Executive Compensation and Stock Options: What Gets Divided In a Divorce?

As one rises within a given company, what they receive in exchange for their work might go well beyond the standard salary and benefits. When the recipient of a complex executive compensation package goes through a divorce, addressing the various aspects of that package can create challenges for spouses and their attorneys.

Large bonuses, stock options, and various types of deferred compensation can all be part of the marital estate, and each asset might be treated differently during a property division analysis. In most cases, any compensation that’s earned during a marriage is considered marital property, even if it hasn’t yet been paid.

Generally speaking, the date of acquisition, rather than the date when an executive can actually receive deferred compensation or acquire an ownership interest through a stock or equity option, is what determines the divisible portion of the executive compensation package.

In cases involving retention bonuses, performance bonuses or stock options, however, the situation may be different. A portion of the stock or deferred compensation may be part of the marital estate, while the remaining balance that vests after the divorce might be the separate property of the spouse who earns it. Spouses may disagree about what portion of the executive compensation package is marital property and what remains the separate property of the spouse who received it.

Even after determining what portion of the deferred compensation is theoretically part of the marital estate, valuing an indeterminate, as-yet-unreceived bonus or potential future stock options requires some speculation. This is especially true if the company has not yet had its IPO, or if major changes on the horizon could drastically alter the value of its stock.

Spouses with complex financial resources, including executive compensation packages, require guidance during property division negotiations or preparation for court proceedings. If they are not fastidious when reviewing employment contracts and financial records, they may agree to terms that do not accurately reflect the marital circumstances.

Understanding how much of an executive compensation package might be subject to distribution in a divorce can help spouses negotiate more effectively. An experienced Kansas lawyer’s assistance can be invaluable in a divorce involving executive compensation packages. Your lawyer can advise on the distinction between separate and marital assets, obtain a fair valuation for deferred compensation and negotiate reasonable arrangements for integrating the value of an executive compensation package into the overall property division settlement.

The Henry Law Firm, P.A. has extensive experience handling complex divorce situations for Kansas clients, including those involving executive compensation. Schedule an initial consultation in our Overland Park office by calling 913-381-5020 or contacting us online.