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Executive compensation in a divorce

On Behalf of | Apr 6, 2021 | Family Law

Divorce can be difficult for any couple, but when wealthy individuals end their marriage, the process can be complicated. If you live in Illinois, it is important for you to understand executive compensation in terms of how it is handled during marital dissolution proceedings.

Stock options

Companies will sometimes give employees the option to purchase company stock for future use. The value of the stock will be determined based on the day the option was granted. However, the catch is that these stock options have a vesting period which means that the employee can not exercise them for a certain period of time. This time period is usually between one and five years. Separating stock options can be difficult in a divorce. It’s important to have a divorce attorney on your side when attempting to divide this asset since stock options don’t work the same way as a brokerage or savings account.

Executive compensation and taxes

Option grants are usually not reported on the recipient’s tax return. The compensation is not present on a paycheck as well, which is why it is challenging to track and give each spouse their fair share in a divorce. Some spouses hide executive compensation or claim they forgot about the compensation once the divorce is imminent.

Getting the compensation you deserve

It can take some time to find evidence of executive compensation during a divorce case. Family law attorneys recommend following the “breadcrumbs” associated with this type of compensation to see where the evidence will lead. This can help the non-employed spouse find out whether the other spouse is hiding executive compensation. The incentive compensation plan document, description of the stock option plan, annual award statements, and award letters can all serve as evidence of executive compensation.