A contempo assessment by the Massachusetts Appeals Cloister in the case of Ludwig v. Lamee-Ludwig (2017) has antiseptic an breadth of MA law that has abandoned judges, attorneys, and annulment litigants for some time: In Massachusetts annulment cases, are unvested banal options and RSUs advised income, assets or both? The abbreviate acknowledgment is that unvested shares can be both assets and a antecedent of assets for approaching support, depending on the timing of the banal grant, the vesting date, and the final date of divorce.
Stock Options, RSUs, and the Alphabet Soup of Disinterestedness Compensation
Before absorption on the annulment implications, it is account acquainted that banal options and RSUs are not the same. The timing, bulk and purpose of banal options and RSUs alter in important ways. The aforementioned is accurate of RSAs, NSOs and the actual alphabet soup of agnate forms of disinterestedness advantage paid to accumulated managers and executives. What best of these forms of advantage accept in common, however, is this: the agent is paid by a “grant” of banal shares by his or her employer company, the agent charge abide to assignment for the aggregation for a aeon time for the shares to “vest”, back the belong date arrives, the agent receives a acquittal that is about taxable to the agent as accustomed W2 income.
While the capacity of the assorted forms of accumulation administration and/or disinterestedness advantage differ, the about agnate purpose, timing, conditions, and tax assay of such payouts agency they are advised analogously for annulment purposes. Indeed, an abstruse 2014 accommodation by the Appeals Court, Brookes v. Brookes (2014), anecdotic banal options and RSUs as actuality allotment of the aforementioned family, and in best cases, Massachusetts courts are acceptable to amusement the assorted forms of disinterestedness advantage that amalgamate banal shares and a vesting aeon in a agnate fashion.
(For the purposes of this blog, my references to vested and unvested “shares” will be appropriately applicative to banal options, RSUs, RSAs, PSUs, etc.)
Unvested Shares as Assets vs. Income: Why Does it Matter?
If an unvested allotment is advised as an asset in a divorce, the added apron can altercate that he or she should accept 50% of its bulk in the assay of assets. However, if the unvested shares are advised as a antecedent of approaching income, the added apron will acceptable accept a essentially abate bulk in the anatomy of approaching keep or adolescent abutment payments (typically amid 15%-35%). In some divorces, this asset vs. assets acumen can bulk to hundreds of bags of dollars. While abounding attorneys accept continued accepted that a best charge be fabricated amid alleviative unvested shares as assets vs. income, a absolute adjustment for absolute the asset vs. assets catechism was elusive.
Before the Ludwig decision, which I altercate added absolutely below, a clearly-defined alarm for absolute whether unvested banal shares were assets or assets was unavailable. However, two cases, Baccanti v. Morton and Wooters v. Wooters, afford ablaze on the question. To accept Ludwig, it is accessible to assay the above-mentioned decisions.
Unvested Banal Advantage and RSUs as Assets in Annulment Cases: Baccanti v. Morton (2001)
In Baccanti v. Morton (2001), the Cloister captivated that unvested banal options can be disconnected as assets in a divorce, but accustomed that unvested banal options that were accepted to an agent aloof afore a annulment can be advised abnormally than banal options that are aing to vesting at the time of the divorce. In short, if an agent accustomed a admission of banal options with a 5-year vesting aeon one ages afore the divorce, the Baccanti cloister captivated that alone a baby allocation of these cast new banal options should be disconnected equally, as assets in a divorce. Conversely, if the banal options were accepted 5 years earlier, and would belong one ages afterwards the annulment is finalized, again best of these almost-vested shares should be disconnected as assets in a divorce.
This astute approach, in which unvested shares are disconnected as assets based on how aing they are to vesting at the time of the divorce, has been dubbed the “Baccanti Formula”. The “Baccanti Formula” charcoal the best accepted adjustment to for adding banal options and RSUs pursuant to the assay of assets in a MA divorce.
Under Baccanti, a assertive allocation of unvested shares will be advised as assets and disconnected in a Massachusetts divorce. What Baccanti did not specify, however, was how shares that were afar from the assay of assets should be advised with account to the approaching acquittal of adolescent abutment or alimony.
Unvested Banal Options and RSUs as a Antecedent of Assets for Adolescent Abutment and Keep Payments: Wooters v. Wooters (2009)
In the case of Wooters v. Wooters (2009), the Massachusetts Appeals Cloister captivated that a above husband’s banal options (and apparently RSUs) were allotment of his gross anniversary application assets and accountable to calculations for alimony, advertence that assets acquired from the exercise of banal options “is frequently authentic as allotment of one’s advantage package, and it is listed on W-2 forms and is taxable forth with the added income.” The Wooters Cloister additionally acclaimed that if acclimatized banal options were not “deemed assets for keep purposes, a being could potentially abstain his or her obligations alone by allotment to be compensated in banal options instead of by a salary.”
In Wooters, the parties had entered a break acceding eight years above-mentioned in which the bedmate agreed to pay a allotment of his anniversary benefit assets to the wife as alimony. The Appeals Cloister captivated that beneath the specific accent in the parties’ agreement, the husband’s banal options should be advised as benefit assets for the purposes of the keep provision. Further, the Cloister antiseptic that gain from banal advantage payments should be advised as gross assets for the purposes of artful adolescent abutment and keep affective forward.
Like Baccanti afore it, Wooters beforehand the compassionate of board and attorneys with account to how to amusement unvested banal shares afterward a divorce. However, area Wooters focused on banal shares that the bedmate had acquired several years afterwards the parties’ divorce, it did not abode the catechism of how to amusement unvested shares captivated by a apron at the time of the annulment that are not disconnected as assets.
Tying it All Together: Banal Options as Both Assets and Assets in Ludwig v. Lamee-Ludwig (2017)
The contempo accommodation in Ludwig v. Lamee-Ludwig (2017) saw the Appeals Cloister analyze and administer the “Baccanti Formula” for adding unvested banal options pursuant to the assay of assets in a divorce, while accompanying cardinal that unvested banal options that are not disconnected as assets beneath the Baccanti Formula should be acclimated as a antecedent of assets for artful keep or adolescent support. The accommodation provides a bright framework for ambidextrous with all unvested shares captivated at the time of the divorce:
The well-written and actual assessment in Ludwig finer combines the acumen of Wooters and Baccanti into a unified decision, appropriately accouterment a bright aisle advanced for annulment cases in MA involving banal options and RSUs.
For a added all-embracing assay on the accountable and admission to a DIY Baccanti worksheet, bang here.
About the Author: Jason V. Owens is a Massachusetts annulment advocate and Massachusetts ancestors law advocate for Lynch & Owens, amid in Hingham, Massachusetts.
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