Stock Options and Employee Equity in Ontario Equalization

If you or your spouse works for a company that offers stock options, restricted share units (RSUs) or a share purchase plan, you may wonder what happens to that equity on separation. The numbers can be large, and the plan paperwork can be confusing.

This article explains how Ontario's equalization rules generally apply and what to collect. How a specific plan is valued is a detailed question that turns on the plan terms, so a lawyer, and sometimes a valuator, is usually needed to confirm it.

The basic equalization framework

Equalization compares each spouse's net family property. That figure is the value of all property a spouse owns on the valuation date, except excluded property, less debts and liabilities.

The spouse with the lesser net family property is entitled to one-half of the difference. Employee equity is therefore not divided share by share. It is one item in each spouse's total, and the resulting payment is a net figure.

Vested, unvested and everything between

Equity compensation comes in many forms. Options give a right to buy shares at a set price. RSUs are promises of shares that arrive after conditions are met. Share purchase plans let employees buy stock, sometimes at a discount. Many have vesting schedules, expiry dates, blackout periods or conditions tied to staying employed.

Whether a right that has not yet vested counts as property on the valuation date, and what value it carries, depends on its terms and the circumstances. I cannot give a rule that fits every plan, and it is a good question for a lawyer who can read the plan documents.

What the framework does make clear is that value is measured as of the valuation date. That is why plan documents, grant dates and the company's share price on that date become important evidence.

Equity from before the marriage, gifts and agreements

Property owned on the date of marriage, other than a matrimonial home, is deducted when working out net family property. If you held shares or options when you married, records of what you held and what they were worth then are valuable.

Be careful with growth. The same property cannot be both an excluded amount and a marriage-date deduction, because it would be counted in that spouse's favour twice. Where shares were a gift or inheritance from a third person after marriage, they may be excluded instead.

A marriage contract or other domestic contract can also change the result. Property the spouses agreed in a domestic contract is not to be included is excluded. If you signed such an agreement, have a lawyer read how it describes employee benefits.

If you want to challenge a domestic contract, setting it aside is a two-step process. You must first show one of the statutory circumstances applies, such as not understanding the nature or consequences of the contract, and then the court decides whether to exercise its discretion, with fairness an appropriate consideration.

Documents to gather

• Grant letters, option agreements and RSU award notices
• The plan rules, including vesting schedules and expiry dates
• Account statements from the plan administrator or brokerage
• Pay stubs and tax slips showing the benefit from equity
• Records of what was held at the date of marriage, if relevant
• Any marriage contract or separation agreement

Employees often can log in to a portal showing grants and vesting. Take dated screenshots or downloads of your own account. Do not access your spouse's accounts without permission.

What to do next

• Identify every plan, and write down grant dates and vesting dates
• Save your own plan records before anything changes, including after a job change
• Ask a family lawyer how your particular equity is likely to be treated
• Ask whether a valuator or accountant is needed for complex plans
• Do not assume an unfair-looking result can be adjusted, since variation requires that equalizing be unconscionable and mere unfairness is not enough

Frequently asked questions