How Executive Compensation Can Complicate Divorce

 Posted on January 09, 2025 in Family Law

As many as a third of all divorces are triggered by financial issues. This could mean there is not enough money to pay normal monthly expenses, which creates friction, or that one partner has vastly different spending habits than the other. In some cases, financial issues in a marriage stem from one partner refusing to let the other in on financial decisions. When money creates problems in a marriage, those problems often continue into divorce.

Although Illinois is an equitable distribution state – meaning marital assets are split fairly, not necessarily 50/50 – things like retirement funds and executive compensation can make the division of marital assets much more complex. If you are facing complex financial issues in your divorce, you can benefit from speaking to an experienced Bloomingdale, IL family law attorney.

What Is Executive Compensation?

Executive compensation encompasses financial payments as well as non-financial benefits provided to upper-level management in a business or organization. Usually, employees who receive executive compensation are presidents, vice presidents, CEOs, CFOs, and other C-Suite executives.

Executives are often given a compensation package that includes deferred compensation, retirement plans, severance protection, long-term incentive plans, and stock awards. More than 31 percent of American employees currently have stock options and restricted stock plans. Executive compensation is not only payment for a job but a tool used by companies to motivate high-level employees and retain talent.

Challenges Associated with Executive Compensation

There are two major challenges associated with executive compensation. First, it can be difficult to locate all types of executive compensation during discovery, especially when a spouse is doing his or her best to conceal these assets. Executive compensation may not appear on a pay stub or even on a tax return in some cases.

The second challenge is dividing executive compensation fairly. Suppose one spouse has received a stock option with a five-year vesting period. While the stock was trading at $300 per share at the time it was awarded, it significantly increased in worth by the end of the five years. While the stock may now be worth $1,100 per share, that would be immediate income with taxes that could be as high as 40 percent.

Should the stock options be kept until the five-year vesting period is up, then sold and divided? What if the stock takes a nosedive between now and then, becoming worth less than when it was awarded? If it is sold now, are the taxes on the sale of the options divided between the spouses? As you can see, it can be almost impossible to put a precise figure on executive compensation during the division of marital assets.   

Could Executive Compensation Affect Child Support or Spousal Support?

Even though the full value of executive compensation is not realized until it is "cashed in," it remains an asset. As an asset, it must be figured into one spouse’s income when determining child support and spousal support. Yet once again, determining the actual worth of the executive compensation can be extremely difficult. Retirement plans often have harsh tax penalties for early withdrawal, and the spouse who owns stock options will eventually incur capital gains taxes.

Non-transferrable stocks, restricted stock awards, and vested stock options each bring their own set of challenges. A divorcing individual with a spouse who has executive compensation should know exactly what falls under that umbrella before the divorce. It may be necessary to hire a forensic accountant or seek other types of creative solutions, but the situation always improves when a knowledgeable division of assets divorce attorney is involved.

Contact a DuPage County, IL Division of Marital Assets Attorney

If your divorce is likely to include complex asset division, it is even more important that your Naperville, IL, division of marital assets lawyer has significant experience in this area. When you choose Mevorah & Giglio Law Offices, you have chosen a large firm with extensive resources, more than 175 years of combined attorney experience, frequent communication, and highly client-focused services. Call 630-932-9100 to schedule your free consultation.