Divorce for Technology Professionals in California is Complicated
Professionals in the technology industry – including computer programmers, software developers, and hardware/software engineers – face a specific set of issues during the divorce process. Some of these issues are obvious, and technology professionals and developers frequently ask a number of common questions at their initial consultation with a family law attorney. Some common questions associated with divorce for technology professionals in California include:
- How do you divide Restricted Stock Units or Stock Options that haven’t vested yet?
- Does the non-employee spouse have a right to unvested options or units? If so, how many?
Other questions about divorce and family law, however, are not readily obvious to tech professionals and their spouses. Suppose the court awards a non-employee spouse an interest in unvested Restricted Stock Options (RSUs). Now suppose the software developer/engineer quits their job to take a new job at another software company. When a developer leaves their existing employer, they typically forfeit any unvested RSUs. So what happens to the non-employee spouse’s court-ordered interest in those unvested RSUs? Is it simply lost?
Or suppose the software developer is likely to be offered a better position in another state in the near future; if you’re still married, should you file for divorce now or wait until after the relocation? How will another state’s laws impact the division of property? And how will the timing of the divorce affect how new signing bonuses are allocated between the parties?
While perhaps not obvious to the parties themselves, these potential issues can have an enormous impact on the outcome in a tech divorce – which is why it is critical for IT and other technology professionals and their spouses to consult with and retain knowledgeable Los Angeles family lawyers with plenty of experience in tech-sector divorce.
In Divorce for Technology Professionals in California: Bonuses May or May Not be Community Property
Suppose the parties separate in December and the husband receives his Google cash bonus in January. Because the bonus occurred after the parties separated, you might be inclined to think it’s his separate property – but it might actually be community property. The answer turns on what the bonus is for.
If the bonus is awarded because of the husband’s stellar performance over the last year – a period prior to separation and during which his efforts belong to the marital community – then the bonus will be deemed community property. Think of this bonus as a delayed compensation that was being earned while the parties were still married.
However, if Google characterizes the bonus as an incentive for the husband to work in the future, then the bonus will be his separate property. Think of bonus, in this instance, as compensating the husband for work anticipated in the future – a period after separation and during which his efforts no longer belong to the marital community.
The same is true for signing bonuses. Suppose a software developer is given a restricted stock award at Amazon that fully vests in four years. After the four years are up, let’s suppose the worker lands a new job at Google and is rewarded with a generous signing bonus. If the developer filed for divorce prior to taking the new job at Google, then that signing bonus would probably be separate property.
However, if Google recruited the software engineer prior to the vest at Amazon, and Google offered an even bigger signing bonus in recognition of the abandoned unvested Amazon RSUs, a substantial portion of the Google signing bonus would, in effect, be a buy out of the abandoned Amazon RSUs. That fact would allow the non-developer spouse to argue that a good portion of the Google signing bonus – or at least that portion of it constituting the buy out of the community’s Amazon RSUs – belongs to the marital community.
California Uses a Time-Weighted Formula to Divide Stock Options & RSUs During Divorce
RSUs and Stock Options are invariably awarded to technology professionals on a graded vesting schedule, usually between two to five years. That means that a RSU awarded today to a computer programmer might not vest until five years from now. When couples separate prior to the vesting of all RSUs, the question arises as to how these unvested RSUs should be divided.
Courts start with the premise that labor done – and wages earned – by either spouse during the marriage and prior to separation is community property. Labor done and wages earned after separation are the separate property of the laboring party. With that in mind, California courts view each vest in the schedule as delayed compensation for the prior year or years of work within a given grant schedule.
A simple example illustrates the logic. Assume a married programmer receives an award of 100 RSUs from Google on January 1st. Assume that the 100 RSUs will vest on December 31st of that same year. Finally, assume that parties separate on July 1st. California community property law would say that the programmer worked a full twelve months for the vesting of the 100 RSUs. Six of those laboring months were spent prior to separation and were, therefore, for the benefit of the marital community. Likewise, six of those laboring months occurred after separation and were, therefore, for the benefit of the programmer’s separate estate. Accordingly, half of the 100 RSUs would be deemed community property and half would be deemed separate property. The programmer would receive all of the their separate property RSUs and half of the community RSUs (75 RSUs total). The programmer’s spouse would receive half of the community RSUs (25 RSUs total).
As to how these 25 RSUs (all of which would be unvested at separation) would be transferred to the spouse, the simplest method is for the computer programmer simply to hold the 25 unvested RSUs in trust for the ex-spouse. Once the 25 RSUs vest, the programmer would then be required to transfer them to an account designated by the ex-spouse.
Software Engineers & Tech Professionals Often Face Jurisdictional Questions in a California Divorce
It is not uncommon for tech professionals and software engineers to change jobs several times over the course of their career. Sometimes the move is an internal transfer; other times they move to another FANG (Facebook, Amazon, Netflix, Google) company, or perhaps join a start-up. In either event, the move often comes with a geographical relocation as well. Because the high-tech industry is dominated by a handful of monopolies, these relocations are concentrated in two locations.
Of the nine largest U.S. Tech companies (by annual revenue as of March 2021), all but two are headquartered in either California or Washington. Of the approximately $1.4 trillion in combined annual revenue of these nine companies, roughly $529 billion is generated by Washington-based tech companies and $679 billion is generated by California-based tech companies. Taken together, Washington and California based tech companies account for 88% of the revenue generated by these top nine tech companies. Accordingly, it is no surprise that one of the most common interstate relocations for tech workers is between Washington and California. As a result, if the divorce and the relocation coincide, tech professionals are often confronted with the choice of whether to get divorced in either Washington or California.
Divorce for Technology Professionals: the Difference between Washington and California Family Laws
While both Washington and California are community property states, their laws differ in some important ways. To begin with, the RSU analysis described above is not used in Washington. Instead, Washington uses a slightly different analysis that can substantially favor the tech worker spouse. In California, the court is required to divide community property 50/50 and is prohibited from awarding one spouse’s separate property to the other spouse. Washington courts, by contrast, are free to award lopsided divisions of the community – and they have the authority to “invade” one party’s separate property and award it to the other spouse.
Finally, in California, courts routinely award “lifetime” spousal support for marriages of only ten years. In Washington, courts generally would award “lifetime” maintenance only after 25 years of marriage. These are just a few of the important differences between California and Washington law. And the fact that many tech workers have to navigate these jurisdictional issues only adds to the complexity of their divorce.
S.L. Pitts’ Family Lawyers Possess a Wealth of Experience in and Expertise with Divorce for Technology Professionals in California
Our experienced Los Angeles family lawyers have years of experience representing either technology professionals and developers or their spouses in a divorce. We understand and are able to both educate and advise clients on the key issues impacting their divorce. If you or your spouse live in California and are in the tech industry and you think you may be getting a divorce, it’s critical to meet with an experienced Los Angeles family lawyer early to ensure that you understand your legal rights and obligations. Choices made early in the process often cast a long and irreversible shadow, particularly when it comes to jurisdictional questions. Contact us to schedule an appointment with one of our knowledgeable Los Angeles family lawyers today. We can also assist you with any matter related to divorce including high-asset divorce, domestic violence, spousal support, and more.