Divorce and Equitable Distribution of Restricted Stock

Jul 1, 2019 | Written by: Diana N. Fredericks, Esq. | Share

In one of my recent divorce cases, the following question arose:  “Would a portion of restricted stock, which vests after the date of the complaint for divorce, be subject to equitable distribution, if the vesting is contingent upon post-complaint employment efforts?”

The answer is no.

In the published New Jersey Appellate decision of M.G. v. S.M.[1], the Court addressed this question and further provided direction for lawyers and clients to resolve this issue.  In the opinion of the Court, written by Judge Mawla, it holds:

[T]he goal of equitable distribution . . . is to effect a fair and just division of marital [property]."[2] After a trial judge identifies the marital assets and determines the value of each asset, the judge must decide "how such allocation can most equitably be made."[3]

Equitable distribution "reflects a public policy that is 'at least in part an acknowledgment that marriage is a shared enterprise, a joint undertaking, that in many ways is akin to a partnership.'"[4] 

However, an equitable distribution does not presume an equal distribution.  Rather, N.J.S.A. 2A:34-23.1, requires an equitable distribution be "designed to advance the policy of promoting equity and fair dealing between divorcing spouses."[5] This policy is best implemented by evaluating the facts and evidence associated with each asset.

The Appellate Division adopted the rubric as follows, which provides guidance to attorneys faced with these issues in the context of divorce:

(1) Where a stock award has been made during the marriage and vests prior to the date of complaint it is subject to equitable distribution;

(2) Where an award is made during the marriage for work performed during the marriage, but becomes vested after the date of complaint, it too is subject to equitable distribution; and

(3) Where the award is made during the marriage, but vests following the date of complaint, there is a rebuttable presumption that the award is subject to equitable distribution unless there is a material dispute of fact regarding whether the stock, either in whole or in part, is for future performance.  The party seeking to exclude such assets from equitable distribution on such grounds bears the burden to prove the stock award was made for services performed outside of the marriage. That party must adduce objective evidence to prove the employer intended the stock to vest for future services and not as a form of deferred compensation attributable to the award date.  Such objective evidence should include, but is not limited to, the following: testimony from the employed spouse; testimony of the employer's representative; the stock plan; any employer correspondence to the employed spouse regarding the award; and the employed spouse's stock plan statements from commencement of the award and nearest the date of complaint, along with the vesting schedule.

In the M.G. v. S.M case, the plaintiff's unrefuted testimony made clear that post-complaint efforts were necessary to cause the stock, which had not vested as of the date of complaint, to become payable.  In that case, there was nothing in the record to support the claim that more was required of the plaintiff than his continued employment.  Therefore, the argument failed because it could not sustain nor support the facts the Court set forth. 

It has become common for stock units, options and other types of compensation to be part of an employee’s package.  It is critical to ensure that your attorney accounts for the total compensation to determine support and equitable distribution, and to ensure that assets are not left on the table nor inequitably distributed when exempt.

[1] https://www.njcourts.gov/attorneys/assets/opinions/appellate/published/a1290-17.pdf?c=qp2

[2] Steneken v. Steneken, 183 N.J. 290, 299 (2005) (alterations in original) (Steneken v. Steneken, 367 N.J. Super.  427, 434 (App. Div. 2004)).

[3] Rothman v. Rothman, 65 N.J. 219, 232 (1974).

[4] Thieme v. Aucoin-Thieme, 227 N.J. 269, 284 (2016) (quoting Smith v. Smith, 72 N.J. 350, 361 (1977) (quoting Rothman, 65 N.J. at 229)).

[5] Barr v. Barr, 418 N.J. Super.  18, 45 (App. Div. 2011).