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Deferred compensation and community property rights in a divorce

On Behalf of | Dec 14, 2022 | High Asset Divorce

Dividing your property will likely be a major challenge when you start preparing for divorce. Higher-income couples and those with complex assets tend to have longer, more intense disputes about the distribution of property at the end of a marriage.

Disagreements about your marital resources often focus on assets that have emotional value to one spouse or the other. Deferred compensation and incentive stock benefits are among the forms of personal income that may provoke a particularly strong response in someone during a divorce.

After all, they have to do their job particularly well to even qualify for those forms of pay. Is deferred pay at risk in your Texas divorce?

When you earned it, not when they pay it, is what matters

The confusion around deferred compensation during a divorce is easy to understand. After all, deferred compensation is an asset that only belongs to one of the spouses by means of their employment arrangements. Additionally, it is also income that they have yet to receive.

Deferred compensation is a powerful tool for companies that want to promote the best job performance possible among key employees or incentivize someone to stay at the company for multiple years. If your spouse is three years into the five-year term after which they will receive deferred compensation, then you may be entitled to claim the three years’ worth of deferred compensation as part of the marital estate in your upcoming divorce proceedings.

Valuing deferred compensation can be a challenge

If the deferred compensation is a bonus offered in a specific, predetermined amount, then it may not be that difficult for you to quantify what the deferred compensation is worth. However, if the deferred compensation comes in the form of stock or relates to the company’s performance during the year someone receives the compensation, you may not know yet what the deferred compensation is truly worth.

Couples may need to negotiate with one another to find a compromise regarding what the deferred compensation is worth for the purposes of property division. Otherwise, a judge may have to determine its value and the right way to divide it based on their understanding of the family circumstances.

Understanding how to handle deferred compensation can pave the way to a quicker settlement in your upcoming high-asset divorce.

 

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