Executive compensation in a divorce

On Behalf of | Aug 3, 2021 | Divorce

One thing that should not be overlooked in a high-net-worth divorce in Colorado is executive compensation. This type of compensation might not be reported on a person’s paystubs or wage statements and can be more difficult to track down. However, people who fail to identify executive compensation that their estranged spouses receive might end up leaving a substantial amount of money behind during a divorce. Here are two types of executive compensation that you should look for if your spouse is an executive.

Restricted stock awards

Restricted stock awards or units are a common type of executive compensation. Employees who receive restricted stock awards cannot sell them at the time that they are received. Instead, they must wait until the stocks vest after a specific time. If the employee who has received restricted stock awards quits their job or is terminated, they will forfeit the restricted stock awards, making them unavailable in the property division portion of a divorce. If they sell the stocks after they vest, the proceeds will be taxed as ordinary income.

Stock options

Stock options are another type of executive compensation. While they are not as common as restricted stock awards, some companies still provide them to executives as a part of their total compensation packages. Stock options provide employees with the right to purchase a company’s stock at the current price at a future date. If the stock’s value increases during the interim, the employee who chooses to purchase stocks at the future date can stand to make a sizable profit. Like restricted stock awards, stock options usually have a vesting period of five or more years, meaning that an employee cannot exercise them until that time has passed. Gains from selling stocks will be taxed at the employee’s ordinary income tax rate, and they could force them into a higher tax bracket.

Stock options and restricted stock awards should be taken into account when people negotiate how to divide their assets during their divorces. People who receive executive compensation should likewise take the tax consequences into account when determining how to divide them with their estranged spouses.