Chapter 11: Equity through life events
Most equity years are quiet: vests land, autosale runs, the set-aside grows. Then one of five loud days arrives. You resign, the company goes public, the company gets bought, the company lets you go, or life changes at home. On Sam's loudest day, the IPO, a single vest put $1,200,000 on his paystub and left a federal tax gap of $171,696 that nobody withheld and nobody mentioned. This is the reference chapter for those days. Read the section you need, ideally a few weeks before you need it.
The day you leave
Resigning triggers more equity deadlines than any other ordinary event, and the deadlines start counting from your last day of work, not from the day you get around to checking. The full exercise decision lives in chapter 9; this is the checklist that makes sure you reach that decision in time.
The leaving checklist
- Print the inventory. Every grant: type, count, strike, vested portion, and dates. The portal can lock you out after your last day.
- Find the post-termination window. Usually 90 days for options. Vested options unexercised at the deadline are forfeited, however far in the money.
- Run chapter 9's kill question on every exercise dollar. Would you invest this cash in this company today? Extensions exist and convert ISOs to NSOs, which is usually a fine trade.
- Check the vest calendar against your notice date. RSUs do not pro-rate. Leaving two days before a vest pays exactly what leaving two months before it pays: nothing. Timing a resignation around a vest date is allowed and adults do it.
- Expect an ESPP refund. Contributions accumulated in an unfinished offering come back as cash, with no purchase and no discount.
- Ask about double-trigger units. Time-vested RSUs waiting on a liquidity event often expire, commonly seven years from grant, if no event arrives. Get the expiration in writing.
- Plan the benefits bridge. COBRA and the rest of the leaving logistics live in the Finvest Personal Finance Guide's chapter 19.
The day the company goes public
Chapter 2 left Sam in double-trigger limbo: thousands of RSUs time-vested over six years, none of them taxable or sellable, all waiting on a liquidity event. The IPO is that event, and it fires the second trigger on every time-vested unit at once. Years of patient vesting become one enormous payday, and one enormous wage entry, on a single morning.
On IPO day, 30,000 of Sam's RSUs vest with the stock at $40. That is $1,200,000 of wages on his W-2, on top of his $260,000 salary. His company withholds the flat 22% supplemental rate, $264,000, by keeping 6,600 of his shares. The portal celebrates. The paystub looks settled. It is not, because withholding is a down payment and the real bill comes from the brackets.
Stack the vest on his salary and trace it through the 2026 single brackets, exactly as chapter 4 did for Maya. After the $16,100 standard deduction, Sam's salary alone puts his taxable income at $243,900. The $1,200,000 layer lands on top of that: the first $12,325 fills what remains of the 32% bracket, the next $384,375 crosses the entire 35% bracket, and the final $803,300 is taxed at 37%.
| The IPO-day vest, taxed for real | Amount |
|---|---|
| Wages from the vest (30,000 RSUs at $40) | $1,200,000 |
| Tax on the first $12,325, at 32% | $3,944 |
| Tax on the next $384,375, at 35% | $134,531 |
| Tax on the final $803,300, at 37% | $297,221 |
| Federal tax the vest layer creates | $435,696 |
| Withheld at the flat 22% | $264,000 |
| The gap, due with his return | $171,696 |
The vest creates $435,696 of federal tax, an effective 36.3% on the layer, and the 22% withholding covers $264,000 of it. The remaining $171,696 is Sam's to deliver. One technical note makes the picture slightly better and no less urgent: the withholding rules require 37% on supplemental wages beyond $1,000,000 in a year, so a payroll system applying the rule correctly withholds $294,000 and shrinks the gap to $141,696. Either way, a six-figure bill is riding on a stock he cannot sell, because the lockup runs 180 days and his shares are frozen inside it.
That is the defining cruelty of the IPO avalanche, and the reason to act in the same quarter rather than the following April. Underpayment penalties accrue from the quarter the income lands, not from filing season.
Sam treats IPO day as a tax event with confetti on it. The same week, he computes the layer the way the table does, sends an estimated payment for the quarter from savings, and writes the rest of the gap into his plan as the first claim on his first post-lockup sales. He also asks payroll one question in advance: whether the system applies 37% above $1,000,000 of supplemental wages. The answer changes his estimated payment by $30,000, and he would rather know in May than discover it in April.
Lockup folklore
Everyone at a newly public company hears the same campfire story: the stock always tanks the day the lockup expires, so sell at the open, or alternatively never sell, depending on the teller. The flows are real, since months of pent-up employee supply does reach the market around expiry. The tradable pattern is not. Sometimes the dip comes early, sometimes late, sometimes never, and the people most confident about the timing are guessing with conviction. You hold an enormous, newly sellable, single-stock position; that fact alone, not the folklore, is the reason to sell, and chapter 10's written policy already told you how much and on what schedule.
The day the company is bought
An acquisition routes your unvested grant down one of three paths, and the grant agreement chose the path years ago. Cashed out means unvested equity converts to money, often paid out on your original vesting dates as a retention stay-bonus. Assumed means the acquirer swaps your grant for its own stock on the same schedule. Accelerated means some or all of it vests early: single-trigger acceleration fires on the deal alone, while the far more common double-trigger acceleration requires the deal plus losing your job afterward.
Two haircuts hide inside acquisition headlines, especially private ones. An escrow holds back a slice of the purchase price, commonly 10–15%, for a year or more against surprises the buyer might find, and shareholders see it late or, occasionally, never. An earnout makes part of the price conditional on future targets that the merged company may or may not hit. When a deal values your shares at $18, the number that deserves your planning is the cash arriving at close, not the press release.
The day of a layoff
A layoff sorts your equity with cold simplicity. Vested shares are yours forever. Vested options are yours for the length of the post-termination window. Unvested everything is usually gone on the termination date.
Two moves matter in the days around the news. First, negotiate before signing: severance packages sometimes include extra months of vesting, acceleration of the next vest date, or an extended exercise window, and companies agree to these more often than people ask. Second, respect the 90-day window's cruelest property, which is its timing. It demands an exercise-or-forfeit decision, possibly with a real cash cost, in the exact months your income is zero. Chapter 9's kill question gets stricter when the cash would come from severance or the emergency fund the Finvest Personal Finance Guide told you to build: money that is now the roof fund, not risk capital. Forfeiting an option you cannot responsibly afford to exercise is sometimes the right answer, and it is allowed.
Divorce, and death
Equity earned during a marriage is generally marital property, vested or not, and courts use formulas to split grants that straddle the wedding and the separation. Most plans bar transferring unvested grants or options to a former spouse, so settlements usually compensate with offsetting assets or hold shares in trust until they vest. Transfers between spouses as part of a divorce are typically not taxable events, and the receiving spouse inherits the basis, which makes vest confirmations and the plan document required reading for whoever drafts the settlement. Bring them to the attorney at the first meeting, not the last.
At death, vested shares pass to heirs with the basis stepped up to the date-of-death value, erasing the unrealized gain entirely, which is one more reason late-life concentration decisions deserve professional help. Unvested RSUs and options follow the plan document: some lapse, some accelerate, and many plans give the estate a window, often six to twelve months, to exercise vested options. Keep beneficiaries current and keep your grant inventory where your family can find it; the Finvest Personal Finance Guide's estate chapter covers the rest.
Before any loud day, print two pages: the grant inventory (type, count, strike, vested, dates) and the deadline calendar (exercise windows, vest dates, lockup expiry, estimated-payment dates). Every disaster in this chapter starts with a deadline someone learned about late.
Where people go wrong
- Resigning two days before a vest. RSUs do not pro-rate. Check the calendar before choosing a last day.
- Trusting the IPO-day paystub. The flat 22% left Sam $171,696 short. Compute the layer and pay estimates in the vest quarter.
- Trading the lockup folklore. The supply is real and the timing is not tradable. Sell on the chapter 10 policy.
- Spending the acquisition headline. Escrows and earnouts can hold back 10–15% or more. Plan on the cash at close.
- Exercising during unemployment on autopilot. The 90-day window plus severance cash is a dangerous combination. The kill question outranks the deadline.
Key takeaways
- Leaving starts clocks: usually 90 days for options, refunds for mid-offering ESPP cash, and zero pro-ration for RSUs. Print the inventory before resigning.
- Sam's IPO avalanche: 30,000 double-trigger RSUs vest at $40 for $1,200,000 of wages, $264,000 withheld at 22%, $435,696 actually created, a $171,696 gap due while the lockup still blocks selling.
- Pay the gap with estimated taxes in the vest quarter, and ask payroll whether it applies the required 37% above $1,000,000 of supplemental wages.
- Acquisitions cash out, assume, or accelerate unvested grants; double-trigger acceleration needs the deal plus job loss, and escrows and earnouts shrink headlines.
- Layoffs keep vested equity yours and start the 90-day window during unemployment. In divorce and death, the plan documents and basis records control everything, so keep both findable.
Sources: IRS: Topic 427, Stock Options · IRS: Publication 525, Taxable and Nontaxable Income · SEC Investor.gov: Employee Stock Plans · Finvest Personal Finance Guide · Finvest Tax Playbook