Zuanich Law Family Law Newsletter
Episode #6: I am not a cat … Therefore RSU is not income
February 23, 2021
Child support.
Who wouldn’t want to pay more. I mean, your clients love their children. And money is clearly love. So it’s simple, right?
Or maybe your client would rather gnaw his / her arm off than pay more child support. Because ME paying more child support means my *(*#$$^%*&^%*(())*&^&655% of an ex-spouse is paying LESS support.
And, that, is immoral, illegal, unethical, and really really really really really not fair.
“But, wait,” the clever Microsoft attorney deduces. “This restricted stock unit doesn’t look like income, smell like income, or taste like income. So it doesn’t really count as income. So I’m not paying as much child support as my spouse thinks.”
Game, set, match, she exclaims proudly.
Court of Appeals (aka Randy Jackson): “Yeah, that’s gonna be a no from me dawg.”
Ribnicky v. Sotaniemi
COA – Division 1
Feb. 16, 2021
Facts: Two years after court entered parenting plan, Dad filed a motion to adjust the child support schedule because Mom’s income increased and they enrolled their child in public school.
Mom responds: “Yes, I agree. Part of me would rather fight this in court, but all that matters is that our child sees two well-functioning parents not bickering. Therefore, I agree.”
Or … maybe that didn’t happen. Maybe. Mom says: “Bring it.” Commissioner rules for mom, ruling that monthly income did not include restricted stock unit compensated. Revision motion shot down.
Holding: RSU is nothing more than equity-based compensation, which is a contractual promise made by an employer to deliver shares of stock to an employee at a future date. (I mean, doesn’t that just roll of the tongue).
Before vesting, stocks have no tangible value. But once delivered to the employee, that is the “vesting” date. At which point the income becomes taxable. They become taxable regardless of whether the RSU are simultaneously liquidated (i.e. converted to cash).
RSU is unlike a stock option, where there is a right to purchase the stock and a stock opinion has no value to employee unless it appreciates in value. And, unlike RSU, the tax treatment varies depending on the type of stock we’re dealing with.
To resolve this question, the COA looked at federal income tax standards. The wife’s W-2 lists her combined wages, which included her vested and delivered RSU (hmmmm, uh oh wife). For this reason, they are treated as a “gain,” which is how the child support statute treats “income,” as a “gain” received as compensation.
And, with that, Microsoft employee loses. Take that Bill Gates.
My take: If your prospective client starts telling you about RSU and stock income, do you start thinking: “And where is our family vacation going to be this year?”
About Us: Zuanich Law focuses on criminal and civil appeals, post-conviction relief, and restoring firearm rights. We also have an active civil litigation practice, including personal injury, landlord-tenant, business law, civil protection orders, administrative hearings, and contract disputes.
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