Dividing property during divorce creates complex challenges. Deferred compensation plans add even more layers. If you face this situation, you need to understand how these assets work and how to divide them fairly.
Understand what deferred compensation means
Deferred compensation includes bonuses, retirement benefits, or stock options that you or your spouse earn now but receive later. Employers often tie these benefits to job performance or long-term employment. Some plans only pay if the employee meets specific goals or stays with the company for a set time.
Even unpaid assets can count as marital property. New Hampshire law treats deferred income earned during the marriage as divisible property. Courts consider these assets during the division process, even if the payout comes later.
Know how valuation works
Valuing deferred compensation depends on the plan type and payout conditions. Non-qualified plans with future performance requirements often lack a fixed value. A financial professional can provide a realistic estimate. This estimate guides the court in determining how much to divide.
Courts often use a “coverture” formula. This method calculates the portion earned during the marriage. That percentage helps determine the non-employee spouse’s share.
Consider tax consequences
Deferred compensation usually gets taxed at the time of payment. Taxes reduce the overall value of the payout. If you expect to receive a portion, remember that taxes will impact your actual share. To balance things out, many couples exchange other assets instead of dividing the deferred plan.
Review how the IRS treats these funds and decide who will cover the taxes. That choice shapes what both sides consider fair in the settlement.
Be proactive with settlement options
You and your spouse can agree on how to divide deferred compensation. Some couples trade other property so one person keeps the plan. Others choose to split the payout when it arrives.
Clearly explain your decision in the settlement. This approach reduces confusion and helps both sides avoid future disagreements.
