Restricted stock units have become the most common form of equity pay for executives at large public companies, including many headquartered in Houston and The Woodlands. When a marriage ends, unvested RSUs and performance stock units (PSUs) are often worth more than the family home. They are also easy to undervalue, because nothing has been delivered yet.
This guide explains how RSUs and PSUs are characterized and divided in a Texas divorce, how taxes affect the real value of each share, and what executives and their spouses in Houston, Spring, Sugar Land, Katy and Cypress should insist on in a decree.
What RSUs and PSUs are
An RSU is a promise by the employer to deliver shares (or sometimes cash) on future vesting dates, as long as the employee is still employed. There is no exercise price. If employment ends before a vesting date, the unvested units are typically forfeited.
A PSU adds a performance condition. The number of shares delivered depends on whether the company hits targets such as total shareholder return or earnings goals over a set period. Many PSU plans pay out anywhere from zero to a multiple of the target number of shares.
RSUs differ from stock options in an important way: they keep value even if the stock price falls, because the employee pays nothing to receive the shares. That makes them easier to value than unvested stock options, but no less contested.
Are unvested RSUs community property in Texas?
Often, in part. Property acquired during the marriage is presumed to be community property in Texas (Family Code section 3.003). Equity awarded for work done during the marriage falls within that presumption even if it vests later.
Texas Family Code section 3.007(d) provides a time based formula for employer stock options and restricted stock that require continued employment. The statute speaks of options and restricted stock. RSUs are technically a promise to deliver shares rather than shares subject to restrictions, so whether the statute governs RSUs directly can be argued. In practice, parties and their experts commonly use the same time based approach for RSUs, and that is the framework most negotiations start from. If the characterization of a large RSU position will decide your case, this is a point to raise with counsel early.
Under the statute’s formula for a grant made during the marriage that vests after the divorce, the employee’s separate property share is:
- the period from the divorce date to the vesting date, divided by
- the period from the grant date to the vesting date.
The remainder is community property. The calculation runs separately for each vesting tranche (section 3.007(e)), and it uses the date of divorce, not the date of separation. For the full mechanics, see The Time Rule: Dividing Stock Options Acquired During Marriage.
Worked example (hypothetical)
An executive receives 4,800 RSUs on March 1, 2023. They vest in four equal tranches of 1,200 units on March 1 of 2024, 2025, 2026 and 2027. The divorce is granted on September 1, 2025.
| Tranche | Vests | Separate share | Community share |
|---|---|---|---|
| 1,200 RSUs | Mar 1, 2024 | 0% | 100% |
| 1,200 RSUs | Mar 1, 2025 | 0% | 100% |
| 1,200 RSUs | Mar 1, 2026 | 0.5 ÷ 3 years = 16.7% | 83.3% |
| 1,200 RSUs | Mar 1, 2027 | 1.5 ÷ 4 years = 37.5% | 62.5% |
Applying one blended percentage to all unvested units would misstate the community share. The community portion is then divided in a manner the court considers just and right under Family Code section 7.001, which is not automatically 50/50.
PSUs: when the share count itself is unknown
PSUs add a second uncertainty. Even if the time based fraction is settled, nobody knows how many shares will be delivered until the performance period ends. Spouses typically choose between:
- Deferred division. The non-employee spouse receives the agreed community fraction of whatever shares are actually earned. This avoids arguing over probabilities but keeps the parties connected until the payout.
- Present valuation. An expert estimates the expected payout, often using a Monte Carlo or similar model for market based targets, and one spouse takes an offset. This gives a clean break but invites a battle of experts.
PSU agreements also tend to contain change in control and retirement provisions that can accelerate or prorate vesting. Read them before choosing a method.
How RSUs are taxed, and why it matters in settlement
RSUs are generally taxed as ordinary compensation income when the shares are delivered, based on their value at that time. Employers usually withhold by holding back a portion of the shares. Later growth or decline after delivery is a capital gain or loss.
This creates three settlement issues:
- Gross or net. A decree that awards “50% of the RSUs” without saying whether that means shares before or after withholding invites a dispute every vesting date.
- Who reports the income. If the employee keeps the units and later transfers shares, the employee normally reports the compensation income. The decree should allocate that tax burden fairly.
- Transfer rules. Unvested RSUs generally cannot be transferred under plan terms. The usual approach is for the employee to transfer vested, net shares or their cash value after each vesting date.
Our post on the tax implications of dividing executive compensation covers these rules alongside options and deferred pay.
Decree terms that protect both spouses
A good RSU or PSU provision should include:
- A schedule listing each grant by grant date, number of units and vesting dates
- The community fraction for each tranche, calculated under section 3.007
- Whether transfers are of net shares after withholding, and the deadline to transfer after each vest
- What happens on termination, retirement, death, disability or a company sale
- Treatment of dividend equivalents
- A duty to provide the vesting statements that confirm each delivery
Executives should also review clawback policies. Public companies listed on U.S. exchanges must recover certain incentive pay after an accounting restatement, which can reach PSUs tied to financial results.
RSUs and the rest of the compensation package
RSUs are rarely the only item. A complete picture includes options, an ESPP, deferred compensation, and awards carried over from prior employers. Our guide to executive compensation in high net worth divorce ties these together.
Work with a Houston divorce lawyer for executives
Chidi Anunobi is Board Certified by the Texas Board of Legal Specialization and holds an M.B.A. from Carnegie Mellon University. Before law, he spent a decade as a management and technology consultant at KPMG. Our firm represents executives and their spouses in complex property divisions from our office at 1415 North Loop West in Houston.
We serve clients across The Woodlands, Spring, Conroe, Sugar Land, Katy, Fulshear, Cypress, River Oaks and the rest of Harris, Fort Bend and Montgomery Counties. Call 832-538-0833 or contact us for a confidential consultation, and bring your grant agreements and latest equity statement.
Frequently asked questions
Are RSUs community property in a Texas divorce? RSUs awarded during the marriage are presumed community property to the extent they compensate work during the marriage. A time based fraction is commonly used to separate the portion tied to work after the divorce.
Can my spouse receive RSUs directly? Usually not while they are unvested, because most plans prohibit transfer. The typical solution is a transfer of vested shares, or their cash value, after each vesting date.
Who pays the tax on RSUs awarded to my spouse? The employee is generally taxed when shares are delivered. The decree should state whether the spouse’s share is measured before or after withholding so the tax burden is allocated fairly.
How are PSUs divided if targets have not been measured yet? Most often by awarding the non-employee spouse a fraction of the shares actually earned. A present valuation with an offset is the alternative.
This article is general information, not legal or tax advice. Results depend on the facts, the plan documents and current law.