What happens to deferred compensation during a Texas divorce?

Texas is different from a majority of states in the United States of America because it does not have an equitable distribution law for property division. Instead, Texas has a community property statute. Judges do not have to divide assets in half, but they do have to make decisions about all assets and income acquired during the marriage. Income can be a source of conflict in many cases, especially when there is a discrepancy in the earning potential of the two spouses.

The better-compensated spouse may want to protect as much of their income as possible, while the dependent or lower-earning spouse wants to ensure they receive a fair portion of the marital release date. The well-compensated professional might very well have an employment contract that includes deferred compensation.

What potentially happens with deferred compensation in a Texas divorce?

Some of the income could be subject to division

Deferred compensation packages may serve as an incentive to stay with the company for several years or to meet certain performance expectations. Companies may offer performance-based bonuses or stock options in return for multi-gear loyalty. When someone facing a divorce has an employment contract that includes deferred compensation, at least some of that compensation might be subject to division. The spouses may need to look at the terms of the employment contract and seek to establish how much of that compensation they accrued or earned during the marriage.

Even though the higher-earning spouse may not be eligible to receive that compensation for several more years, the portion that they earned during the marriage could still be part of the marital estate. Spouses may find it hard to reach an agreement about how to address deferred compensation in their divorce, particularly if that compensation package includes stock options. Especially if the company has not yet had its IPO, effectively valuing the stock can be a challenging prospect.

Those who recognize that their divorce could become more complex because of their employment arrangements may need to approach property division matters with particular care. Preparing for a high-asset divorce requires that someone identify and value marital assets carefully. Spouses aware of the most challenging components of property division matters can prepare themselves more effectively for negotiation or court.

Vernier & Associates, PLLC

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