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Executive compensation in divorce proceedings

On Behalf of | Aug 13, 2021 | Divorce |

When people decide to divorce, the process can be challenging on an emotional level as well as practical and financial levels. While many Washington high-income couples may find some reassurance in their financial stability, those with significant assets may face their own challenges when seeking to finalize a divorce. In the first place, more assets to handle in property division or disputes over spousal support may intensify conflict, especially for couples who have a difficult or contentious relationship. There are also additional challenges to consider when assessing the value of property or each spouse’s annual income.

Executive compensation can be significant

Executive compensation can be a major part of the overall pay package for many high-ranking executives, senior managers or highly valued employees at many major corporations. Tech firms in particular have become known for their use of incentive compensation to lure or retain important developers and executives, and many employees at some of today’s largest firms have become wealthy due to their incentives, which often include stock options or restricted stock plans. These types of stock plans allow employees to benefit significantly from increased corporate performance accompanied by the rise in stock prices.

Taxes can pose an additional question

The value of stock incentives in companies like Apple, Amazon or Microsoft, or even in many traditional industries or smaller competitors, may seem obvious. However, there are challenges that can arise in determining the value of these plans for reaching a divorce settlement. Incentive plans are not reported on tax returns in the same way as traditional compensation; instead, taxes become due when options are exercised. Taxes themselves are a complicating factor, because an unfair distribution may leave one spouse bearing the entire tax burden.

In still other cases, one spouse may attempt to hide their incentive compensation or stock options from the family court in order to maintain a financial advantage. Here, it may be necessary to work with a forensic accountant to unearth concealed information.