Stock Options and RSUs in Utah Divorce: How Equity Compensation Gets Divided
Short answer: In a Utah divorce, stock options and restricted stock units (RSUs) granted during the marriage can be divided as marital property even if they have not vested. In Merrill v. Merrill, 2024 UT App 125, the Utah Court of Appeals upheld treating granted but unvested stock as part of the marital estate where it would vest over a moderate term as a matter of course. The same court held that vested RSUs count as income for alimony and child support, and that a court can use future stock grants as income while dividing already-granted stock as property without double-counting. Utah courts generally prefer to value and divide the awards at trial rather than tie the parties together until the stock vests.
Why Equity Compensation Is Different
A bank account has a balance on the date of divorce. An equity award does not. Its value depends on vesting schedules, the employee staying with the company, the future stock price, the strike price for options, trading restrictions, and taxes at vesting or exercise. The employer's plan documents control whether an award can be transferred, when it can be sold, and what happens if the employee leaves. Those features drive every decision about classification, valuation, and division.
Common Types of Equity Awards
Restricted stock units (RSUs): a promise to deliver shares, or their cash value, when the award vests. RSUs are taxed as ordinary income at vesting.
Non-qualified stock options (NQSOs): the right to buy shares at a fixed strike price. The spread between the strike price and market price is taxed as ordinary income at exercise.
Incentive stock options (ISOs): options that can receive capital gains treatment if holding rules are met. ISOs generally cannot be transferred during the employee's life.
Restricted stock: shares issued at grant that remain subject to forfeiture until they vest.
Profit-sharing "stock payouts," phantom stock, and private company equity, which are common in closely held and family-owned companies.
Are Unvested Awards Marital Property?
They can be. In Merrill, the husband argued that only vested stock could be marital. The Court of Appeals rejected that argument, noting he had cited no authority that it would be an abuse of discretion "to treat granted but unvested stock as part of the marital estate when the evidence is that the stock will vest over a moderate term as a matter of course." 2024 UT App 125, ¶ 70.
The spouse holding the awards often argues that shares vesting after separation are earned by post-separation work. That argument did not succeed in Plaia v. Plaia, 2019 UT App 130, 450 P.3d 80. The wife had stipulated to split vested and unvested restricted shares equally, then argued the unvested shares were "unearned" because vesting required her continued service after separation. The court enforced the stipulation, relying on findings that she knew the shares would vest over time and that the couple had worked together for years toward the payoff. Id. ¶¶ 15–20.
Utah has no fixed formula for dividing property in a divorce, and trial courts have considerable latitude. Andrus v. Andrus, 2007 UT App 291, ¶ 10, 169 P.3d 754. That leaves room to argue for a time-based fraction that assigns only part of each vesting tranche to the marriage, an approach California courts use. In In re Marriage of Hug, 154 Cal. App. 3d 780 (1984), the marital share of options that became exercisable after separation was the time from the start of employment to separation, divided by the time from the start of employment to the date each option became exercisable. The court stressed that no single formula fits every case. Whether that argument works depends on the evidence: grant letters, plan terms, and whether the award rewarded past work or was a retention grant meant to keep the employee working for years after the divorce.
Utah Courts Prefer a Clean Break
Marital stock can be divided by splitting the shares, awarding offsetting property, or ordering cash payments over time. Weston v. Weston, 773 P.2d 408 (Utah Ct. App. 1989). For employee equity awards, the Court of Appeals has favored valuing the awards at trial and awarding them to one spouse.
In Merrill, the husband asked the court to divide his stock only as it vested, or to order him to sell and split the proceeds as shares became available. The court declined, reasoning that a delayed division works against the goal of allowing each party to go forward with a separate life, and quoting the Utah Supreme Court's warning that an award of deferred compensation "which ties a couple together long after divorce can frustrate that objective." 2024 UT App 125, ¶ 73 (quoting Gardner v. Gardner, 748 P.2d 1076, 1079 (Utah 1988)).
The trade-off is risk. A present-value award puts the risk of a falling stock price, or of forfeiture if the employee leaves, entirely on the spouse who keeps the awards. The court in Merrill was unmoved by that concern, explaining that valuation "is necessarily a snapshot in time," just as it is for a home or vehicle. Id. ¶ 71 (quoting Wadsworth v. Wadsworth, 2022 UT App 28, ¶ 97, 507 P.3d 385). A spouse who wants a deferred division needs evidence of why a present value is unreliable in that case.
Valuation and Taxes
Vested public company shares are easy to value. Unvested options are harder because they carry value beyond the current spread, and private company equity may have no market at all. See Valuing a Business in a Utah Divorce Case.
Be careful with the numbers you put in your own financial declaration. In Merrill, the court valued the stock using the "current balance" figures the husband himself had listed, and the Court of Appeals called those values "anything but arbitrary." 2024 UT App 125, ¶ 71.
Tax arguments need evidence. The Court of Appeals has explained that "we do not generally expect courts to speculate about hypothetical future tax consequences," and the Merrill court rejected a tax argument where it was not clear the husband would ever sell the stock. Id. ¶ 72. A spouse who wants after-tax values should show the specific tax that will be due, such as withholding at RSU vesting.
For transfers that plans allow, federal guidance provides that when non-qualified options are transferred to a former spouse incident to divorce, the employee spouse recognizes no income on the transfer and the receiving spouse recognizes income on exercise. Rev. Rul. 2002-22. The ruling does not cover rights that are unvested or subject to substantial contingencies at the time of transfer, and an ISO transferred in violation of its terms is treated as a non-qualified option.
Equity Awards as Income for Support
Vested stock received for work is income. In Merrill, the court included the husband's vested RSUs in his gross income because his employment contract and pay history showed he regularly received stock as part of his compensation. The Court of Appeals affirmed, holding that the value of vested stock a person is anticipated to receive for labor "falls squarely within the statutory definition of gross income." 2024 UT App 125, ¶ 50. The child support statute now appears at Utah Code § 81-6-203(2)(a), which lists bonuses, dividends, and capital gains among the sources of prospective income.
Illiquidity is not an automatic defense. The court recognized that equity may require excluding a non-liquid asset if including it makes compliance unduly difficult, but the burden is on the party objecting, and general testimony that "some restrictions apply" is not enough. The objecting spouse has to show the specific trading restrictions on the specific awards. Id. ¶¶ 52–53.
A court also has discretion to treat a stock payout as income rather than as an asset to divide. In Hillam v. Hillam, 2024 UT App 102, 554 P.3d 1137, the husband agreed at the temporary orders stage to have a higher income imputed to account for a $570,000 stock payout, and paid higher alimony and child support for nearly five years as a result. The Court of Appeals affirmed the trial court's decision to keep treating the payout as income instead of dividing it as property. Id. ¶¶ 67–72. Positions taken at temporary orders can control the final result.
Double-Dipping
Counting stock as both income and property is not automatically double-dipping. In Merrill, the court used one year of anticipated future stock grants to set prospective income and separately divided stock that had already been granted. The Court of Appeals compared this to counting a spouse's future salary as income while dividing past salary still sitting in the bank. 2024 UT App 125, ¶ 69. The line is between future awards, which drive support, and existing awards, which are property. See Double-Dipping in Utah Divorce and Alimony in Utah When a Spouse Owns a Business.
Moving Awards Out of Reach
Transferring equity awards out of the marital estate can be dissipation. In Hillam, the husband moved stock options worth about $350,000 into an irrevocable trust while the couple was having marital difficulties. The Court of Appeals held that the trial court applied the wrong framework when it found no dissipation because the options "still exist." The question is the magnitude of depletion to the marital estate, not whether the asset survives somewhere else. 2024 UT App 102, ¶¶ 51–53. The court also held that obstruction of valuation does not require an affirmative act of concealment. Id. ¶¶ 59–61. See Hidden Assets and Forensic Accounting in Utah Divorce.
Draft the Stipulation Carefully
Settlement language about equity awards gets litigated. In Andrus, the stipulation gave the wife 25 percent of the stock from the husband's options. He transferred her share of the 9,000 shares he could exercise at the time, but not the roughly 46,000 shares that became exercisable later. The trial court found the stipulation covered all of the options, and the Court of Appeals affirmed. Because the husband had already sold the shares, the court ordered a cash payment based on the average price on the dates the wife requested her stock. 2007 UT App 291, ¶¶ 4–5, 10–13. A stipulation should list each grant by grant date, number of shares, and vesting date, and say who controls exercise and sale.
Documents to Gather Early
Every grant agreement and award notice, with grant dates, vesting schedules, and strike prices
The equity plan document, including transfer restrictions, forfeiture terms, and change-of-control provisions
Statements from the brokerage platform that administers the plan
The employment contract and several years of pay history showing how regularly stock is granted
Pay stubs and W-2s showing equity income and withholding at vesting or exercise
Records of shares sold or transferred, including any transfers to trusts, and where the proceeds went
Frequently Asked Questions
Are unvested RSUs marital property in a Utah divorce?
They can be. The Utah Court of Appeals has upheld including granted but unvested stock in the marital estate where the stock will vest over a moderate term as a matter of course. Merrill v. Merrill, 2024 UT App 125, ¶ 70.
Do vested RSUs count as income for child support and alimony in Utah?
Yes. Vested stock received in exchange for work falls within the statutory definition of gross income, particularly when the employee regularly receives stock as part of compensation. A spouse who claims the stock cannot be sold has to prove the specific restrictions.
Is it double-dipping to count stock as income and divide it as property?
Not if the court separates the two. Using anticipated future grants to set support while dividing stock already granted is not double-counting, just as counting future salary as income does not prevent dividing past salary in the bank.
Will the court wait until the stock vests to divide it?
Usually not. Utah courts favor a clean break, so they commonly value the awards at trial and award them to one spouse, with other assets offsetting the value.
If Your Divorce Involves Equity Compensation
Equity awards are often the largest and least understood asset in a high-income divorce, and positions taken early, including in financial declarations and temporary orders, can decide how they are treated at the end. Contact Jeremy Miller at Pearson Butler to discuss how these issues apply to your awards. See also High Net Worth Divorce in Utah and Property and Debt Division in Utah Divorce.