For many senior executives at Houston’s energy companies and large corporations, performance share units (PSUs) are the biggest single piece of long term pay. They are also the hardest to value in a divorce, because nobody knows how many shares will be earned until the performance period ends, often years after the decree.

This guide explains how performance awards work, how Texas characterizes them, the valuation methods experts use, and the decree terms executives and spouses in Houston, The Woodlands, Conroe and across Montgomery, Harris and Fort Bend Counties should insist on.

How performance awards work

A performance award promises shares at the end of a performance period, usually two to four years, if the company meets defined goals. Common measures include relative total shareholder return against a peer group, earnings per share, return on capital and cash flow. Payouts commonly range from zero to a stated maximum of the target number of shares, and the shares are typically delivered only after the compensation committee certifies results.

That creates two layers of uncertainty in a divorce:

• Time. The executive usually must remain employed through the period or a stated vesting date, subject to retirement and change in control terms.
• Performance. The share count depends on results that may not be known until well after the decree.

Community or separate property?

Awards granted during the marriage for work during the marriage are presumed community property under Texas Family Code section 3.003. When an award requires employment after the divorce, the question is how much belongs to post divorce work.

Texas Family Code section 3.007(d) sets a time based formula for employer stock options and restricted stock: for a grant made during the marriage that vests after the divorce, the separate share is the period from divorce to vesting divided by the period from grant to vesting. Many PSUs are structured as units rather than restricted shares, so whether the statute applies directly can be argued. In practice, parties commonly use the same time based fraction and apply it to the number of shares actually earned. For the formula itself, see The Time Rule.

Hypothetical example. A PSU award is granted February 1, 2025, with a three year performance period. Shares vest on February 1, 2028 after certification. The divorce is granted February 1, 2026.

• Divorce to vesting: 2 years. Grant to vesting: 3 years.
• Separate share: 2 ÷ 3 = 66.7%. Community share: 33.3% of whatever shares are earned.

The community portion is then divided in a manner the court considers just and right (Family Code section 7.001).

Valuation methods

If the spouses want a clean break, someone must estimate the award’s value today. Experts generally use one of two approaches:

• Expected payout approach. Estimate the likely number of shares, often starting from target, apply the current stock price, and discount for the risk of underperformance and forfeiture.
• Simulation models. For market based goals such as relative total shareholder return, Monte Carlo simulations model many possible stock price paths to estimate an expected payout. Public companies use similar models to report grant date fair value of these awards, and those figures appear in proxy statements for named executive officers.

Opposing experts can reach very different numbers from the same data. That is why deferred division is often the practical answer.

Deferred division: the usual solution

Under a deferred approach, the decree awards the non-employee spouse a stated share of the community fraction of whatever shares are actually earned, delivered within a set number of days after each payout. Both spouses share the upside and the downside, and no one has to win a valuation fight.

A good provision covers:

• Every award by grant date, target shares and performance period
• The community fraction for each award
• Treatment of below target, target and above target outcomes
• Whether shares are transferred before or after tax withholding
• What happens on retirement, termination, death or a change in control
• Notice, documents and certification results the executive must provide
• Allocation of clawback risk, since performance awards tied to financial results can be subject to recovery after a restatement

A note for energy executives

At oil and gas companies, performance measures often track relative shareholder return or capital returns, which can swing sharply with commodity prices. An award that looks valuable at a price peak may pay little at a trough, and the reverse. That volatility is another reason to prefer deferred division over a fixed present value.

Related reading

• RSUs, PSUs and Divorce in Texas
• How Vesting Schedules Affect Settlement Timing
• Tax Implications of Dividing Executive Compensation
• Executive Compensation in High Net Worth Divorce: A Comprehensive Guide

Talk with a Houston executive divorce attorney

Chidi Anunobi is Board Certified by the Texas Board of Legal Specialization, holds an M.B.A. from Carnegie Mellon University, and spent a decade as a management and technology consultant at KPMG. We represent executives and their spouses in complex property divisions from our office at 1415 North Loop West in Houston.

We serve The Woodlands, Conroe, Spring, Humble, Katy, Fulshear, Sugar Land, River Oaks and the rest of Montgomery, Harris and Fort Bend Counties. Call 832-538-0833 or contact us for a confidential consultation. Bring your award agreements and the latest proxy statement if your company is public.

Frequently asked questions

Are PSUs community property in a Texas divorce? PSUs granted during the marriage are presumed community property to the extent they reward work during the marriage. A time based fraction is commonly used to separate post divorce work.

How do you value PSUs before the performance period ends? By estimating the expected payout and discounting for risk, or with simulation models for market based goals. Many couples avoid the dispute by dividing the shares actually earned.

What if the company exceeds its targets after the divorce? Under a deferred division, the non-employee spouse shares in the community fraction of the larger payout, as the decree provides.

This article is general information, not legal advice.