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How deferred compensation can affect a California divorce

On Behalf of | Dec 12, 2023 | Asset Division

California has a community property statute that applies when people litigate their divorce processes. Certainly, spouses have the option of setting their own property division terms. But, if they don’t agree with one another, then they will usually need to go to family court to settle their disagreements.

Spouses might argue over what assets are subject to division, what those assets are worth or who keeps which property in particular. A family law judge in California theoretically has the authority to address all of these issues. If either spouse in the marriage has a complex employer compensation package that includes deferred compensation, then the chances of significant property division conflict may be higher than usual.

How can deferred compensation complicate a California divorce?

Only part of the compensation may be divisible

Deferred compensation arrangements can take many forms. It may serve as incentive pay to get the best performance possible out of certain workers. It can also be a form of retention bonus if someone stays at the company for a certain amount of time. Particularly if a divorce occurs part way through the period when a worker earns their deferred compensation, spouses may disagree about how much of the compensation should be part of the marital estate. Even if the employer will not pay that compensation until later, the amounts earned during the marriage could very well be subject to division during a divorce.

Valuing deferred compensation can be difficult

Sometimes, deferred compensation is purely financial. Workers will receive a set amount of money as a bonus for meeting certain performance metrics or staying with the company for a certain amount of time. Other times, the compensation may reflect someone’s performance or even the company’s success. For example, stock options could mean that someone is eligible for stock when a company has its IPO or after they meet certain standards. It is almost impossible to predict with that stock will be worth at the time of disbursement. Therefore, spouses may find themselves arguing intensely over what deferred compensation is worth.

It’s hard to divide what someone does not yet possess

The final big challenge related to deferred compensation in a California divorce is the difficulty of finding a fair way to divide it. Usually, spouses will have to use other assets to offset the value of deferred compensation, as the spouse who has earned that compensation cannot actually access it yet.

Those who should receive deferred compensation based on their employment contract or divorcing someone eligible for deferred compensation might need to plan carefully to address stock options and other forms of deferred compensation in their divorce negotiations. Identifying property that will likely complicate a California divorce, and seeking legal guidance accordingly, can help people secure the best possible outcome.