If you’re married to an executive, chances are that complicated financial holdings are in the equation. Executive compensation is a reality for many executives and their spouses in California, with this practice expected to continue in the coming years at high rates.
Why is executive compensation so common?
Employee stock plans and other forms of executive compensation serve to help companies:
- Retain top talent
- Encourage productivity
- Increase more
- Motivate workers
These incentives offer more value in divorce settlement than many realize. The more knowledgeable a spouse is about these benefits, the better the chances of a beneficial settlement.
How do companies reward executives with stock?
A popular incentive is to buy company stock on a future date using the initial issuing price. However, vesting periods often apply for 1-5 years, during which an employee may not exercise the options.
Many experts caution executives and their spouses about catches to this compensation. For example, gains from these stock options involve taxation as ordinary income.
Taxes have more of an impact than many realize during divorce negotiations. Expert advice about exercising stock options goes a long way in making wiser decisions.
Why use caution with divorce and executive compensation?
A more common kind of executive compensation is restricted stock awards. These kinds of payments also have vesting periods, and employees who leave may even forfeit their rights.
Vesting schedules may impact how much you can claim as marital property. Cliff vesting involves a designated number of years, while graded vesting involves a percentage for each year worked.
Division of assets requires care
Sometimes, employers do not allow the division of transfer of stock. The use of constructive trust is one option.
Executive compensation is a part of many divorce negotiations. Knowing as much about your options as possible makes a difference.