When Your Client Is Entering Into A Prenuptial Or Postnuptial Agreement
In the event that your client is entering into a prenuptial or postnuptial agreement, and s/he or his or her soon-to-be spouse has or will be receiving these types of equity awards as bonuses, your analysis also may require familiarizing yourself with the DeJesus Formula.
There Are Basic Questions To Ask About Equity Awards As Bonuses
There are many issues to consider about these complex financial instruments:
• Are they vested?
• How will they be valued?
• How will they be divided?
• What are the tax implications?
• For support purposes, will they be considered an asset, income, or both?
• Will a company transfer stock to a non-employee spouse?
Stacy Francis, CFP, CDFA, CES, whose practice focuses on advising women during and after divorce, says, “Financial advisors should also include the tax impact of RSUs versus other assets. The employee will pay ordinary income tax rates on the entire value of the RSUs when the shares vest (not when they’re granted) creating a hefty tax bill. If the employee continues to hold the shares after they vest, any increase in the stock price from the value when vested will be taxed at capital gains rates.”
Francis shares cautionary stories of reading settlement agreements that were written so poorly that the contract did not sufficiently discuss who would pay the taxes on these valuable assets. In one case, the couple ended up back in court because the agreement required the employee to pay 100% of the taxes and the non-employee spouse was able to receive her portion pre-tax.
Knowing how to help your clients work through these life changes with the best financial advice possible does a service to you both.
Lisa Zeiderman is a matrimonial and family law attorney, and certified divorce financial analyst.