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Addressing deferred compensation when planning a divorce

On Behalf of | Jul 10, 2024 | Property Division |

Many of the most valuable assets in a marital estate are readily accessible and divisible when people divorce. They hold the title to their home and have control over the funds in their financial accounts. Other assets may theoretically be part of the marital estate but are not yet in the possession of either spouse.

Deferred compensation is a perfect example. Someone may have an employment contract that includes retention or performance bonuses. The company may offer restricted stock options after so many years of employment. An executive who recently took a role at a new company may be eligible for a lump-sum bonus if they stay with the company for a certain number of years or meet certain performance metrics.

How can people address assets that they do not yet have access to and cannot currently divide during divorce negotiations?

Setting a date of valuation

One of the most important decisions in a high-asset divorce with complex holdings is the valuation date for the marital estate. Assets ranging from stock to real property can fluctuate in value substantially from month to month. Therefore, spouses generally have to agree on a certain date for the purposes of evaluation. That influences how they value marital property and ultimately how much each spouse keeps from the marital estate.

Once the spouses have set a valuation date, they can then determine how much of the deferred compensation is part of the marital estate. If someone has a five-year employment contract with a stock option clause, a divorce that occurs about three years into that contract can cause uncertainty about how to handle that future compensation. Spouses use the date evaluation to determine what portion of an asset with deferred acquisition is marital property. They then also use that date to establish what the asset is worth at that time.

Finding other assets of comparable value

People typically cannot liquidate or divide assets that they do not yet own or have access to at the time of a divorce. Given that the spouse with the complex employment contract may not receive that bonus for multiple more years, it may be necessary to offset the value of deferred compensation and other non-liquid assets with resources currently owned by the spouses.

It is easy for those facing contentious and complex divorce proceedings to make mistakes regarding potentially high-value resources, such as deferred compensation, stock options and bonuses. Spouses preparing for complex divorces need guidance if they hope to secure a fair and reasonable outcome. Learning more about the rules for complex divorces can help people recognize when they likely need more help preparing for a divorce.


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