Stock options, RSUs, and deferred compensation in California divorce.
Modern executive pay packages are dense with contingent value: unvested options, restricted stock, performance shares, deferred comp, ESPP, and SAR plans. Each requires a different allocation.
What you need to know
California allocates unvested equity using time-rule fractions established in Hug (1984) and Nelson (1986). The numerator and denominator depend on whether the grant is for past services, future services, or both. The wrong rule applied to the right grant can shift hundreds of thousands of dollars.
- Hug formula applies when the grant rewards past services and future retention.
- Nelson formula applies when the grant is purely for future services.
- Vested-but-unexercised options are generally fully community to the extent earned during marriage.
- Deferred compensation and SERPs require careful tax-affected valuation.
- ESPP, SAR, and PSU plans each have unique characterization rules.
Related topics & situations
Stock Options Division
ISOs, NSOs, and the time-rule allocations.
RSU & PSU Division
Restricted and performance share allocation.
Deferred Compensation
Non-qualified plans, SERPs, and 409A considerations.
ESPP Plans
Employee Stock Purchase Plan division.
Hug vs. Nelson Allocation
Choosing the right time-rule formula.
Founder Equity
Sweat equity, vesting cliffs, and pre-IPO stock.
Carried Interest
PE/VC fund manager carry in divorce.
Tax-Affecting Valuations
Adjusting for embedded tax obligations.
In re Marriage of Hug (1984) 154 Cal.App.3d 780 established the time-rule for stock options granted as compensation for both past and future services. In re Marriage of Nelson (1986) 177 Cal.App.3d 150 modified the formula where options are granted for future services only — narrowing the community share.
Source: California Family Code & California State Bar guidance. General information only.
HNW · Executive Compensation — frequently asked questions
Are unvested stock options community property in California?
What is the Hug formula?
What is the Nelson formula?
How are RSUs divided in divorce?
How is deferred compensation handled?
What about pre-IPO founder equity?
How is carried interest divided?
Can my employer be subpoenaed for grant details?
How are taxes handled when equity is divided?
What if grants vest after divorce?
Speak with a San Diego family law attorney today.
Every conversation is private. Most clients leave the first call with a clear sense of what to expect — what California law says, what your case is likely worth, and what to do next.