Family Matters.
When It Really Matters.

Executive compensation in California divorce

On Behalf of | May 8, 2023 | Divorce

Couples with a significant net worth or who work in executive roles in California go through a more complicated divorce process. As there are so many issues to resolve, separating comes down to the financial details. If you or your partner is receiving executive compensation, there are some steps to consider during the divorce process.

California divorce

In a high-asset divorce, executive compensation packages are often at the center of negotiations. Executive compensation includes bonuses, stock options, non-qualified deferred compensation and other benefits like travel allowances.

California is a community property state. That means that when dividing your assets, you will only look at two things: separate property and community property. Separate properties are exempt from division. Family law considers them yours if you don’t do anything with them that jeopardizes their status as separate. Marital property is communal. Your spouse has as much right to claim them as you do, regardless of who brought them into the marriage.

Depending on the type of executive compensation you receive, it may be considered community property during a divorce. For instance, if you received restricted stock payments before your marriage, a family court judge will consider them separate property. However, if you received stock options after the marriage or deferred compensation payments during it, those may be subject to community property laws.

When a separate property becomes marital

Let’s say you acquire stock options before your official wedding day, but during your marriage, your spouse advises you on when to buy and sell them, and you actually make some good profits. In this situation, they will have a right to those profits because the law considers them communal through commingling.

Managing a divorce with valuable assets like executive compensation packages requires adequate preparation. These assets may increase in value with time, sometimes even years after your divorce, so deciding how to divide them appropriately might pose a challenge. The law exists to ensure everyone gets what’s rightful to them, but it helps to know how to go about it to avoid costly mistakes.