Executive compensation in a divorce

On Behalf of | Aug 2, 2021 | High-Asset Divorce |

In some high-net-worth divorces in New Hampshire, one or both spouses will have executive compensation that should not be overlooked in the property division portion of their cases. Tracking down and knowing how to handle executive compensation in divorce can be tricky and might add another layer of complexity to an already complicated process. However, failing to address executive compensation appropriately can leave money on the table while also resulting in potential tax consequences. Here are some things to watch for.

Stock options and restricted stock

Some companies offer executives stock options to attract talent and retain key employees. Stock options allow employees to purchase stock at some future point in time at the price the stocks are valued at on the day they are granted. For example, if a stock is valued at $500 per share on the date that stock options are granted, the employee can still purchase shares at that price several years later even if the stock’s value at that time is worth several thousand dollars. Stock options can be very lucrative and should not be overlooked in property division. Restricted stocks are another form of executive compensation. These stocks are limited to a set number of shares, and employees cannot sell them until they vest. If an employee quits or is terminated from his or her job before the restricted stocks vest, the employee will lose them.

Other considerations

A few considerations are important when dealing with executive compensation. This type of compensation frequently is not reported on income tax returns or wage statements, so it might take some investigation to discover it. Stock options and restricted stocks are also taxed as ordinary income at the time they are sold, meaning that the tax consequences should be taken into account during divorce negotiations regarding property division. Finally, most companies restrict employees from transferring stock options or restricted stocks to other people, so employees who hold them might need to set up a constructive trust for the benefit of their spouses in which to hold the stocks.

High-net-worth divorces are complex because of the many different types of assets and financial holdings the spouses might have. Tracking everything down during a divorce can help to protect the financial interests of people who are going through a complex divorce process.