Equity compensation has become a defining feature of executive pay in California's technology, finance, and life-sciences sectors. When an executive parent separates from a spouse or co-parent, a recurring question follows: at what point do stock options, restricted stock units, and similar grants count as income available for child or spousal support? The California Court of Appeal answered an important part of that question in In re Marriage of Macilwaine (2018) 26 Cal.App.5th 514, and the rule it announced continues to shape support litigation in high-earner households.
The Statutory Starting Point
California Family Code section 4058 defines the annual gross income of a parent for child support purposes broadly. It includes income from whatever source derived, with limited statutory exceptions. The statute lists examples, including salary, wages, bonuses, commissions, royalties, partnership distributions, dividends, and the like, but the list is illustrative rather than exhaustive.
Equity compensation does not fit neatly into any single category on the statutory list. A stock option is a right to buy shares at a fixed price. A restricted stock unit is a promise to deliver shares once vesting conditions are met. Until something happens (vesting, exercise, sale), the holder may not have cash in hand. Courts have spent decades sorting out which of these events triggers income recognition for support purposes.
Macilwaine: The Vesting Trigger
In Macilwaine, the husband was the Chief Technology Officer of a publicly traded technology company. His compensation included a base salary, performance bonuses, and a substantial annual grant of stock options. After dissolution, he sought to modify a high child support order, arguing that his stock options were not income under section 4058 until he chose to exercise them and sell the underlying shares. The trial court agreed and granted the modification.
The First District Court of Appeal reversed. The court held that employer-granted stock options become income under section 4058(a) once they are vested and the restrictions on the employee's ability to sell the underlying stock have been removed. Whether the employee chooses to exercise the option or to hold it for investment purposes is not the controlling question. As the court framed it, child support is meant to provide for the immediate needs of children, not to maximize the supporting parent's long-term investment returns.
The court drew an analogy to In re Marriage of Berger (2009) 170 Cal.App.4th 1070, where the Fourth District had treated voluntarily deferred salary as income under section 4058 even when the supporting parent had elected to forgo immediate cash. Once a vested option becomes freely transferable, the court reasoned, it is not materially different from cash that the employee has chosen to leave on the table.
What Macilwaine Did Not Decide
Macilwaine is sometimes overstated. It does not stand for the proposition that every grant of equity counts as income the moment it is awarded. Several boundaries deserve attention.
First, the case addresses vested options whose sale restrictions have lapsed. Options that have vested but remain subject to lockup periods, blackout windows, or insider-trading constraints raise different questions about availability.
Second, the case turns on income for support, not on whether an unvested option is community or separate property. Those characterization questions are governed by a separate line of authority, including In re Marriage of Hug (1984) 154 Cal.App.3d 780, In re Marriage of Nelson (1986) 177 Cal.App.3d 150, and In re Marriage of Harrison (1986) 179 Cal.App.3d 1216.
Third, the holding does not by itself resolve how to value an option that has vested but has not been exercised. Courts and forensic accountants often look to the intrinsic value at vesting, the market value of the underlying stock minus the strike price, although the methodology varies by case.
The Double-Dip Concern
One issue that experienced family law practitioners watch closely is the risk of counting the same asset twice: once when stock is divided as community property in the judgment, and again as income when it later vests or is sold. The double-dip concept refers to the seeming injustice that can occur when an asset is divided between the spouses in equitable distribution and then the same asset is also considered a source of income for support purposes. California's treatment of the issue is nuanced and context-specific, and there is no single statute or controlling Supreme Court case that resolves it across all asset categories.
Application to equity compensation is fact-sensitive. When a portion of an option grant or RSU is divided in the judgment under the time-rule formulas (Hug, Nelson, and Harrison), the non-employee spouse generally takes a defined community-property share. The employee spouse's retained portion may be counted as income upon vesting under Macilwaine. The non-employee spouse's share, by contrast, is already that spouse's separate property after division and would not ordinarily then be counted as the employee spouse's income for support purposes. Careful drafting of the judgment, with explicit treatment of which shares belong to whom and how income from those shares will be treated, can prevent disputes.
RSUs and the Macilwaine Logic
Restricted stock units present a structurally similar issue. An RSU is a promise to deliver shares (or cash equivalent) on a future date, contingent on continued employment or performance metrics. Once an RSU vests and the shares are delivered, the recipient ordinarily recognizes ordinary income for tax purposes equal to the fair market value of the delivered shares on the vesting date. Most practitioners treat vested RSUs as income for support under section 4058 by extension of the reasoning in Macilwaine, although fewer published California opinions directly address RSUs.
Employee stock purchase plan participation, performance shares, and similar instruments tend to follow the same analytical path: once the compensation is available to the employee without further substantial restriction, it generally enters the section 4058 calculation.
Practical Issues That Arise
Equity compensation creates several recurring practical problems in support litigation. Volatility is the first. A grant that vests at $200 per share may be worth $50 per share six months later. Courts have addressed volatility through bonus-and-commission percentage orders under In re Marriage of Ostler & Smith (1990) 223 Cal.App.3d 33, which allow support to track fluctuating compensation rather than freezing a single number into a fixed monthly order.
Timing is the second. Stock options and RSUs do not vest on a payroll calendar, and grant agreements often include cliff schedules, accelerators, and clawback provisions. Constructing a support order that captures the income when it accrues, rather than months or years later, requires careful drafting.
Tax treatment is the third. The ordinary income recognized upon vesting of an RSU or upon exercise of a nonqualified stock option is subject to federal and state income tax withholding. Support orders are calculated based on gross income, but the practical cash available to the employee parent is the after-tax amount. Adjustments under Family Code section 4059 address withholding and other deductions from gross income.
Disclosure Obligations
Both temporary and permanent disclosure requirements under Family Code sections 2104 and 2105 reach equity compensation. Grant agreements, vesting schedules, exercise records, broker statements, and Form W-2 supplements showing the tax treatment of equity events are all subject to disclosure. A complete preliminary declaration of disclosure for an executive parent typically includes the most recent grant notices, the company's equity plan document, the schedule of vested and unvested holdings, and the brokerage account statements showing transactions in the underlying shares.
On the modification side, when stock option income becomes a basis for changing an existing support order, the moving party generally bears the burden of demonstrating a material change in circumstances. The arrival of substantial new vesting events that were not anticipated when the prior order was entered can constitute such a change. Conversely, the cessation of equity grants, a change in vesting schedule, or a substantial decline in the value of vested but unexercised positions can also support modification in either direction.
Post-Judgment Grants and the Separate Property Question
Equity grants awarded to the employee spouse after the date of separation typically fall outside the community estate. Under Family Code section 771, the earnings and accumulations of a spouse after separation are separate property. A new grant made entirely after separation, for services rendered entirely after separation, is generally the separate property of the employee spouse. The non-employee spouse will ordinarily have no community-property claim against that grant.
But the income produced by that separate property grant is still income under Family Code section 4058 once it vests and becomes available. The same Macilwaine principle applies. The character of the underlying asset as separate property does not insulate the resulting income stream from the support analysis. This point is worth emphasizing because it is a common source of confusion in negotiated settlements. A property-division provision that allocates future equity entirely to the employee spouse does not also waive the support implications of that equity when it later produces income.
Why This Matters for Families with Significant Equity Compensation
Macilwaine reflects a broader judicial concern that high-income parents should not be permitted to manage support obligations by managing the timing of their compensation. The same reasoning that supports inclusion of vested options also supports careful inquiry into deferred salary arrangements, performance bonuses, sign-on payments, and similar items where the parent has substantial control over the timing of cash receipt.
For families navigating dissolution with significant equity compensation, the substantive law is only one part of the picture. Discovery strategy, expert engagement, and the structure of the support order itself often matter as much as the legal characterization.
Conclusion
Macilwaine remains the leading published California decision on when vested equity counts as income for support. It does not resolve every question that equity compensation can raise, but it sets a clear vesting-and-availability standard that has been applied to options and, by extension, to other forms of deferred equity. Families dealing with stock-heavy compensation packages benefit from working with counsel familiar with the interplay between support law, property division, and the specific structure of the employer's compensation plan.
This article is for general informational purposes and is not legal advice. Outcomes in any particular case depend on the specific facts and applicable law.