If your spouse — or you — received restricted stock units as part of an employment package, those shares can be among the most valuable and most disputed assets in a Maryland divorce. Here is what you need to understand before you negotiate a settlement.
What Are Restricted Stock Units?
Restricted stock units, commonly called RSUs, are a form of equity compensation that employers use to attract and retain talent. Unlike stock options, which give an employee the right to buy shares at a set price, RSUs are a promise by the employer to deliver actual shares of company stock once certain conditions are met. Those conditions are almost
always tied to time or performance metrics—an employee must remain with the company for a defined vesting period before the shares transfer to them outright, and/or must meet certain performance objectives, either individually or as part of a team, set by executive-level management.
A typical RSU grant might vest 25% per year over four years or 33% per year for three years, meaning the employee receives one-quarter or one-third of the promis
ed shares each year they stay employed. Tech companies, defense contractors, financial firms, and large corporate employers across the greater Annapolis and Baltimore corridor rely heavily
on RSUs as part of total compensation packages. If your household income includes equity grants, there is a strong chance that RSUs are part of your financial picture.
Why RSUs Create Problems in Divorce
The challenge with RSUs in a Maryland divorce is that they straddle two worlds: the now and the future. Some shares may vest during the marriage. Some vest after separation (still during the marriage). Some were granted before the marriage and vested years later after the divorce. Each scenario carries different legal implications, and untangling them requires careful analysis.
Maryland is an equitable distribution state, meaning the court divides marital property fairly, though not necessarily equally. RSUs granted and vested entirely during the marriage are generally marital property and subject to being treated as marital property. RSUs granted before the marriage but vesting after the wedding present more complexity. RSUs granted during the marriage but not yet vested at the time of divorce are perhaps the most contested category of all.
Courts and practitioners have developed specific tools to handle unvested RSUs, the most important of which is the coverture fraction.
The Coverture Fraction: Allocating Unvested RSUs
The coverture fraction is a mathematical approach used to determine what portion of unvested RSUs represents marital property. It compares the period of the marriage that overlaps with the vesting schedule to the total vesting period of the grant.
For example, suppose your spouse was granted 10,000 RSUs in January 2020 with a four-year vesting schedule running through December 2023. You got married in January 2021 and separated in June 2023. The vesting period is 48 months. The marriage covered 29 of those months. The marital fraction is therefore approximately 29/48, and that fraction of the unvested shares would be treated as marital property.
Maryland’s Court of Special Appeals addressed the RSU division directly in Otley v. Otley, recognizing the coverture approach as a principled method for distinguishing marital from non-marital equity compensation. While Otley involved stock options rather than RSUs, the analytical framework carries over. Courts have consistently looked to the purpose and timing of the grant in deciding how to treat equity compensation.
If/As/When Distribution
Once the marital portion of unvested RSUs is identified, courts face a second question: how should the non-employee spouse actually receive their share? Two principal methods exist.
The first is a present-value offset. The marital portion of the unvested RSUs is valued today — using the current stock price, discounted for taxes and the risk of non-vesting — and the non-employee spouse receives that value immediately through other marital assets. This approach is clean and final but requires reliable valuation and expert input, which is difficult when stock prices fluctuate minute-by-minute.
The second, and increasingly preferred, approach is if/as/when distribution. Under this method, the non-employee spouse receives their percentage of each RSU tranche if and when it actually vests. No money changes hands today. If the employee is terminated before vesting, the unvested shares disappear, and the non-employee receives nothing from those shares. If the stock price doubles, both parties benefit. This does not account for the taxes the recipient will pay, which must always be discussed.
If/as/when distribution is common in Maryland settlements, it avoids disputes over valuation and allocates vesting and value risk fairly. The settlement agreement or court order must clearly define the percentage, specify whether it applies to gross shares (before taxes) or net-of-tax shares (after-tax), address tax withholding, and establish a mechanism for timely payment after each vest event.
Tax Consequences You Cannot Ignore
RSUs are taxed as ordinary income when they vest, not when they are granted. The employer withholds taxes at vesting — typically at the supplemental federal rate plus state income tax — and the employee receives net shares after withholding. This creates an immediate question in divorce: when the non-employee spouse receives a share of vested RSUs, who bears the tax burden?
If the settlement is structured on a gross-shares basis, the employee’s spouse pays taxes at vesting and forwards only the net shares to the other spouse. If it is structured on a net-shares basis, both parties effectively share the tax burden proportionally. The distinction matters enormously when a large block of RSUs is about to vest. A $500,000 RSU grant vesting this quarter with a 37% federal rate and a 5.75% Maryland state rate will shrink to roughly $285,000 after taxes, and both parties need to understand that math before finalizing any agreement.
Unlike retirement accounts, RSUs do not transfer between spouses under a QDRO. There is no tax-free mechanism to shift RSU value to a non-employee spouse. Every dollar of RSU compensation will eventually be taxed as ordinary income by someone.
Tracing Non-Marital RSUs
Not every RSU grant is marital property. RSUs granted before the marriage that fully vest before the wedding date are generally non-marital assets of the employee spouse, as long as the proceeds have not been commingled with marital funds. RSUs granted after the date of separation may also be treated as non-marital depending on how Maryland courts characterize the relevant cutoff date in a particular case.
Tracing requires documentation. Brokerage statements, grant letters, vesting schedules, pay stubs showing RSU income, and employer equity platform records (Fidelity, Shareworks, Carta, E*TRADE, and similar) are all relevant. The earlier you obtain and analyze these records — ideally through formal discovery or a subpoena to the brokerage — the stronger position you will be in during negotiations.
What to Do if RSUs Are Part of Your Divorce
If you or your spouse has a significant equity compensation package, your divorce requires more than a standard financial analysis. You need an attorney who understands how RSUs vest, how Maryland courts have treated them, how to draft distribution language that actually works, and how the tax consequences affect the net value each party walks away with.
At Jimeno & Gray, we have handled complex, high-asset divorces involving substantial equity compensation packages for clients throughout Anne Arundel County, Howard County, and the greater Baltimore-Washington corridor. Whether we are negotiating an if/as/when distribution structure, litigating the classification of a pre-marital grant, or working alongside a financial analyst to value unvested shares, we approach equity compensation disputes with the depth they require.
The numbers are too large, and the mistakes too costly, to treat RSUs as an afterthought. If equity compensation is in play in your divorce, contact Jimeno & Gray to schedule a consultation.