explain your options, and help you move forward with confidence.

Frequently Asked Questions

Classification of Equity Awards

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Do Texas courts treat RSUs and stock options as community property?

Yes, RSUs and stock options can be community property to the extent they are not classified as separate property. Texas Family Code § 3.007(d) provides formulas for stock options and restricted stock plans, and the community property presumption in § 3.003 applies until separate property is proven by clear and convincing evidence.

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Can a Texas court give my spouse my separate equity awards?

No. Texas courts cannot divest a spouse of separate property, including separate-property portions of equity awards (see Eggemeyer v. Eggemeyer and Texas Family Code § 7.001’s focus on dividing only the community estate). The key is properly proving and tracing which portion of each award is separate property.

Division of Unvested Awards

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Can the court divide unvested RSUs and stock options?

Yes. Texas courts can award the non-employee spouse a percentage to be paid “if and when” the award vests or is exercised in the future. This type of deferred division is consistent with how Texas courts divide other unmatured employment-related benefits, as seen in cases like Cearley and Taggart.

Tax Treatment of Awards

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How are RSUs taxed for divorce purposes?

RSUs are generally taxed as ordinary income at vesting, with the employer withholding taxes and reporting income on the employee’s Form W-2 (Internal Revenue Code § 83; IRS Publication 525). After vesting, later sale of the shares produces capital gain or loss. A divorce decree should clarify how future tax liabilities and net proceeds will be shared.

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What is the difference between ISOs and NSOs in a divorce?

Incentive stock options (ISOs) can receive favorable tax treatment if federal requirements and holding periods are met, but they may trigger alternative minimum tax (AMT). Nonstatutory stock options (NSOs) usually generate ordinary income at exercise. In a divorce, parties must consider both the legal division of the options and the tax consequences of future exercises.

Property Division Standards

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Do Texas courts always split community property 50/50?

No. Texas uses a “just and right” standard, not a strict 50/50 rule (Texas Family Code § 7.001). The court can make an unequal division if circumstances justify it. That flexibility makes it even more important to present equity awards clearly and persuasively.

How Warren & Migliaccio can help

At Warren & Migliaccio, L.L.P., we:

• Have several decades of experience handling complex property division for North Texas families
• Are Lead Counsel Verified in divorce and family law
• Understand both Texas community property law and the practical realities of RSU and stock-option plans
• Work with valuation and tax professionals when needed
• Prioritize clear communication and a steady, client-focused approach

We serve families in Dallas, Collin, Denton, and Tarrant counties from our offices in Richardson, Dallas, and Prosper, with virtual options available.

If you are dealing with complex assets like RSUs and stock options in your divorce, you do not have to face it alone. Call our law firm at (888) 584-9614 today or contact us online to schedule your free consultation. We will help you protect what matters most by providing the best legal advice.

Disclaimer: This content is for information purposes. Consult the professional divorce lawyer for the best advice.