What Happens to Your Equity When You Leave: A Guide for Tech Employees
Leaving a job is stressful enough without the added complexity of navigating equity compensation decisions under time pressure. Yet for tech employees, the final weeks of employment often involve consequential financial choices—decisions that can affect wealth for years—made while distracted by job transitions, emotional farewells, and the chaos of changing employers.
The stakes are real. Stock options have deadlines that, once missed, cannot be recovered. Unvested equity disappears entirely, regardless of how close you were to vesting dates. Tax consequences vary based on timing, type of equity, and manner of departure. The employee who understands these dynamics before leaving can plan strategically; the employee who discovers them during the exit interview faces difficult choices with inadequate time.
Your equity agreements—those documents you signed without reading when you joined—suddenly matter enormously. What you have, what happens to it when you leave, and what decisions you face during a narrow window: these questions deserve attention before the countdown begins.
The Fundamental Framework
When you leave a company, your equity treatment depends on three factors: the type of equity you hold, whether it has vested, and the specific terms of your grant agreements.
Vested equity is generally yours. If RSUs have vested and converted to actual shares, you own those shares outright. If stock options have vested, you have the right to exercise them—but that right typically has a deadline. If you early-exercised shares that have since vested, those shares are yours.
Unvested equity is generally not yours. Unvested RSUs disappear when you leave. Unvested options are forfeited. The cliff you hadn't reached, the quarterly vestings you were about to receive, the refresh grant that would have added to your portfolio—all of it vanishes as if it never existed. This is why unvested equity isn't really "your money"; it's a promise contingent on continued employment.
Grant agreements contain the specific terms. Post-termination exercise periods vary by company and grant. Acceleration provisions in some agreements provide additional vesting under certain circumstances. Repurchase rights may apply to early-exercised shares. The defaults described here are common, but your actual terms control.
Stock Options: The 90-Day Crisis
For employees holding stock options, the post-termination exercise period is the critical variable. This window—commonly 90 days but sometimes 30 days or occasionally longer—determines how long you have to exercise vested options before they expire worthless.
The mechanics are unforgiving. Your final day of employment starts the clock. After that clock runs out, your options—regardless of how valuable, regardless of how long you've held them, regardless of how close you are to a liquidity event—expire worthless. There is no appeal, no extension, no do-over.
Within that window, you must decide: exercise or let expire? Exercising requires paying the strike price times the number of shares—potentially tens or hundreds of thousands of dollars—for stock that may be illiquid and impossible to sell. For NSOs, the spread at exercise generates ordinary income and immediate tax liability, requiring additional cash. For ISOs, AMT preference items create potential tax exposure.
You're facing this decision while navigating a job transition, without the salary that funded your previous life, potentially for shares in a private company that you cannot sell and that might ultimately prove worthless.
The 90 days pass faster than you expect. Other priorities consume attention: starting a new job, handling logistics, managing family impacts. The option exercise decision gets deferred to next week, then next month, then suddenly the deadline approaches. Set calendar reminders the day you leave. Don't let a $100,000 decision become a $0 outcome through simple deadline mismanagement.
ISOs: The 90-Day Tax Trap
Here's a critical nuance that catches many employees: even if your post-termination exercise period is longer than 90 days, ISOs must be exercised within 90 days of termination to retain their favorable tax treatment.
Exercise an ISO at day 45 after leaving, and it's still an ISO with its potential for long-term capital gains treatment. Exercise the same ISO at day 100 after leaving, and it's taxed as an NSO—the spread at exercise becomes ordinary income, subject to higher rates.
Some employee-friendly companies offer extended exercise windows of one to ten years, valuable for the optionality they provide. But the ISO tax treatment still evaporates at day 91. Employees who think they're holding ISOs while deciding may discover they've converted to NSOs without realizing.
RSUs: Simpler But Less Forgiving
RSUs are simpler at departure but offer less flexibility. The mechanism leaves no room for strategic timing or exercise decisions.
Vested RSUs are yours. Shares that have converted from units to actual stock belong to you. They don't disappear when you leave. You can hold them or sell them according to your investment strategy, exactly like any other shares you own.
Unvested RSUs are gone. Whatever remains unvested at your departure date is forfeited. There's no post-termination period, no exercise decision, no opportunity to capture value. You simply don't get those shares.
Timing your departure matters. RSUs vest on specific dates—monthly, quarterly, or annually depending on your grant structure. Leaving the day before a vesting date means losing that entire vesting tranche. If you have flexibility in your departure date, understanding your vesting calendar can meaningfully affect outcomes.
Planning Before You Leave
The worst time to learn about your equity terms is during your exit. Before making any departure decisions, gather the information you'll need.
Review your equity agreements. What is your post-termination exercise period for each option grant? What happens to unvested shares? Are there any acceleration provisions that might apply to your situation? The answers live in documents you signed when you joined—now is the time to read them.
Inventory your holdings. How many shares or options of each type do you have? What's vested versus unvested? For options, what are the strike prices? What's the current fair market value (409A valuation for private companies, market price for public companies)?
Calculate exercise costs. For each option grant you might exercise, multiply the strike price by the number of shares. Add estimated tax liability for NSOs (ordinary income tax on the spread) or AMT analysis for ISOs. Understand the total cash requirement.
Assess the company's trajectory. Is there a realistic path to liquidity? An upcoming IPO, potential acquisition, or secondary sale opportunity? Or is the company struggling, with uncertain prospects? This assessment shapes whether exercising makes sense.
Understand what you're leaving. Total the value of unvested equity you'll forfeit by leaving. This is the "golden handcuffs" calculation—how much you're paying to walk away. Sometimes the amount is larger than employees realize; sometimes it's smaller than fear suggested.
The Exercise Decision Framework
For stock options, the decision framework considers several factors:
Exercise makes more sense when you have high conviction in the company's success, the exercise cost is affordable and losable, the spread generates manageable tax consequences, liquidity seems reasonably imminent, and you plan to exercise anyway so earlier timing offers no advantage.
Letting options expire makes more sense when the company's prospects are uncertain or declining, the exercise cost is substantial relative to your finances, the tax consequences are significant, no liquidity is visible on the horizon, or you simply cannot afford to risk the capital.
There's no universally right answer. The software engineer who exercises $50,000 of options in a company that IPOs at 10x has made a brilliant decision. The same engineer exercising in a company that fails has lit $50,000 on fire. The difference depends on company outcomes you cannot control.
Partial exercise is an option. You don't have to exercise all or nothing. Exercising a portion limits your exposure while maintaining some upside. This middle path makes sense when you believe in the company but want to manage risk.
If You're Being Laid Off
Layoffs add pressure to already-difficult decisions. You're processing job loss while facing equity deadlines.
Check if your severance includes equity provisions. Some companies extend post-termination exercise periods as part of severance packages. Some accelerate a portion of unvested equity. These provisions may be negotiable, particularly during mass layoffs when companies want to maintain goodwill. Ask.
File for unemployment immediately. Benefits take time to process; delays cost money. Severance may affect unemployment in some states, but file anyway and let the system sort it out.
Don't make panic decisions about options. Ninety days is short but not immediate. Take time to understand your situation, assess the company's prospects, and consult with professionals if the stakes are high. The deadline is real, but making an informed decision in week eight beats making a panicked decision in week one.
Getting Help
The intersection of equity compensation, tax consequences, and departure timing creates enough complexity that professional guidance often pays for itself. A tax professional who understands equity compensation can model the consequences of different exercise strategies. A financial advisor can help assess whether exercising fits your broader financial situation. An employment attorney may be relevant if you're negotiating severance terms.
The decisions you make in the weeks around departure are among the most consequential financial choices of your tech career. They deserve more attention than they usually receive.
Schedule a consultation to discuss your situation.