A recent ruling may help you hold onto your unvested stocks

If you have unvested stock, a recent ruling from the New Jersey Appellate Division could have a big impact on your divorce.

New Jersey is an “equitable distribution” state. This means when a couple gets divorced, the courts try to divide all their marital assets as fairly and evenly as possible. However, the ruling called into question whether all stocks should be considered marital assets.

The importance of “future performance”

In reversing an earlier ruling, the Appellate Division argued that the courts should not necessarily treat unvested stocks like other stock awards received during a marriage.

Referring to a Massachusetts case that it felt offered a “more precise and nuanced approach” to the issue of marital contributions, the court divided stocks into three categories:

  • Stocks awarded during a marriage and vesting before the divorce complaint
  • Stocks awarded during the marriage and based on work performed during the marriage, even if they vest after the complaint
  • Unvested stocks awarded during the marriage but vesting only with future work

These last, unvested stocks were not necessarily marital property. Instead, someone could hold onto such stocks if they could offer enough material evidence to prove that the awards were “either in whole or in part… for future performance”:

  • Your testimony and that of your employer’s representative
  • The stock plan
  • Correspondence about the award
  • Stock plan statements
  • • The vesting schedule

Protect your assets

Since the 1980s, restricted stock options have become an increasingly common part of executive and management compensation packages. Now the Appellate Division’s recent ruling appears to make them a more carefully protected part of your future.

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