Divorce - need advice

[Krolik]

Hello. This is truly asking for a friend who doesn't know if the following is a good idea. What are your thoughts ?

The situation is as follow:
Friend - person A
soon to be ex - person B

Person A is below 100K/year income, person B - $300K/year income. HCOL area.

Person B is starting a new job where part of the compensation is annual RSU grant, vesting after a year of employment. Value of the grant ~ 100K.
However, the company's stock is not publicly traded (pre-IPO, no official IPO date yet.). The company is 10 years old, tech business.

Person's A lawyer wants to ask for 40% of RSU income after it vests in 2026, then 30% next 2 years, and 20% following 2 years.

Person A is not sure if this is a good idea. Maybe it is better to ask for more cash instead of percentage of RSUs?
If person B quits the job or is fired, person A will not get any money from the stock.
Also, the fact that the company is not publicly traded makes the whole deal more tricky in my opinion.

Please share your thoughts and what do you think is the smartest thing to do?
Should person A go for the percentage of RSU or rather try to get more cash ?

[Sibley]

Without doing the math, this is a fairly simple choice: less money more guaranteed OR more money less guaranteed.

Depends on financial situation and outlook, risk tolerance, etc. Plenty of arguments for or against.

[secondcor521]

Sibley's right.  It depends on person A's situation.

Since, in a divorce, you can't trust the other party as much, I tended to go for the bird in the hand.  If I were person A, I wouldn't want to mess with relying on person B to provide accurate RSU information over the next several years, or to follow through on their payments to me.  Also person B could die, lose the new job, the company could go bankrupt, etc. etc.

[FIRE@50]

I fail to see why person A thinks they are entitled to any future income post divorce. Can you explain that aspect to me?

[GilesMM]

Lump sum payments are almost always preferable to alimony, for both parties.

[lhamo]

I fail to see why person A thinks they are entitled to any future income post divorce. Can you explain that aspect to me?

This.

I'm in a community property state and when we filed we had to decide on a separation date.  All financial matters after that date were our individual responsibilities.


That being said, if I were to be in person A's position and was entitled to some form of compensation/support, I would prefer to have cash (or assets) in hand at the end of the divorce settlement/finalization of the paperwork.  It is much cleaner and means both parties can make their own financial choices without back and forth over financial matters.  I currently have very little financial entanglement with TheX -- I did help walk him through filing his taxes for the first time (I have always done it), and we still need to figure out how to cover/reconcile expenses I am paying for our college aged child (I cover most immediate needs since he moved out of state).  The latter isn't a ton of money -- probably under $2k -- and I am considering just covering everything myself since it will further limit how much I have to engage with him on financial stuff. It hasn't been bad -- he has actually been fairly generous about some things (split the cost of a storage unit with me, for example).  But the less we have to get into each other's financial details the better.

[Zamboni]

Another person in the "take the money now" camp.

Honestly, lawyers make the most money by dragging these things out. It is in the lawyers' collective interests to suggest a complicated settlement, but complicated settlement is not in the interest of either person A or person B. Do a full accounting and divide the existing assets, cash, and debts in accordance with the law and what both parties A & B perceive is a reasonable way and be done with it without a bunch of future accounting. 

If person A's lawyer wants to convince person B's lawyer that unvested potential future income should be worth cash now, then perhaps give them a VERY small and limited amount of time to pitch that. Because it is a terrible pitch idea imho. If it is perceived as very valuable for reasons that I don't understand, then ask for a mediator with a limited amount of time to work through both parties on it and other matters (half a day max of mediation where everyone is in the same building, ideally in separate rooms with the mediator going back and forth.) If person B goes for it (I wouldn't), then get whatever cash/assets make sense for person A now. After that, tell the lawyer to stop burning any more of person A's retainer money on it.

Once fully financially separated, person A should focus on improving their own situation and forget about what is going on with person B. With a six figure job, person A should be in a good position.

[seattlecyclone]

I fail to see why person A thinks they are entitled to any future income post divorce. Can you explain that aspect to me?

I've heard from colleagues that the State of California maintains a position that a person who is given a stock grant in Year 1 while living in California, moves states in Year 2, and has some shares vest in Years 3 and 4 owes income tax to California based on what fraction of the vesting clock ticked while they were living in California. Seems like a similar argument could be put forth here regarding splitting assets based on how much of the vesting clock ticked during the marriage. No idea how the divorce courts typically handle this stuff.

[Captain FIRE]

I fail to see why person A thinks they are entitled to any future income post divorce. Can you explain that aspect to me?

Sure, i'll play this game. There's lots of possibilities. Here's one:

- Both people get jobs earning roughly the same amount of money
- The wife gets pregnant.
- They both decide the wife will stay home and raise kids. Not having to juggle home life as much (time off for kid dr/dentist appointments to not racing out end of day for kid pickups, grocery shopping, etc.), spouse is able to devote more time/focus to work, helping them earn more promotions.
- Wife misses out on job experience, salary raises, money into social security and 401k.
- Kids go to school. Wife goes back to work, but needs to start even lower than before, due to penalty from time out of workforce.
- After a lengthy period (let's say 10-20+ years) they decide to divorce.
- Spouse still has job, earned promotions, raises, experience, etc.

--> Upon marriage dissolution, if there's just a straight split down the middle without consideration of other factors, the stay at home spouse that stayed home pays a *heavy* penalty for the joint decision to stay at home, much much higher than the one the working one pays. (For these reasons, I'd recommend a postnup for anyone making this decision. I just heard tonight that my second cousin's new wife is possibly going to stay at home after they move out across country for his job, and I'm worried for her.)

Here's another possibility:
- Person has stock grants (or 401k matches, etc.) that vest over a 5 year period. They get divorced 3 years through, when they've earned 3/5 of the first year, 2/5 of the second, and 1/5 of the third year.

Or:
- Person is offered a signing bonus, standard in their industry (which would be split in a divorce), but instead asks for stock that vests over time to try to avoid paying out anything to soon to be ex-spouse.

[Dicey]

Just fur fun, google: Rita Lucas, Nobel Prize. Wise [divorced] woman.

[Sandi_k]

Just fur fun, google: Rita Lucas, Nobel Prize. Wise [divorced] woman.

Yep. I worked with a Nobel laureate (also in Economics). When he and his wife split, his Nobel Laureate campus parking permit was a contested issue in their divorce.

Francoise was allowed to use it in the summers, when Gerard (Debreu) was in France.

[Catbert]

I would never try to get an "RSU grant" in a divorce, primarily because I don't understand what it is or how it's taxed.  I don't get into investments that I don't understand.  So unless you understand RSU grants much better than I, you should pass.  Plus all the other reasons others have mentioned.

[clarkfan1979]

I would personally take more guaranteed money now. Hoping for more money later based on how well your ex does in their career seems like a weird arrangement.

I have a friend that was rich with rental property in 2004 to 2006 on paper but eventually filed for bankruptcy in 2012. During this time he was also going through a divorce. He was trying to settle with his ex-wife before he filed for bankruptcy. He preferred that his ex-wife get the money than the banks. They had shared custody of teen kids at the time. She didn't trust him and thought the bankruptcy story was bullshit so she dragged things out and kept on asking for more. Well, the bankruptcy story ended up being true, and she pretty much got close to zero because the banks took everything from him during his bankruptcy proceedings.   

[Swish]

Bird in the hand.

There are a lot of ways person A can get screwed in future and not control the outcome. Yes the temptation for more seems good on paper but we have seen how far embittered partners can go following the letter of separation agreements. IE spouse gets half the home and other spouse applies for demolition permit and rezoning to subdivide a lot and drives excavator through middle of home. Spouse gets x car. Car is flattened by heavy machinery and delivered to their home. Spouse agrees to future corporate earnings or proceeds of sale. Business is sold arms length to a friend who owns a new corp at heavy discount then after proceeds settle is bought back at same discounted value in a new corp. Similar to previous one the ex runs negative cashflow and because of shared ownership spouse cannot afford to prop business with shareholder loans and their share position ends up diluted to nothing over a few years. Even where damages are remedied it can take a very long time to fight it out in court.