Attorney
A W2 is something you can hold in your hand. So is a bank statement or a stock certificate. These tangible, employment-derived assets are what New Mexico policy-makers were focused on when they drafted our state’s divorce laws.
Little thought was given to intangible/future/theoretical compensation like phantom stock or RSUs. That makes them some of the most misunderstood assets in a New Mexico divorce, especially for the growing number of Albuquerque-area couples working in tech or other startups.
As one of only a handful of lawyers in the state who has an MBA as well as a law degree, and the only attorney in Albuquerque who owned a multi-million dollar retail shoe business before going to law school, Attorney Bob Matteucci is well-aware that compensation comes in many forms. Having a business mentality has made him the go-to legal counsel for divorcing couples who need to put a dollar amount on invisible assets and figure out how to divide them up.
Compensation is Not What it Used to Be
Modern compensation packages often include unique financial incentives designed to prolong employees’ tenures, avoid taxes, and reward loyalty to the company without expanding or diluting ownership interests.
Restricted Stock Units (RSUs)
Restricted Stock Units (RSUs) are a promise of company shares once a vesting condition is met. Performance shares, for example, only vest if the company or the individual hits specific targets. They may be worth something, or they may not, but they are considered an asset at the time of divorce.
The value of RSUs that vested during the marriage are generally considered community property. RSUs that will vest after the divorce, are trickier because part of that future payout was earned during the marriage and part wasn’t.
Phantom Stock
Phantom stock (or shadow stock) isn’t something you own, but it is an asset. It’s a contractual right to a cash payment that mirrors what stock would be worth if it existed. It’s a way to compensate early or high level employees without diluting the current owners’ interest.
Profits interests give an employee a stated percentage of all profits and proceeds from an exit event (like a company sale), but only for growth that happens after the grant date. If the company is sold for less than its valuation on the day interest was granted, the employee gets nothing.
Alternative Compensation is More Common than Ever
These types of alternative compensation or shadow equity were once uncommon, but they are growing in popularity, particularly at start-ups. For this reason, anyone in the Albuquerque area who is getting divorced should be prepared to dig through the details of their employment contract, and/or that of their spouse.
Even interests that may never vest or could end up being worthless must be identified, classified, valued, and potentially divided. Getting this wrong will either shortchange the spouse who made sure their partner could rise and grind, or unfairly penalize the spouse who built the company.
The Coverture Fraction Formula
There are only a handful of cases out there where ownership of phantom stock or RSUs has been litigated during divorce. And it’s not something New Mexico’s appellate courts have ever addressed, so there are no hard and fast rules for classifying, valuing, or dividing these assets that have been blessed by the powers that be.
Instead, the attorneys handling these cases are applying a rule that was created to fairly divide the value of pensions between ex-spouses. It’s called a coverture fraction, and the formula for it is:
(Time employed during the marriage, while earning the benefit) ÷ (Total time from grant date to vesting date) = the percentage treated as community property
If an RSU grant was made two years before the marriage and vests four years after the wedding, only the years actually spent married, divided by the full six-year vesting period, count as community or marital. The rest belongs separately to the spouse who earned it. The same math applies to phantom stock payouts, adjusted for whatever event or milestone triggers the payment.
Picture a couple where one spouse joined an Albuquerque startup as an early engineer, receiving performance shares that vest over four years, two of which overlap with the marriage. The company hasn’t gone public, so there’s no daily stock price, just a valuation from the last funding round. Dividing this fairly means agreeing on a valuation method, applying the coverture fraction to isolate the marital share, and then deciding how the non-equity spouse gets their portion.
Serving Families with Dignity & Compassion
If you know or suspect your divorce is going to involve some negotiations over invisible, may-never-materialize assets, you need to work with an attorney like Bob Matteucci who is as comfortable with finance as he is family law.
Bob brings an MBA and hands-on experience to these conversations, whether he’s advocating for one spouse or serving as the neutral in a mediation. The goal isn’t to fight over future value. It’s to create a fair, workable outcome that allows both of you to move forward.
If this sounds like what you are looking for, please contact the Matteucci Family Law team to set up a meeting.