Is Spousal Consent Necessary for Equity Awards?
July 08, 2019
Occasionally, I am asked if it is necessary for employees’ spouses to accept the equity awards granted to employees, in addition to the employees’ acceptance. In my experience, most companies don’t require this (it’s usually hard enough to get employees to accept their awards) but some companies do. Here’s why.
Is Consent Required?
Technically, there's no legal requirement for consent from either the employee or his/her spouse, and, in fact, a small percentage of respondents (less than 10% in 2016) to the NASPP/Deloitte Consulting Domestic Stock Plan Design Survey indicate that they do not require even employees to consent to their awards.
But the majority of companies do require consent; they do so not because it is legally mandated but to protect the company in the event that there is a dispute over the terms of the award. If an award holder challenges the terms of the award at some point, the company is in a much better position legally if they can show that the award holder agreed to the terms of the award. There are many cases where having that signature has been a key factor in companies prevailing in disputes with employees, often high-stakes disputes. It's not a guarantee--for example, sometimes there are disputes as to what the language that everyone agreed to means--but a signature goes a long way towards protecting the company.
So Why Require Spousal Consent?
In community property states any compensation paid to married employees during the period of their marriage belongs equally to both the employee and his/her spouse (as I understand it—I am for sure not an expert in family law). When you grant an award to a married employee in a community property state, that award also belongs to the employee's spouse and the spouse might be able to argue that he/she has certain rights to the award. Thus, some companies want spouses to sign the agreement as well, as a further measure of protecting the company in the event of a dispute.
What Is the Deciding Factor?
A company's position on this is likely dependent on several factors:
- How conservative they are and how concerned they are about litigation.
- How conservative their legal advisors are.
- The terms of the award agreement itself. If the agreement includes terms and conditions that are controversial (such as clawbacks) or are difficult to enforce (such as noncompete provisions in California), a company might be more concerned about obtaining spousal consent.
- How high the stakes are. For awards to executives, which are often very sizable, a company might be more concerned about obtaining spousal consent than for, say, awards for only a few shares granted to low ranking employees.
As I noted above, in my experience, spousal consent is the exception rather than the rule. But for some companies and in some cases, it might be appropriate.