Lisa’s latest article in The New York Law Journal is “Splitting the Stock: The Use and Misuse of ‘DeJesus'”, co-authored with partner Kevin Connolly and associate Rowan DeGasperis, Esq.
Read it here:
Splitting the Stock: The Use and Misuse of DeJesus
By: Lisa Zeiderman, Esq., Kevin Connolly, Esq., and Rowan DeGasperis, Esq.
Restricted Stock Units (RSUs) are often the most complex assets to divide in matrimonial cases. They are also assets often overlooked by matrimonial attorneys during the division of assets as well as in the drafting of prenuptial and postnuptial agreements. When addressing the distribution of RSUs, the Court of Appeals decision in DeJesus v. DeJesus is a key precedent, but is not always the answer. In an era where RSUs and deferred compensation are increasingly complex, it is essential that matrimonial attorneys understand when and how to properly apply DeJesus, both when drafting agreements and equitably dividing assets.
In DeJesus, the Court of Appeals addressed whether and to what extent an interest in RSUs provided by a spouse’s employer should be marital property for purposes of equitable distribution, where the RSUs were granted during the marriage but were contingent upon the spouse’s continued employment with the company after the date of commencement of the divorce. The Court of Appeals ultimately adopted a four-tiered analysis to determine spousal rights in unvested RSUs. The steps are as follows:
- Determine whether and to what extent the RSUs were granted as compensation for the employee’s past services, or as incentive for the employee’s future services.
- Label as marital property portions of compensatory RSUs earned by the titled spouse during the marriage and before the time of grant.
- Label as marital property portions of incentive RSUs by a time rule described as a fraction where the denominator represents the time from the date of the grant to the date of first possible exercise, typically the vesting date, and the numerator represents the time from the date of the grant to the date of commencement of the divorce action.
- Equitably distribute marital property.
Accordingly, the first step in equitably distributing RSUs is to discern whether and to what extent the RSUs were granted as compensation for the employee’s past services, or as incentive for the employee’s future services. The DeJesus Court offered a list of non-exhaustive factors to aid in such determination, including: (1) whether the RSUs are offered as a bonus or as an alternative to fixed salary; (2) whether the value or quantity of the employee’s shares is tied to future performance or based upon past performance; and (3) whether the stock plan is being used to attract key personnel from other companies.
If it is determined that the RSUs were granted to the employee during the marriage as incentive for continued employment, the next step is to apply the DeJesus time-rule formula to calculate the marital value described as, “the numerator is the period of time from the date of the grant until the end of the marriage, which is the earlier of the date of the separation agreement or the commencement of the matrimonial action and the denominator is the period of time from the date of the grant until the stock plan matures.”
It is a common misconception that the DeJesus formula automatically applies any time there is a vesting schedule. However, this is an oversimplification as the vast majority of vesting schedules require that the employee remain employed by the company to receive the deferred compensation. This fact alone does not trigger the DeJesus formula. Matrimonial attorneys must look for a very specific distinction: whether the deferred compensation is forward-looking and awarded as an incentive for the employee to remain at the company or whether it is backward-looking and awarded for past performance. The mere fact that the compensation is deferred and/or follows a vesting schedule does not, by itself, trigger the DeJesus formula. As the Court noted in the case of S.H. v. E.S., “[w]hether an award relates to past services or is an incentive for future services, the relevant inquiry is whether and to what extent the benefit is attributable to the years of service rendered by the participant during the marriage and not the date on which the value of the award is determined or paid to the titled spouse.” Put more simply, when addressing the division of RSUs, attorneys must evaluate what portions of the RSUs are attributable to work performed during the marriage.
To provide an example, suppose Spouse A was granted RSUs from his employer on March 1, 2025. The RSUs vest over a period of three (3) years: 1/3 vests on March 1, 2026 (“Tranche 1”); 1/3 vests on March 1, 2027 (“Tranche 2”); and the final 1/3 vests on March 1, 2028 (“Tranche 3”). Spouse B files for divorce on March 1, 2026, immediately after Tranche 1 vested. If the RSUs were granted to Spouse A as compensation for work performed prior to March 1, 2025 (the date of grant), the entirety of all three (3) RSU tranches would be marital property as they were awarded to Spouse A for work performed during the marriage. Notably, the RSUs would still be considered marital property regardless of the fact that the majority of the RSUs vest after the commencement of the divorce. If, however, the RSUs were granted to Spouse A as incentive for Spouse A to remain employed at the company, the DeJesus formula would be triggered to calculate the marital portion of each RSU tranche. The numerator would be the period of time from March 1, 2025 (the date of the grant) until March 1, 2026 (the end of the marriage) and the denominator would be the period of time from the date of the grant (March 1, 2025) until each tranche vests (March 1, 2026 for Tranche 1, March 1, 2027 for Tranche 2, and March 1, 2028 for Tranche 3). When applying the DeJesus formula to the above hypothetical, Tranche 1 would be 100% marital, Tranche 2 would be 50% marital and Tranche 3 would be 33.3% marital.
As equity-based deferred compensation becomes increasingly prevalent and complex, matrimonial attorneys must move beyond blanket applications of DeJesus and instead analyze the stock plan documentation and award notices to determine each award’s performance period and purpose. Practitioners must distinguish between compensation awarded for past work performed and compensation that serves as a forward-looking incentive for continued employment. If the stock plan and award notices indicate that the deferred compensation is for past work performed, it is fully marital if earned during the marriage, regardless of vesting date. If the stock plan indicates that the deferred compensation is a forward-looking incentive for continued employment, it may be partially marital depending on the vesting schedule and the date of commencement of the divorce action.
In the context of drafting and negotiating prenuptial and postnuptial agreements as well as divorce agreements, matrimonial attorneys should keep the DeJesus framework in mind, differentiating between deferred compensation awarded for past work performance (potentially RSUs that were essentially earned prior to the marriage) and RSUs awarded as an incentive to remain employed at the company (potentially earned at least partially during the marriage). After considering the foregoing, the matrimonial attorney should then consider what, if any, portion of the stock will constitute marital versus separate property and whether or not to include a DeJesus formula in the agreement. Additionally, in drafting a prenuptial or postnuptial agreement, the practitioner should consider how the RSUs will be treated in the event that the marriage is terminated. How will the RSUs granted for past and/or future performance be designated in a prenuptial agreement whereby the parties as part of the negotiation of their agreement can determine their own designations regardless of the law?
Perhaps the most overlooked factor is that RSUs are often not transferable to the non-titled spouse outright. In drafting an agreement, practitioners should consider providing for the titled spouse to hold the non-titled spouse’s shares as a constructive trustee. The constructive trustee will have the role of a fiduciary and most often will act upon the non-titled spouse’s direction as to when to liquidate shares that have fully vested and can be liquidated in accordance with the company’s plan documents. As such, in dividing the RSUs, one must consider that the RSUs, when vested, will create tax consequences at the titled spouse’s tax rate.
By carefully reviewing stock plans, award documentation, vesting terms, the underlying purpose of each grant and being knowledgeable about the case law and the DeJesus formula, matrimonial attorneys can ensure that equitable distribution is both fair and consistent with established precedent, while safeguarding their clients’ financial interests.
Reprinted with permission from the [July 28, 2025 edition of the “New York Law Journal”] © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.