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How Executive Compensation Can Complicate Divorces

On Behalf of | Aug 2, 2022 | Divorce

Are you a high-worth business executive, or is your spouse one? Maybe you both are. If you’re contemplating getting a divorce and your Texas marriage falls into one of these scenarios, your split may be more complicated than for other high-worth couples. The reason behind that complication is executive compensation.

What is executive compensation?

Over the past few years, many cash-strapped corporations have started using executive compensation as a way to keep their top talent. While it may seem like a good idea, the practice does present pitfalls, especially for those getting a divorce. Understanding executive compensation can be daunting, even for the individual receiving the assets.

Generally, executive compensation involves two different types of assets: stock options and restricted stock awards. Stock options allow an employee to buy company stock on a future day based on its price on the day the options were granted. The catch here is that you must wait to buy the stock, with the typical waiting period running from one to five years. That length of time is called a vesting period. Restricted stock awards are more prevalent. This compensation type is sometimes called “golden handcuffs” because if you leave or get fired from the company, you forfeit your right to the compensation. Restricted stock also has a vesting period.

Valuing executive compensation in divorce negotiations

Determining the real worth of your executive compensation is essential when determining asset division. Many such cases proceed to lengthy, high-profile trials where divorcing spouses attempt to prove their position. Taking executive compensation at the wrong time can result in the loss of the asset’s entire worth.

Working with financial professionals familiar with executive compensation worth can help protect your position in a divorce.