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Executive compensation can be included in a divorce

On Behalf of | Nov 8, 2023 | Family Law |

New Jersey is an equitable division state, which means that assets in the marital estate will be divided equally in a divorce. Executive compensation will typically be considered part of the marital estate, and this is often true even if the compensation won’t actually be paid out until a later date.

Types of executive compensation

Stock options are a common form of compensation given to executives and other important employees. An option gives the holder the right to buy shares at a predetermined price, which will ideally be less than what the stock trades for when it is exercised. Top managers and employees may also be given bonuses at the end of the year for hitting sales goals or meeting other expectations on a monthly, quarterly or yearly basis. For instance, a bonus may be given out for increasing sales by 10% in a quarter or for taking steps that boosts the company’s stock price.

Accounting for executive compensation

Any compensation that is paid out prior to the divorce will typically be divided during the divorce itself. Compensation that is awarded at a later date may also be included in a divorce decree assuming that actions that led to a bonus or stock option occurred prior to the end of the marriage. Otherwise, a family law judge may decide that future compensation is a separate asset that shouldn’t be part of the marital estate.

As with other assets, there are steps that you can take to protect your right to keep or receive executive compensation. These steps may include the use of a prenuptial agreement or waiving your right to other items in exchange for keeping your bonus or stock options.