How To Value & Divide RSU’s During Divorce Mediation

Laurie Itkin How To Value & Divide RSU's During Divorce Mediation
  1. Chief PeaceKeeper™  Scott Levin and Laurie Itkin are discussing how to divide RSU during divorce and how they work together to help clients in mediation.

Chief PeaceKeeper™ Scott Levin 0:02
Hi everybody. This is Scott Levin chief peacekeeper™, family law attorney, and mediator, and I’m here today with Laurie again, Lori, thank you so much for being here with us. So happy to be here, Scott. Good. Laurie, can you introduce yourself to our viewers real quick?

Laurie Itkin, CDFA 0:20
Sure. So I am a certified divorce financial analyst, also known as cdfa. And that is a professional that has received and continues to receive each year training in the financial and tax aspects of divorce. In my practice, I work mostly with mediators, either as a neutral to both parties, or occasionally I’m an advocate to one party. And I also can be helpful as a financial expert in the litigated cases where the attorney for one spouse needs some financial analysis and support. And beyond that, I’m also a wealth manager, a financial advisor. So sometimes, if I’ve worked with an individual during the divorce, and there’s no conflict of interest, I may be asked to manage their investment assets going forward after the door of divorce is final. But of course, we want to make sure there’s no conflict, especially if I’ve been neutral to both parties.

Chief PeaceKeeper™ Scott Levin 1:29
And before we get into our conversation today, what’s the best what’s your website so that people can ping you and contact you that way? That way?

Laurie Itkin, CDFA 1:38
Easy. I’m the options lady. And the website is the options That’s how you can reach me.

Chief PeaceKeeper™ Scott Levin 1:46
You know what’s interesting, you know when someone’s good when your friends want to introduce you to somebody, so I have like six, seven people say, hey, do you know Laurie, can you have to meet laureate and you need to leave Laurie again. And I’m not exaggerating, literally, I had so many people say when they find out what I do, do you know Laurie, because she’s not good at what she does. So today, we actually thought that we would attempt to have kind of a complicated or not necessarily a complicated discussion, but kind of an introduction to a topic that can be fairly complex. And that’s really employer-provided benefits, such as restricted stock units that are called RS use, or stock option plans. And for anyone working at, you know, Qualcomm or any of you know, those types of companies, Rs, us, and stock options are a huge part of compensation. Now, in the divorce world, they add a lot of complexity. And Laurie, I wrote down a series of questions, I thought that I would just run through these real quick because I didn’t want to miss anything kind of introducing the topic. And then I’ll let you kind of fill in and we’ll talk back and forth. But here are the questions and these and artists use and stock options or as a mediator. You know, it’s almost in every case that I do. So it’s big, it’s a big part of the practice. And Laurie is someone that absolutely helps my clients and clients of mediators throughout California, really? So here are some of the questions. Is this property subject to division as an asset? Or is it income that we counted for a child or indoor spousal support? What portion is separate property versus community property? taxes can make up a huge part of the RSP is every client that has an RSP says they’re taxed at the half at 50%. So when given that they’re being taxed at 35 to 50% of the value, how does how is that addressed? When we’re trying to separate them? How does the non-employee former spouse ensure that he or she gets his or her share of the RSC user stock options over the coming years when they aren’t yet vested? So sometimes the RSU will, there’ll be a right to them now, but you can’t. They’re not yet invested. So that year from now, the employee’s spouse will have to notify them of the other person essentially. Let’s see. How do you deal with the valuation when the company isn’t even publicly traded? Anyway, so these are some of the questions I get. Laurie, can you maybe jump in and give us your expertise?

Laurie Itkin, CDFA 4:42
Yeah, so let’s set the stage, Scott. Let’s say it’s a couple in mediation, and let’s say they want to work continuing to work on a neutral basis with the cdfa just like they’re working with you as a nude on a neutral basis to the mediator. And as you mentioned, companies Like Qualcomm and San Diego, we’ve got Qualcomm via set alumina on throughout California, we have Google, we have Facebook, and any high tech company, you go in Silicon Valley, San Francisco, I mean, many people, managers, engineers, directors, you name it. Much of their compensation is not just salary. It’s often restricted stock units less often, stock options. So let’s just talk about the basic if you are married to somebody who gets our issues, for restricted stock units, I assure you, they know how much they’re getting, I assure you, they are checking them each raid or their Morgan Stanley or their Merrill Lynch, their fidelity they are they know when these things are gonna come they know when they’re gonna invest. So they’re typically provided every year. And they’re really a part of your compensation. And you know, Scott, they can make up I mean, let’s say you get $150,000 a year, you may be getting 5080 100 $150,000 worth of these every year, so they cannot be ignored. And it’s interesting, if the nonemployee spouse isn’t sophisticated about this, they may not even know they’re there.

Chief PeaceKeeper™ Scott Levin 6:20
Yeah, that happens all the time that clients are they don’t even know what are those? I’d never heard of them before. And they’re like, Oh, these are $75,000 worth.

Laurie Itkin, CDFA 6:31
Right. And the other confusing thing is that you might look at your tax return. And you may think, wow, you know, I’m making $70,000 a year as a school teacher and my husband, he made he brought $350,000, home in 2019. And the husband will say, Well, wait, though my salary is only 150,000 or 20. Note, so. So the non-employee spouse gets very confused when it comes to child and spousal support, because they think, Oh, wait, this guy’s making $300,000 a year. Okay. So that’s the stage I, you as a mediator, me as a cdfa. We are walking into this context all the time, wouldn’t you say? That’s about right. Absolutely. Yep. Okay, so what do we do? So let’s start tackling some of these issues. Are these things property? Are their income available for support? So let’s talk a little bit about what restricted stock units are. So you may get as part of your annual performance review and you did a good job, you’re going to get some restricted stock units. And let’s here’s a typical vesting pattern. What do I mean by this is you may be awarded 100 are issues of your company stock, and perhaps they vest 25% each year over four years. That’s just what we have to look at the plan, every company is different. So here’s the confusing part. That’s where I come in, let’s say the couple let’s say we’ll say the wife’s the employee. In this case, let’s say the wife was granted 100. Our issues on January 1, 2019, a couple separates on December 31 2019. Well, these are gonna vest each year over years, and some of that is community property subject to a 5050 splits. But the more we go out in time, the more as those events become the wife separate property. Okay. So it’s really it’s called the time rule formula. There’s case law on this the Nelson formula is what we commonly use, sometimes hug, but so, what people need to understand is that if something has not invested yet, it cannot be sold. We cannot make money from something that is on vest. So typically, what I recommend, if especially if a couple can communicate is that as the shares vest, year, two years, three years, the employee is required to transfer some of those shares of stock to the ex-spouse, okay? Okay. So that’s when they are property. Now, here’s where we get even more complicated. Those shares that are not community property divided 5050 are now the separate property of the employee. That separate property of the employee. When these restricted stock units vest and show up on the employee’s w two they show up on the tax return. That could be income available for the calculation of child and spousal support. Yeah, So, there we go. We’ve already I will probably last one here, right? You’re probably thinking, What the heck? How do we sort this out?

Chief PeaceKeeper™ Scott Levin 10:09
Exactly. And when you’re staring at me, everybody is your mediator. You know I, in law school, they did not teach you how to do these complex financial calculations. So you when we’re faced with these as we said, This happens all the time. What do we do? Well, we call in Laurie as a cdfa, certified divorce financial analyst. And she basically takes all the information, what was the value of it at the date of marriage? What what, you know, figures out, gets all the statements, and produces a report, essentially, that is somehow blurry. I don’t know how you do it. But your reports are in English like they make sense to even people like myself. And my clients always say that they say, well, there’s this, there’s this, the math part of it. But then the summary is like I actually understand what she’s talking about, I’m going to spend a lot of time breaking that down. And thank you, thank

Laurie Itkin, CDFA 11:09
you for, I’m really glad you brought that up because I can, you’ll see in my reports, I have a spreadsheet, I do the actual calculations. But what’s so much more difficult and time-consuming is not the calculation, it’s being able to communicate that calculation, so everyone can understand. And let’s think about who is every one it could be in it will be the mediator, it will be both spouses. It may be a consulting attorney, that one or both spouses choose to use, it may be one or both spouse’s financial advisors who they work with. So when I’m writing a memo, although it’s for an intended audience, I have to be prepared that they may share this they may share with their stepfather. I don’t know. So. So typically, people want to know how much is this going to cost. So I’ll tell you if I’m usually what I’ll do is I’ll have a zoom call, and I’ll have the employee login to their stock account, you know, that shows the vesting schedule shows all the plan documents, we may be on that zoom call for an hour, hour and a half, I’m downloading, I’m asking them to download tons of stuff. It’s not well organized, let me tell you to go on to these websites, it’s really a pain, you know, so we have to download that. And I say this out and then and then I prepare a report. And I usually say to people, our report is going to take somewhere between three to six hours of my time to do the project. I’ve been able, if it’s very few grants, maybe I can do two hours. But generally, the sweet spot is three to six hours.

Chief PeaceKeeper™ Scott Levin 12:43
That’s that mean, that’s pretty incredible because I’ve seen your work. And I mean, really, we wanted to kind of highlight this specific example of ours use in the context of divorce for people because it is such a huge part of so many people’s separation and split and marital settlement agreement. And it’s also something that very few people really have the expertise and understanding to help calculate. So when you’re in the mediation in litigation, you need to have low, you need to contact Laurie, you need to get that report issued because both parties then will feel confident that they are dividing the actual value of these agreements. And one thing glory that I understand too, that you do is that you’ll actually win when there is a vesting schedule into the future. A lot of times you will meet with, you know, the clients on an annual basis to kind of look at the RSU is what best of that year to make sure that the amount that was supposed to be transferred is kind of you know, pursuant to the marital settlement agreement is in fact, you know, was correctly done.

Laurie Itkin, CDFA 13:55
Right. And although the employee spouse may feel threatened, that I’m involved, it’s actually to the employee spouse benefit that I’m involved because we don’t want to double-dip we don’t want to have some of those are issues be treated as property that will be divided, and then ding that person and say, Oh, the same our shoes are showing up on your W two in your tax return and those are income. So it’s actually counterintuitive, but it’s the employee spouses’ benefit to have me or cdfa do this. And of course, it’s to the non-employees benefit as well because they’re going to have a translator.

Chief PeaceKeeper™ Scott Levin 14:31
Yeah, exactly. You know, it’s really remarkable. So I want to thank Laurie what your website once again, is the options lady calm, and she is the option for cdfa work and now do you work throughout the country or in California,

Laurie Itkin, CDFA 14:50
so forth throughout California for cdfa for wealth management around the country, but what I typically do is because the state laws are so unique, especially with California with our community property laws, is I do try to keep my cdfa work isolated to California, which is over 30 million people. So, if I’m gonna focus on one state, Hey, I got the best state. I have gotta get New York too but okay.

Chief PeaceKeeper™ Scott Levin 15:18
All right. Well, thank you so much, Lori. We really appreciate you. breaking this down for our listeners. Thank you. Happy to be here.

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