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Dividing executive compensation plans in a divorce

On Behalf of | Apr 28, 2024 | Asset Division, Divorce In Mississippi, Divorce In Tennessee |

Ending a marriage can often be difficult. In many cases, the more money you and your Tennessee spouse have accumulated, the longer your divorce will take. Many high-level managers have executive compensation plans. Even though you may not be able to access the assets of these plans immediately, their value must become part of an equitable divorce settlement.

What qualifies as an executive compensation plan?

Many businesses use executive compensation plans to retain employees they value, especially if their company becomes cash-strapped due to various circumstances. Key employees frequently receive stock options and restricted shares and cannot cash in the assets until they become fully vested, usually taking several years. Such incentives help retain key employees, with more businesses using this tactic. If you are going through a divorce, the more you know about these plans will help you get an equitable settlement.

Stock options give employees the chance to buy shares in their company at a future date at a specified grant price. Even more common are restricted stock awards, in which employees who leave or get fired forfeit their rights. The terms of executive compensation plans vary, as do vesting schedules, affecting what can be considered marital property.

Division of stock options can get messy

Property division is often one of the messiest issues in a divorce. Executive compensation plans complicate this step even more because many companies do not allow the transfer of stock options or restricted stock to another person, even if a divorce occurs. In this situation, the employee spouse may be ordered to hold the assets in a constructive trust to benefit the non-employee spouse with specific language in the divorce settlement.

You’ll also want to consider the tax implications of your legal agreement. The employee spouse is responsible for all taxes due whenever shares are sold, even if they must transfer the proceeds to the non-employee spouse. On the other side, one spouse can easily hide employee compensations because they don’t appear on income tax records. Perform a thorough discovery of assets before agreeing to a settlement.

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