Very often, we deal with cases where our client or his/her has compensation from employment that is more than just salary plus bonus. Rather, with all of the financial services companies, pharmaceutical companies and other corporations in this area, we see all sorts of different compensation structures, including stock options, restricted stock, RSUs, REUs, etc. Moreover, when the employee is in management or higher up in the company, the types of deferred compensation and/or equity plans can get even more complex. Further, by its very nature, deferred compensation is not realized as income immediately, but usually over several years, typically 3 to 5 years. Often it vests in two ways. On way is serial vesting – 100 options are granted which vest over 5 years – 20 per year. Sometime there is cliff vesting which means that the options all vest in year 5. When an employee has been with a company for several years, then often start to have deferred compensation vesting each year and possibly available for income.
The question often arises as to whether these deferred compensation vehicles are income, assets or both, While the answer is not simple, it is not as complex as many make it out to be..
Typically, deferred compensation that was granted prior to the date of the Complaint for Divorce is treated as an asset and is subject to equitable distribution. If the deferred compensation is vested, meaning it can be immediately cashed in, then quite often it is equally divided (though again, New Jersey is an equitable distribution state not an equal division stated so it is not an automatic that these assets will be equally divided – sometimes it just seems that way.)
If the deferred compensation is not vested and requires continued, post-divorce Complaint service in order for vesting to occur, that is where things get more difficult. I have seen some simplistically argued that anything granted before the Complaint gets equally divided no matter when it vests. More recently, I have seen a greater use of some type of calculation (coverture fraction) used to recognize the post-complaint service of that spouse. Many believe this to be the fairer way of equitably dividing deferred compensation.
Continue Reading DEFERRED COMPENSATION – INCOME, ASSET OR BOTH?