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What happens to deferred compensation when you file for divorce?

On Behalf of | Dec 28, 2022 | High Asset Divorce |

Couples with more assets and spouses with more career success often have more to potentially lose during a divorce. They have more property to divide and potentially more to pay in support in the future, which leads to intense battles in family court. The litigated divorce process may end up making the divorce a much more expensive process for the family. It will also strip the family of control over the terms set regarding property division and custody.

Executives and other successful professionals often have complicated compensation packages that they negotiate when considering a new position. Deferred compensation, including stock options and incentive stocks, may help motivate the best job performance possible and also a longer time at the company, which benefits the employer.

If you or your spouse have an employment contract that includes some as-of-yet unpaid income, what becomes of that deferred compensation in your divorce proceedings?

Deferred compensation may be subject to division

Although technically the family has not yet received the deferred compensation promised in an executive’s employment contract, the spouse may already have earned a significant portion of that compensation during the marriage.

Deferred compensation packages are often available only after a certain amount of time working at the company. While it may be another year or two before the executive in your household receives the stock or pay, they technically earned the right to it during the marriage. The portion of deferred compensation accrued during the marriage may be subject to division.

How do you divide what you do not have?

You can divide retirement accounts and a real estate portfolio by making some sales, signing paperwork and splitting financial resources. Deferred compensation won’t belong to either spouse for some time, so you likely cannot access it to divide it during the actual divorce process.

Instead, you will have to determine the value of the deferred compensation earned during the marriage and then factor that into your proposed property settlement or divorce negotiations. In some cases, deferred compensation might influence spousal support decisions. Other times, it could lead to one spouse receiving more marital property or a larger share of the marital debts.

Determining what assets are vulnerable is an important step as you prepare for complex property division proceedings in your upcoming divorce.