RSUs, options, carried interest and deferred comp in a Wyoming divorce.
A growing share of the people who divorce in Teton County are paid in something other than salary: restricted stock that vests over four years, options in a company that may never go public, a carried interest in a fund that will not pay out for a decade, a deferred bonus held until retirement. Wyoming puts all of it before the court. The work is deciding how much of each award belongs to the marriage, what it is worth today or should be shared later, and who pays the tax when it finally turns into money.
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Three things the statute settles.
Wyoming divides "the property of the parties" as "appears just and equitable," weighing the merits of the parties, the condition each will be left in, "the party through whom the property was acquired," and the burdens on it (W.S. § 20-2-114(a)). Nothing in the section requires an asset to be vested, liquid or transferable. The separate property page explains why "separate" is an argument here, not a category.
The statute's factor "the party through whom the property was acquired" is where the apportionment happens. An award for work done during the marriage was acquired through the marriage; one granted to keep the employee for years after the decree was mostly not. The time rule puts that judgment into a number.
The court "may decree a specific sum be paid by either party" (W.S. § 20-2-114(a)) and may require security for its property orders (W.S. § 20-2-112(a)). That supports both approaches: an equalizing payment for equity valued today, or an order that the employee pay over the other spouse's share as each award vests.
Apportioning and valuing the awards.
The time rule
The method courts and appraisers use to divide an award that straddles the decree is a fraction: the part of the vesting period that fell during the marriage, over the whole vesting period. A grant made two years into the marriage and vesting over four, with the divorce at year four, is half marital on the simplest arithmetic. The fraction is a method, not a statute, and its inputs are argued. If the grant rewarded performance already delivered, the clock starts earlier and more of it is marital. If it was a retention award for the years ahead, much of it belongs to the employee alone. A grant made the month after separation is the employee's unless it was really a deferred bonus for the prior year. The grant agreement usually says what the award was for.
Value now, or if-and-when
Once the marital portion is fixed the court has two ways to divide it. The first is to value it at the decree: public stock priced from the ticker, discounted for the risk it never vests and for the tax the employee pays when it does; options priced by a model or their intrinsic value; private-company equity by an appraiser and a recent round. The employee keeps the awards and pays an equalizing sum, from other assets or under a note. The second is to divide the award itself, with the employee holding the other spouse's share and paying it over, net of tax, as each tranche vests or each option is exercised. The decree then has to cover exercise windows, blackout periods, a termination that forfeits the grant, and an acquisition. I prefer the first for liquid stock and the second for anything that cannot be priced honestly today.
- 01Every grant agreement, with the grant date, the number of units or options, the strike price, and the vesting schedule
- 02The plan document, for the transfer rules, change-of-control terms, and what a termination forfeits
- 03The current equity statement from the plan administrator showing vested, unvested and exercised positions
- 04Three years of W-2s with the equity income lines, and Forms 3921 or 3922 for any exercises or ESPP purchases
- 05For carried interest: the partnership agreement, the fund's capital account statements, and the allocation of carry among the partners
- 06For deferred compensation: the plan document, the election forms, and the latest account statement
- 07The offer letter and employment agreement, which say what each award was granted for
The Rule 26 schedules require employment, benefits, "any bonus still owed," and retirement accounts within a month of the answer. Equity awards go on them whether or not they have vested.
Four kinds of award, four sets of problems.
- Restricted stock units. The simplest and most common. Units vest on a schedule, become shares, and are taxed as wages the day they vest. Plans almost never allow transfer, so the employee holds the former spouse's share and delivers the after-tax shares or their proceeds as each tranche vests. The decree should say who bears a decline between vesting and delivery.
- Stock options. Nonqualified options can sometimes be transferred to a former spouse under the plan; when they are, the spouse who exercises reports the income (Rev. Rul. 2002-22) and the transfer itself is not taxed (IRC § 1041). Incentive stock options lose their status on transfer and are kept and shared after tax. Underwater options are not worthless; they are a bet, and the decree has to say who holds it.
- Carried interest. A profits interest in a fund's general partner, paid years out, subject to clawback, and not transferable. It is almost always divided if-and-when, as a percentage of the marital portion of each distribution net of tax, with information rights and a clawback provision. Jackson has more of these than any town its size, and the high-net-worth page covers the wider estate they sit in.
- Deferred compensation. A nonqualified plan is not a retirement account and cannot be divided by a QDRO, which reaches only qualified plans under IRC § 414(p). The employee is taxed when the plan pays, and the decree orders the share paid over after tax when it arrives, or values the account now and offsets it. The retirement page covers the 401(k) and pension side of the same balance sheet.
Taxes, support, the non-employee spouse, and the court.
Who pays the tax, equity as income for support, what the non-employee spouse should insist on, and Teton County practice
Who pays the tax
Equity compensation is wages that have not been paid yet, and the tax follows the wages. Restricted stock is ordinary income to the employee when it vests; options are ordinary income at exercise on the spread, unless they are incentive options held long enough for capital gain; carried interest is capital gain when the fund distributes it; deferred compensation is wages when paid. A decree that gives the other spouse "half the RSUs" without saying after tax has given her more than half, because the employee pays the tax on all of it. Every if-and-when provision I draft states the share as a share of the net, defines net by the employee's actual withholding or marginal rate, and requires the pay stub or brokerage confirmation with each payment. Where the plan allows a transfer to the former spouse, the IRS treats her as the taxpayer on exercise or payment, which is cleaner for both. Wyoming has no income tax; a spouse who moves to a state that has one will pay it on equity that vests after the move.
Equity as income for support
The child support statute defines income as "any form of payment or return in money or in kind," including "commission" and "any other payments made by any payor" (W.S. § 20-2-303(a)(ii)), and vesting stock and annual bonuses are inside those words. Alimony is set with "regard for the other's ability to pay" (W.S. § 20-2-114(a)) with no definition at all. The line the decree must draw is between awards divided as property, which should not be counted again as income when they vest, and awards granted after the decree, which are income when they pay. A support order that averages three years of W-2 equity income for an executive whose grants were just divided is counting the same dollars twice. The alimony page and the child support page cover the two calculations.
If you are the spouse without the grants
Insist on the plan documents, not a summary, and on the grant agreements, not the employee's spreadsheet. Ask for the equity statement as of filing and again as of the decree. If the division is if-and-when, the decree must give you the vesting notices, the brokerage confirmations and the tax documents, and must say what happens if the employee quits, is fired, or lets options expire; a forfeiture caused by the employee's choice should be at his cost. If the division is a value today, the discounts for forfeiture and tax should be argued by your expert, not conceded. The Rule 26 disclosures are the floor; an executive who lists salary and omits the unvested grants has made the first misstatement in the case (see hidden assets).
In Teton County
Every divorce in the county is heard by one district judge. A restraining order on transferring or encumbering property is entered immediately on request, and it reaches equity awards: no exercises, sales or new elections until the court says otherwise. The scheduling conference, run by her judicial assistant by phone once the answer is in, asks whether the Rule 26 disclosures are complete, and grant agreements are among the documents most often missing from a first production. Discovery disputes usually go to a special master on an expedited schedule. Mediation is ordered if either spouse asks, and equity cases settle there when both sides have the plan documents and a shared spreadsheet of what vests when. The court sits in temporary courtrooms at 250 East Simpson Avenue; the courthouse page has the details, and a prenuptial agreement is the one document that can settle most of this page before it is ever argued.
What executives and their spouses ask.
Are my unvested RSUs marital property in Wyoming?
What is the "time rule," and is it the law?
Should the equity be valued now or divided when it pays out?
Can my RSUs or options be transferred to my spouse?
How is carried interest handled?
Is my annual bonus income for child support, or property to be divided?
Start with a confidential conversation with Aaron Herzberg.
A consultation is a scheduled working session, in person in Jackson or by video, in which we go through your situation and I tell you what I would do. It is a paid working session, not a sales pitch. The fee is quoted when we schedule. Your note reaches me directly, my office runs the conflicts check and puts the meeting on my calendar, and you can call or text any time.
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