In a Denver Tech Center or Boulder marriage, the equity is often the largest asset and the least understood. Colorado does not divide it by the vesting calendar. It asks, grant by grant, whether the employee has an enforceable right to the award and what the grant was for: past service is marital when granted; future service becomes marital as it is performed. Then the award is valued at the decree or divided if, as and when it vests, taxed at ordinary rates to the employee, and, if the agreement is silent, fought over again as income. This page is the whole of it.
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The vesting schedule is a payroll device. The grant agreement is the evidence.
Every equity case begins with a spouse who believes the unvested shares are untouchable and a spouse who believes half of everything on the brokerage screen is theirs. Colorado law sits between them, and it has since the Supreme Court decided In re Marriage of Miller, 915 P.2d 1314 (Colo. 1996), a Hewlett-Packard case. Options granted in consideration of past services are marital property when granted, whether or not they have vested. Options granted for future services are not marital until the employee has performed those services. Restricted stock is marital in its entirety, its restrictions going to value rather than character. And a mechanical time formula, applied without asking what the grant was for, is error.
I have handled equity compensation from both sides for thirty years, first in Orange County for executives and founders, and now for the same people in Colorado, with a Georgetown LL.M. in taxation that matters more on this page than any other. The work is in three parts: read the plan and every grant agreement; classify each award under the enforceable-right test; then choose between a present-value offset and an if-as-and-when division with the tax written into the order. What follows is how each part is done.
For founders and employees of Boulder companies the grant-by-grant analysis is the same; what changes is the courthouse. Boulder County cases are heard in the 20th Judicial District, and how that court runs a case is on the Boulder divorce page.
Property when the right is enforceable.
An award is marital property once the employee has an enforceable right to it; the Supreme Court has said vesting is not the test. Granted for work already done, it is marital when granted. Granted for future service, it is marital as the service is performed.
Valued at the decree.
Property is valued as of the decree, or the property hearing if that comes first. With a volatile stock, the structure of the division matters more than the price on any one day.
Taxed as wages.
RSUs are taxed to the employee as ordinary income at vesting, nonqualified options at exercise. The decree allocates that tax, or the employee carries it alone.
Equity compensation is five different instruments that behave differently in a divorce. The first task is to name each one from the plan document, because the analysis, the tax and the transfer rules all turn on it.
| The instrument | What it is | Transfer to a former spouse | Tax, in brief |
|---|---|---|---|
| Restricted stock units (RSUs) | A promise to deliver shares (or cash) on a vesting date, usually over three or four years, sometimes with a performance condition. | Almost never permitted before vesting; divided by constructive trust or offset. | Ordinary wages to the employee at vesting, on the W-2; no 83(b) election is possible; later gain or loss is capital. |
| Nonqualified stock options (NSOs) | The right to buy shares at a fixed strike price during a term, after vesting. | Sometimes permitted by the plan; the IRS treats a transfer incident to divorce as tax-free. | No tax at grant; the spread is ordinary income at exercise; a transferred option is taxed to the former spouse who exercises it. |
| Incentive stock options (ISOs) | Options meeting the tax code’s requirements for favorable treatment if held for the required periods. | A transfer to a former spouse destroys ISO status; the option becomes an NSO in the recipient’s hands. | No regular income at exercise, but alternative minimum tax may apply; capital gain on a qualifying sale. |
| Restricted stock | Actual shares issued at grant, subject to forfeiture until the restrictions lapse. | Usually barred until the restrictions lapse; held in constructive trust. | Ordinary income when the restrictions lapse, unless an 83(b) election was filed at grant. |
| Employee stock purchase plan (ESPP) shares | Shares bought at a discount through payroll deductions in offering periods. | Shares already purchased are ordinary stock and transfer freely; rights in an open offering period do not. | No income at purchase under a qualified plan; the discount and gain are taxed at sale under holding-period rules. |
| Phantom equity, SARs, profits interests, carried interest | Rights to cash or units measured by the value of the company or the fund, without shares. | Governed by the operating agreement; almost never transferable. | Ordinary income when paid in most cases; carried interest is taxed as the fund’s gains are recognized. No Colorado appellate decision addresses carried interest. |
The plan document and each grant agreement are mandatory disclosures in a Colorado divorce, under the item that covers employment benefits and their current value. A spouse who produces only the brokerage summary has not complied.
Two Colorado Supreme Court decisions, and they are still the law.
An award is marital property to the extent the employee has an enforceable right to it: granted for past work, it is marital when granted; granted for future work, it becomes marital as that work is done.
Miller (1996). The husband held Hewlett-Packard options and restricted shares, some vesting after the decree. The trial court applied a pure time rule; the Supreme Court reversed it. Options granted in consideration of past services may constitute marital property when granted; options granted in consideration of future services do not become marital until the employee has performed those services. Restricted stock was marital in its entirety, its restrictions going to value, not character. And the court approved reserving jurisdiction to distribute the property when the options were exercised, which is the origin of Colorado’s if-as-and-when division.
Balanson (2001). The Supreme Court made the test explicit: we do not find the issue of vesting determinative; the question is whether the employee has an enforceable right to the options, and an employee does not have an enforceable right to stock options granted in consideration for future services until the services have been performed. The trial court’s finding that twenty-one percent of the husband’s options were marital, based on the service performed during the marriage, was affirmed. The same opinion held that a vested remainder interest in an irrevocable trust is property, which is why Balanson is cited on the Trust Interests page as well.
Powell (2009). The Court of Appeals applied Miller to a wife’s 2001 options and held them marital property in their entirety, and reversed a tax-effecting of the award where there was no evidence of the amount of any tax liability or the tax rate. Tax is deducted from value only on evidence.
The test is applied grant by grant, from the grant agreement and the plan, not from a brokerage summary. These are the questions, in order.
| The question | Why it matters | Where the answer is |
|---|---|---|
| When was it granted? | Before the marriage: separate, though its increase in value during the marriage is marital. During the marriage: presumptively marital. After the decree of legal separation: separate. | The grant date on the award notice; the marriage and separation dates. |
| What was it granted for? | A sign-on award, a retention award, an award for the prior year’s performance, an award to induce future service: each has a different marital share under Miller. Grant agreements and offer letters often say. | The recital in the award agreement; the offer letter; the compensation committee’s minutes for senior executives; HR’s description of the program. |
| What is the vesting condition? | Time-based service, performance metrics, a liquidity event, or a combination. Service-based awards granted during the marriage and vesting after it are split by the service performed on each side of the decree. | The vesting schedule in the award notice; the plan’s definitions of service and termination. |
| Is there an enforceable right today? | A right that the company can revoke at will is not yet property; an award the company has committed to deliver on conditions is. A discretionary bonus that has not been declared is an expectancy. | The plan’s clawback, forfeiture and amendment provisions. |
| How is the marital fraction computed? | For an award granted during the marriage for future service, the fraction is service months from grant to decree over service months from grant to vesting, applied to that tranche. Awards with several tranches get several fractions. A pure grant-to-vest time rule applied to an award for past service is error. | A schedule the lawyers build from the award notices, tranche by tranche. |
| What happened since the last statement? | New grants, accelerated vesting, a change of control, an exercise, a sale. The continuing duty to disclose covers all of them until the decree. | The equity portal, updated the week of the hearing. |
For a spouse who is not the employee, the cross-check is the company’s own words: proxy statements for public companies describe what each award program is for, and the plan document is a public exhibit. The employee’s characterization of a grant is evidence, not the answer.
The same executive can hold one award that is marital in full and another that is marital by fraction. The difference is what the company said the grant was for.
The retention award. An executive receives 4,000 RSUs on January 1 of year one, vesting in four equal annual tranches, granted to retain her for the next four years. The decree enters on July 1 of year two. The first tranche vested during the marriage and is marital. The second tranche, vesting January 1 of year three, was earned over twenty-four months of service of which eighteen fell before the decree: three-quarters marital. The third tranche: eighteen of thirty-six months, one-half. The fourth: eighteen of forty-eight, three-eighths. The marital share is 1,000 + 750 + 500 + 375 = 2,625 units of the 4,000, delivered as they vest or valued and offset at the decree.
The performance award for last year. The same executive receives 2,000 RSUs on March 1 of year two, granted as the equity component of her bonus for year one, vesting over three years to encourage her to stay. The grant recital says the award is for the prior year’s performance. Under Miller the award was earned by past service and is marital when granted, in full, whatever the vesting calendar says; the vesting schedule affects the value and the timing of delivery, not the character. An employee who wants the future-service treatment has to show that the grant was for future service, and the company’s own recital is the first witness against her.
Property is valued as of the date of the decree, or the date of the property hearing if it comes first. For equity, the valuation question is really a structure question.
| The award | How it is valued | The problem |
|---|---|---|
| Vested public shares, ESPP shares | Market price on the valuation date, less the tax on the built-in gain if the shares will actually be sold and the rate is proved. | Concentration: a spouse who keeps a single-stock position takes a risk the other does not. Courts do not discount for it; agreements sometimes do. |
| Unvested RSUs, public company | Market price times the marital units, sometimes discounted for the risk of forfeiture and the time to vesting; or divided in kind and left to vest. | The risk of forfeiture is real for an employee who may leave, and zero for one who will not. The discount is an argument, not a formula. |
| Vested options, public company | Intrinsic value (price less strike) as a floor; an option-pricing model (Black-Scholes) for the time value where the term is long. Courts have accepted both. | Underwater options have zero intrinsic value and real time value. A court can reserve jurisdiction and divide the proceeds at exercise instead of guessing. |
| Private-company options and shares | The company’s most recent 409A valuation as a starting point, adjusted for the strike, the probability and timing of a liquidity event, and a marketability discount the court may apply in its discretion. | No market, no price. An if-as-and-when division that waits for the exit is often the only honest structure; a present-value offset requires an appraisal both sides can live with. |
| Profits interests, carried interest, phantom units | The operating agreement’s formula; a valuation of the underlying enterprise or fund; or an in-kind share of distributions as received. | Often not property at all until an enforceable right exists. The safe course is a distribution-sharing clause with reporting obligations. |
Tax-effecting a value requires evidence: the amount of the liability and the rate. A court that reduced an award for taxes on no evidence has been reversed, and so has one that treated similar accounts inconsistently. The Tax Strategy page covers the after-tax pricing of an estate as a whole.
Two structures, and the choice between them is the negotiation. Most agreements use both, for different grants.
| Present-value offset | If-as-and-when division | |
|---|---|---|
| What happens | The employee keeps every award; the other spouse receives its marital value in other assets, cash or a note at the decree. | The employee holds the award; the decree declares the other spouse the beneficial owner of a stated share of each marital tranche, delivered as it vests or is exercised. |
| Who bears the market | The employee. The price on the decree date is final. | Both, in proportion. The former spouse rides the stock to vesting and takes the forfeiture risk. |
| Transfer restrictions | Irrelevant; nothing moves. | Handled by constructive trust: the employee vests or exercises on the former spouse’s instruction and remits the net proceeds within a stated number of days. |
| Tax | Priced into the offset on evidence of the rate; the employee pays the tax at vesting later. | Written into the order: the employee’s actual marginal rate, or a stated rate, deducted before remittance; FICA on the employee; reporting to the former spouse by 1099 for transferred nonqualified options. |
| Fits | Public stock with a reliable price; an employee who will stay; an estate with enough other assets to fund the offset; a spouse who wants a clean break. | Private or volatile stock; an employee who may leave; a thin estate; awards whose value nobody can prove today. |
| The clause that matters | A valuation date and a price source, and what happens if the award is forfeited before the offset is paid. | Reporting: statements to the former spouse on every vesting, exercise, sale, new grant and change of control, for as long as any marital tranche remains. |
Colorado approved the reserved-jurisdiction structure in Miller. A well-drafted if-as-and-when clause names each grant and tranche, the marital fraction, the instruction mechanism, the tax formula, the remittance deadline, the reporting duty and a security interest, and it survives the employee’s change of employer, because most plans accelerate or convert awards on a change of control.
When the plan forbids transfer, the decree makes the employee a trustee: instruction, tax, forfeiture, security and reporting, each in a sentence of its own.
The instruction mechanism. A nontransferable award cannot be exercised by the former spouse, so the order provides that the employee exercises or sells on the former spouse’s written instruction within a stated window, and that the former spouse may instruct at any time after vesting. Without it, the former spouse is at the mercy of the employee’s timing.
The tax formula. Vesting income lands on the employee’s W-2 whether or not the shares belong to someone else. The order states that the employee withholds and remits net of tax at a stated rate, or at the actual marginal rate proved by the return, and settles up at filing; it names who bears the Social Security and Medicare tax, which the IRS keeps on the employee.
The forfeiture rule. If the employee leaves and the unvested award is forfeited, the former spouse’s share is forfeited too; if the employee is terminated without cause and the plan accelerates, the acceleration is shared. A clause that lets an employee resign to defeat the award, and one that punishes an employee for a layoff, are both avoided by saying what happens in each case.
Security and reporting. A lien on the proceeds, a duty to deliver the equity-portal statement on every event, and fees to the prevailing party in any enforcement. The former spouse is a creditor of a moving target for years; the order should treat her like one.
The reason equity is priced after tax is that the tax is large, ordinary, and lands on one spouse’s return.
| The event | The rule | Source |
|---|---|---|
| RSUs vest | The value of the shares delivered is included in the employee’s income as ordinary wages and reported on the W-2; no 83(b) election is available for an RSU. Any later change in the share price is capital gain or loss. | IRS guidance on stock-based compensation |
| Nonqualified options are exercised | No income at grant; the fair market value of the stock received less the amount paid is ordinary income at exercise. | IRS Topic 427 |
| ISOs or ESPP shares are exercised or bought | Generally no regular income at exercise or purchase; ISO exercise can trigger the alternative minimum tax; a qualifying sale produces capital gain. | IRS Topic 427 |
| Options are transferred to a former spouse | No gain or loss on a transfer incident to divorce; the former spouse takes the employee’s basis. For vested nonqualified options and deferred compensation, the former spouse, not the employee, includes the income when the options are exercised or the compensation is paid; the ruling does not apply to unvested or contingent rights. | IRC § 1041; Rev. Rul. 2002-22 |
| The former spouse exercises transferred options | The spread is still the employee’s wages for Social Security and Medicare tax, deducted from the payment to the former spouse; income is reported to the former spouse on Form 1099-MISC. | Rev. Rul. 2004-60 |
| ISOs are transferred | A transfer that does not comply with the ISO rules converts the option to a nonqualified option in the recipient’s hands. | Rev. Rul. 2002-22 |
A Colorado court reduces an award for tax only on evidence of the liability and the rate, and treats similar assets consistently. In an agreement, the parties can do better: price each award at its after-tax value at the employee’s marginal rate, and say so.
The question every equity case reaches and Colorado has not squarely answered: an award divided as property at the decree, and the same shares vesting into the employee’s income the following year.
Exercised options and vested shares are income; unexercised options are not; whether an award divided as property counts again when it vests is unsettled, so the agreement must say.
Income when it produces money. The child support statute defines gross income as income from any source and lists salaries, wages, commissions, bonuses, dividends, severance and capital gains; the maintenance statute repeats the list. It never mentions options or restricted stock. The Court of Appeals has held that option income for support is the difference between the purchase price and the sale price when exercised, and that options are included in gross income only to the extent they have already been exercised. Unexercised options are not income; exercised ones are, and vested RSU shares delivered as wages are income in the year they vest.
An expectancy can be income without being property. In Turner (2022) discretionary bonuses for work performed but not yet awarded at the hearing were held not to be property, because there was no enforceable right, while the same bonus history was included in the party’s income for support on a five-year average. The two questions are answered separately.
The double-count question is open. No Colorado appellate decision decides whether unvested RSUs divided as property may also be income when they vest. The nearest analogue is the goodwill line of cases, which rejected a double-recovery argument where a business was valued on its earnings and maintenance was set on the same earnings. That means the answer is written in the separation agreement or it is litigated later: whether awards divided as property are excluded from support income when they vest; whether new grants after the decree are income; how averaging works for a lumpy vesting schedule. I write the clause both ways depending on which side I represent, and I never leave it out.
Five steps. The first is the one that decides the rest.
The plan document, each award agreement and notice, the offer letter, the equity-portal history since the marriage, and for senior executives the proxy statement and committee minutes. The employment-benefits item of the mandatory disclosures covers all of it, and the continuing duty to disclose covers every grant until the decree.
A schedule, tranche by tranche: grant date, purpose, vesting condition, service performed before and after the decree, marital fraction, units. This is the exhibit the case is argued from, and when both sides build it honestly the numbers usually converge.
For public stock, a price source and a date; for private stock, the 409A valuation, the cap table and, where an offset is proposed, an appraiser. For awards nobody can value, the decision to divide in kind and wait.
Most equity cases settle once the schedule is agreed, because the structure is where the value is. The separation agreement carries the constructive-trust clause, the tax formula, the forfeiture rule, the reporting duty and the income clause. A contested hearing needs the plan administrator’s records and, sometimes, a valuation expert.
Vesting events, exercises, changes of control and new employers, each with a remittance and a statement. The order was written for this; the former spouse’s job is to calendar the tranches and read the statements.
Six things, in the order they come up. Not legal advice for your case; the mistakes I have watched for thirty years.
Colorado asks whether there is an enforceable right and what the grant was for. An award for last year’s work is marital in full the day it is granted, whatever the schedule says.
The grant agreement often says what the award is for, in the company’s words. It is the first witness for one side or the other.
Vesting income is ordinary and lands on the employee’s W-2. A court deducts tax only on proof of the rate; an agreement can do it precisely.
Public and stable: an offset. Private, volatile or an employee who may leave: if, as and when, with a constructive trust. Most estates use both.
Whether awards divided as property count again as income when they vest is unsettled in Colorado. Say it in the agreement, in either direction, or litigate it in two years.
The duty to supplement continues until the decree enters. A grant received the month before the hearing and left off the schedule is the reopening case, five years later.
Unvested equity isn't marital.
It is, to the extent the service that earned it was performed during the marriage, and in full if it was granted for past work.
Everything on the brokerage screen is half mine.
Awards granted before the marriage, or granted during it for service after the decree, are partly or wholly separate. The schedule, not the screen, decides.
Just split the shares.
Most plans forbid transfer before vesting and many forbid it altogether. The share is delivered through a constructive trust or an offset, not a transfer.
The court will discount for the tax.
Only on evidence of the liability and the rate. Without it, the award is valued gross and the employee pays the tax alone.
If I quit, my ex still gets paid.
Under an if-as-and-when division the former spouse shares the forfeiture; under an offset the employee already paid. The decree should say which.
Once it's divided, it can't be income.
Colorado has not decided that. Vested shares are wages when delivered. The agreement has to address it or the support motion will.
Equity is divided grant by grant, on what the company said the grant was for, and priced after the tax the company will withhold.
Start with a confidential conversation: tell me what you hold →
Some of them, usually. Colorado does not ask whether an award has vested; it asks whether you have an enforceable right to it and what the grant was for. Shares granted for work already done are property when granted. Shares granted for future service become property as the service is performed, so an award granted during the marriage that vests after the decree is partly marital and partly yours, in proportion to the service performed before and after. The grant agreement, not the vesting calendar, decides the split.
By constructive trust. The decree leaves the award in your name, declares your former spouse the beneficial owner of a stated share, and requires you to vest or exercise on their instruction and remit the after-tax proceeds. The order spells out who bears the tax and how it is calculated. Colorado courts approved reserving jurisdiction over options until exercise thirty years ago.
Not under a properly drafted if-as-and-when division: the former spouse shares the award as it actually vests, and takes the risk of forfeiture along with the upside. Under a present-value offset, where you kept the award and paid its value in other assets at the decree, the risk was yours. Which structure you choose depends on how likely you are to stay, and the decree should say what happens if you leave.
Colorado has no decision squarely answering that question. Exercised options and vested shares are income when they produce money; unexercised options are not. A bonus that was a mere expectancy at the hearing has been held not to be property while still counting as income for support. The separation agreement should say expressly whether awards divided as property are excluded from support income, and how future grants are treated. Silence invites the fight later.
The statute values property as of the date of the decree, or as of the property hearing if it comes first. A present-value offset locks in the price at that moment, for better or worse; an if-as-and-when division lets both of you ride the price to vesting. For volatile or pre-IPO stock, that difference is the whole negotiation.
What a willing buyer would pay for the right to buy shares at your strike price in a company with no market for its stock: usually the 409A valuation, less the strike, adjusted for the probability of a liquidity event and the time to it, and often discounted for lack of marketability, which Colorado courts may apply in their discretion. Where the number is unknowable, dividing the award in kind and waiting for the exit is the honest answer.
Only if the plan allows transfer and you agree to it. Most plans prohibit transfer of unvested awards and many prohibit it for options altogether. The usual result is that you keep the shares and your former spouse receives a share of the proceeds when they vest or sell, or an equivalent value in other assets at the decree.
RSUs are taxed as ordinary wages to the employee at vesting and appear on the employee’s W-2, whether or not a former spouse is entitled to the shares. For nonqualified options transferred to a former spouse, the IRS has ruled that the former spouse, not the employee, includes the income when the options are exercised, though the employee’s Social Security and Medicare tax is withheld from the payment. The decree allocates the tax; if it does not, the employee ends up paying tax on the spouse’s share.
The next page in this chapter, the pages that belong with it, and the blog posts on the same question.
Bonuses not yet paid, awards not yet vested, deferred comp not yet distributable: property to divide, or income to share? For executives, the grant documents…
Sept 16, 2026RSUs, Bonuses, and Deferred Comp in a Colorado DivorceExecutive pay does not fit neatly into "property" or "income." Colorado law apportions unvested equity, allocates bonuses to when they were earned, and expects…
A consultation is a working session, in person in Greenwood Village or by video: bring the grant agreements and the plan document, and I will tell you what is marital, what it is worth after tax, and how I would divide it. Your note reaches my office directly; during business hours we call you back within the hour, run the conflicts check, and set the meeting.
Talk to us about your case.
303-507-5529One call. A real person picks up, hears you out, and tells you how we would handle what you are facing and what to do first. No phone tree, no sales pitch, no obligation. Your first conversation is with our intake paralegal, who will get you to Aaron fast.
Rather write? Send a short note and during business hours we call you back within the hour.