How Is Deferred Compensation Addressed in a New York Divorce?
Executives and other employees frequently opt to defer some of their salary for a variety of reasons. Typically, a prime motivation is to reduce current tax liability while reaping the benefits later in life when one’s overall income is lower. This is often a wise financial decision, but it can complicate the division of assets that occurs during a divorce. Some deferral plans run for decades, so it is often the case that compensation earned during a marriage is not actually collected until long after the divorce.
Unless an alternative arrangement has been made through a prenuptial or postnuptial agreement, deferred compensation earned by one spouse during the course of a marriage is divided between the parties upon their divorce. It does not matter when the payments are scheduled to be made. Depending on your particular circumstances, allocating deferred assets might simply be a matter of splitting what was accumulated during the marriage and waiting for the payment date to arrive.
However, there can be other situations that pose more of a challenge, such as deferred compensation packages that require the employee to work at the company for a certain period of time in order to collect the benefits. This is frequently done with stock options. If a divorce occurs before the plan has vested, a constructive trust might be created under which the employee holds part of the options for their ex-spouse’s benefits until they can be exercised. Another option is to assess the present value of the options and give the non-employee spouse assets of equivalent value once the marriage is dissolved.
A Qualified Domestic Relations Order (QDRO) can address compensation that has been rerouted into an employee retirement plan. This directive is issued by the judge during a divorce and is subject to federal law. It states that the employee’s ex-spouse is to be the alternate payee for the account when assets are available to be withdrawn.
In many cases, spouses choose not to create a legal instrument that might need to be in place for decades. A knowledgeable divorce attorney can consult with experts to appraise the current and future value of specific holdings and might be able to negotiate an equitable overall asset division settlement.
As the Long Island divorce leader, Bryan L. Salamone & Associates, P.C. has secured successful results for high net worth clients in New York divorces involving deferred compensation and other complex assets. Regardless of the size or complexity of your marital estate, you can call 1.631.479.3839 or contact us online to speak with a seasoned attorney regarding your situation.