Mark Ashton, a partner in our Exton (Chester County), Pennsylvania office and former editor of our Pennsylvania Family Law Blog wrote an interesting post entitled "Elements of Expense: How Employers Help to Make Your Life Expensive & Your Lawyer Bewildered".

In his post, Mark ruminates on the difficulty in deciphering the modern pay stub.  Mark notes that over the years we have evolved from a time and place where compensation consisted of salary and a bonus to one where a paystub reads like the Dresden Codex (an anthology of Mayan astronomical tables).  In fact, the piece emanated from him having just devoted more than half an hour to reading and interpreting two paystubs that included salary, commission, vacation time, etc. as well as more than $100,000 of payments under the titles: ECC Disc Incentive; Long Term Cash Vest; RS Unit Vesting; and RSS Vesting.

Of course, once a you get past the alphabet soup of categories of income and withholdings, next you have to figure out what to do with them. For instance, you have to make a decision as to whether this is really income, an asset or both. This often comes into play with regard to bonuses and the exercise of deferred compensation. Is it recurring or non-recurring?  Is it an anomalous, one time payment?  Does this reflect an undisclosed change in how and/or the amount of someones compensation. What year should it be attached to, e.g. a bonus paid in 2012 for 2011 (do you just look at income received in the calendar year or do you add the salary received in a calendar year to the bonus for that year paid in the first quarter of the next year?) 

Aside from the bonus/timing issue, whether your treat deferred compensation such as stock options and restricted shares as income to be included in the support calculus or an asset to be divided in equitable distribution is sometimes vexing.  If you use the same options for both, is it not a double dip?  If historical income includes exercises of options, but the options received pre-complaint are being divided in equitable distribution, don’t they have to be excluded from support purposes, at least for a few years until they are replenished with new options that are not subject to equitable distribution?  We had a client whose income last year spiked substantially but the answer was not that he had paid more, but rather, had cashed in a bunch of deferred compensation earned over many years to pay for both sides fees in what has been a very complex and hard fought litigation (the exercise of deferred compensation appears as ordinary income on a W-2.)  Clearly, he cannot expect to have that level of income year after year.

As Mark noted, compensation structures are becoming increasingly complex – first to figure out what the compensation actually was – and then to figure out how to deal with it.

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Eric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric practices in Fox Rothschild’s Roseland, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973)994-7501, or esolotoff@foxrothschild.com.