What happens to deferred compensation when you divorce?

On Behalf of | Sep 28, 2022 | Family Law

Some assets are easy to divide and to put an accurate price on as you prepare for divorce in Colorado. A bank account is likely worth a specific amount of money that you can readily determine by checking the balance. Even more complicated and valuable assets, like real estate, are easy to value with the right professional support.

However, especially if you or your spouse work in a managerial or executive profession, there could be deferred compensation to consider as you divide your other assets. Deferred compensation can quickly make property division matters more difficult to manage. Deferred compensation can have emotional value for the person who earned it and may result in extensive disagreements when negotiating or litigating property division matters.

What happens to deferred compensation in a divorce?

Some of it may be subject to division

Deferred compensation arrangements usually involve very specific terms. For example, an employee accepts a new job and agrees to specific wages and benefits. If they meet certain job performance metrics or if they stay at the company for a certain number of years, they may qualify for deferred compensation.

They might receive lump-sum payments as bonuses tied to performance or their time with the company. They might also receive stock options. Generally, unless you have a marital agreement declaring otherwise, any deferred compensation earned during the marriage will be part of your pool of marital property and subject to division. Even if the spouse has not yet received those payments, the other spouse could claim their share of the deferred compensation earned during the marriage.

Valuing the compensation can be a challenge

While it may be very easy for you to determine what percentage of the deferred compensation is subject to division, putting a fair price on those especially if someone will receive stock options or a bonus with an amount not yet determined, there may be some negotiating required to agree on an appropriate value for that compensation.

Divorcing spouses will either need to negotiate their own arrangements or present evidence to a Colorado family law judge related to the deferred compensation that they need to divide. Understanding the rules that apply to complex divorce situations can help those with complicated assets prepare for family court.

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