Divorce and executive compensation in California

On Behalf of | Aug 20, 2021 | Divorce

High-asset divorces in the state of California can be more complicated than the average divorce. A part of this is due to executive compensation.

What you should know about executive compensation

Executive compensation refers to any renumeration packages for business leaders, senior management professionals and other business executives of a company. They can include things like stock options, restricted stock and alternative forms of payment or bonuses.

In a high-asset divorce, these executive compensation packages are considered a huge asset to your spouse and marriage. As such, lawyers might attempt to split the executive compensation package in the divorce proceedings, especially if your spouse had any rights to it.

What are some examples of executive compensation stock options?

Employee stock options are used to motivate high-level employees to perform better by giving them a piece of the pie, so to speak, when the company does well. There are several different stock options that might be rewarded to high-level executives.

Most of the time, these stock options have certain vesting periods that must be met. This means that if an employee is given stock, they may not be able to do anything with it for one to five years, depending on the length of the vesting period.

Restricted stock awards and units are another popular option among high-level execs. There’s a vesting period, and if the employees leave or are fired, then they forfeit the stocks they were rewarded.

How to divide stock options

Your executive compensation assets may be pulled into your divorce. In most cases, executive compensation stocks cannot be accessed, let alone split up, if they haven’t been vested yet.

However, just because the stock cannot be paid out or sold immediately doesn’t mean that it cannot still be included in the divorce. You may be able to create a trust that the payouts would go into upon the stocks being vested.

Sometimes, this payout happens years after the fact. When setting up this sort of trust during divorce proceedings, it’s important to address any questions about who pays taxes on the payouts. High-asset divorces are complicated and have more considerations to address, but careful negotiations can help ensure that the proceedings are fair.