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Accounting for executive compensation in a divorce

On Behalf of | Nov 6, 2023 | family law |

In New Jersey, executive compensation could be considered part of the marital estate unless excluded by a prenuptial agreement or other arrangement. Assuming that such compensation is part of the marital estate, it will be divided in an equitable fashion per state law. There are multiple considerations that must be made when determining how to account for this asset.

Compensation may vest at a later date

Although future compensation may be part of the marital estate, it may not actually be available at the moment. Instead, it may be several years before it can be accessed. For instance, if your spouse received stock options, they may not be available to exercise for several more months or years. In such a scenario, you may accept other assets equivalent to the anticipated future value of those options. You may also write into the divorce decree that you’ll receive payment whenever your spouse does.

Valuing executive compensation

Another issue you’ll need to consider is that you can’t always know the exact value of a compensation plan today. For instance, the stock options may be worth millions of dollars today but lose all their value if the company goes under six months after your high-asset divorce. Conversely, those options could be worth noting today but significantly increase in value in the future. You may be able to protect yourself by creating an imputed value as part of the divorce decree that you’ll receive regardless of what happens in the future.

As with other assets, executive compensation can be included in a prenuptial or postnuptial agreement. This may make it easier to resolve questions about the value of such compensation or others that might arise, which may help you come to a settlement in a timely manner.