This page contains a unique calculator that uses the Baccanti formula to calculate how unvested stock options and restricted stock units (RSUs) are commonly divided in Massachusetts divorce.
It does not require you to know any math. You simply enter a) marriage and divorce/separation dates, b) the date a particular stock option was granted to the employee, and c) the date that that particular stock option or RSU vests.
Just like bank accounts or a home, stock options and RSUs are property with value that is subject to division in Massachusetts divorce.
Vested stock options are fully available to an employee to exercise. In other words, an employee can immediately buy stock at a discounted price and either keep it or sell it immediately for a profit. Vested stock options are easy to value because they simply depend on the stock price on a given day and the particular discounted price (“strike price” or “grant price” or “exercise price”) at which an employee can buy the stock.
For example, if a stock is worth $100 and the vested stock option allows the employee to buy the stock for $20, the value of that stock option on that day is $80. Thus, that $80 is part of the marital estate and can be divided (often equally) between divorcing spouses.
Unvested stock options are not immediately available to the employee to exercise (buy the stock at a discounted price). They become available to exercise at a specific date in the future, but they still have value in the present. Unlike vested stock options, the exact dollar value of unvested stock options cannot be reliably determined in the present because their value depends on a) future stock prices, and b) whether the employee stays at the job until a specific, future, vesting date.
This makes it difficult to come up with a realistic dollar figure for buying a spouse out of any future claim on the stock option/RSU. Many couples therefore opt for “deferred distribution”, in which the value of the option or RSU is shared in the future, at the time it is turned into dollars.
Because stock options and RSUs cannot be reliably valued in the present, a separation agreement can specify a percentage, rather than specific dollar amounts, for dividing them in the future. The separation agreement can specify, for example, that the spouse with the stock options or RSU will give 43% of the value of Stock Option #1 to the ex-spouse, 22% of Stock Option #2, and 65% of the RSU, when the stock options or RSU vest or are turned into cash.
Restricted stock units differ from stock options in that the employee does not need to make any decisions about whether or not to excercise the option and buy stocks. RSU’s are simply the transfer of a certain number of share of stock to an employee upon a specified date or upon a combination of a specified date and achievement of a performance measure.
Like stock options, RSUs can be vested or unvested. Vested stock options means the shares of the RSU have already been transferred to the employee. Such shares form part of the marital estate.
Unvested RSUs, like unvested stock options, cannot be accurately valued until they are vested. Their dollar value will simply be computed based on the stock market value on that future date. Using the Baccanti formula, however, one can calculate the percentage of the RSU value that should to to each ex-spouse on the vesting date.
The basic question for reaching this percentage is, “What percent of the option/RSU was earned during marriage?”
To determine this for a given stock option/RSU, simply 1) determine the length of time between the date a stock option or RSU was promised, and the first date (“vesting date”) that the employee can collect on it, and 2) then ask, “For what percent of this time period were we married?”
You can use the calculator, below, to calculate this for yourself for each stock option or RSU.
In Massachusetts, this method of calculating the percentage is often referred to the “Baccanti Formula”, after the name of a 2001 case “Baccanti v. Morton,” which made clear that stock options and RSUs earned during marriage are marital assets, subject to division, and suggested this means of determining what percent of them belongs to the marriage.
This method of arriving at a percentage that belongs to the marriage is not novel or unique to stock options/RSUs—it has long been the most common way of dividing pensions in divorce in the United States.
To calculate what percent of an employee’s stock option/RSU should go to the ex-spouse, simply enter information below, one-at-a-time for each unvested stock option or future RSU, and click “CALCULATE”.