Restricted stock units (RSUs) represent a growing share of total compensation. For professionals in Illinois, those RSUs can become one of the most contested assets in a divorce proceeding. Because RSUs vest over time rather than paying out immediately, the question of which grants belong to the marriage, and which do not, depends heavily on when they were issued.
Understanding how Illinois law treats unvested RSUs requires a careful look at grant dates, vesting schedules, and the state’s specific statutory framework. In high-asset divorces, both spouses should seek guidance from an attorney experienced with high asset divorce cases to ensure complex assets are identified, classified, and divided correctly.
What Are RSUs and Why Do They Complicate Divorce?
Restricted stock units are a form of equity compensation in which an employer promises to deliver shares of company stock to an employee at a future date, provided that certain conditions, usually continued employment, are met. Unlike traditional wages or bonuses, RSUs do not provide immediate value to the employee. The shares are not owned until vesting occurs, which can happen all at once or in scheduled installments over several years.
This structure creates a fundamental challenge in divorce proceedings. The value of unvested RSUs may not be determinable at the time of the divorce judgment, and the shares themselves may not be transferable until a future date. Courts must still decide how to address these assets, even when their ultimate worth remains uncertain.
How Does Illinois Law Classify RSUs in a Divorce?
Illinois law takes a clear position on this question. Under the Illinois Marriage and Dissolution of Marriage Act, at 750 ILCS 5/503(b)(3), stock options and “restricted stock or similar form of benefit” granted after the marriage and before the divorce judgment are presumed marital property, even if non-vested or not readily valued.
This presumption places the burden on the employee spouse to demonstrate that specific RSU grants should be classified as non-marital property. Exceptions can apply when grants were acquired through gifts, inheritances, or an exchange of pre-marital property, or when a valid prenuptial agreement excludes them. Absent such proof, Illinois courts proceed from the assumption that RSUs earned during the marriage belong to the marital estate.
Why Does the Grant Date Change Everything?
The grant date, the date on which an employer formally issues the RSU award, is the critical starting point for determining how Illinois courts classify the asset. RSUs granted after the marriage date and before judgment are presumed marital. RSUs granted before the marriage can raise classification and apportionment issues. Illinois courts look closely at what the grant was intended to compensate (past, present, future efforts) and the vesting schedule; depending on those facts, a grant may have a non-marital component and still be partly allocated to the marital estate.
This distinction matters enormously in practice. An executive who received a large RSU grant one year before the wedding and saw those shares vest three years into the marriage faces a very different analysis than one whose grant was issued on the third anniversary of the marriage. The timing of the grant sets the legal foundation for everything that follows.
What Is the Coverture Formula and How Does It Work?
When RSUs span both marital and non-marital periods, Illinois courts typically apply a time-based apportionment method commonly referred to as the coverture fraction, sometimes called the Hunt formula. This calculation identifies what percentage of the RSU award should be classified as marital property based on the proportion of the vesting period that occurred during the marriage.
A common time-based approach uses a coverture fraction where the numerator is the time from the grant date to the divorce judgment date (or, if the grant predates the marriage, from the marriage date to the divorce judgment date), and the denominator is the time from the grant date to the vesting date.
The denominator is the total number of days or months from the grant date to the full vesting date. The resulting fraction, multiplied by the total number of shares, yields the marital portion of the award. For classification purposes, the statutory presumption runs up to the divorce judgment date (not the filing date), although property acquired after a judgment of legal separation is treated differently.
What Happens to RSUs That Cannot Be Divided Immediately?
Because unvested RSUs typically cannot be transferred on company books, Illinois courts have developed practical mechanisms for handling them. The statute requires the court to allocate RSUs at the time of the divorce judgment even when their value is not yet determinable, and division cannot occur until a future date. In practice, this often means the employee spouse holds the non-employee spouse’s allocated portion in what is called a constructive trust.
Under this arrangement, the employee spouse is obligated to transfer the non-employee spouse’s share of vested RSUs as they are released by the employer over time.
Illinois courts recognize that unvested awards may be treated as marital and allocated at dissolution even if their value can’t yet be determined. For example, In re Marriage of Micheli, 2014 IL App (2d) 121245, discusses inclusion of unvested stock options and RSUs consistent with section 503(b)(3).
What Documentation Should Both Spouses Gather?
Accurate division of RSUs depends on thorough documentation from both sides of the proceeding. The employee spouse’s grant agreements, award letters, and vesting schedules provide the core information needed to apply the coverture formula correctly.
Year-end pay statements, equity plan statements, and W-2 wage reporting can help confirm which RSUs vested during the tax year. Employers often provide supplemental equity tax documents or brokerage statements showing vesting events and withholding.
Both spouses should also consider the tax implications of any proposed division. RSUs are taxed as ordinary income when shares vest, not when the original grant is made. The tax burden at vesting can substantially reduce the net value of an award, and failing to account for this during negotiations can produce inequitable outcomes. Consulting a financial expert alongside legal counsel helps ensure that the division reflects after-tax values rather than inflated pre-tax figures.
Illinois divorce proceedings involving RSUs and other equity compensation require careful attention to grant documentation, applicable statutes, and the specific facts of each award. Consulting with an experienced Illinois divorce attorney is an important step for any spouse who believes RSUs may be part of the marital estate.
