Your compensation package may complicate divorce talks

If you have never been divorced before, or if you had fewer or less complex assets the first time around, it may take you by surprise just how convoluted divorce calculations can get.

A recent article in Forbes cautioned those with complex compensation packages to keep a close eye on the accounting on the other side of the negotiation table or, at least, find representation with experience protecting clients with complex compensation.

When did you earn the compensation?

A simple trick that may be hard to catch is double counting, or using the same asset against you twice. For example, any bonus you earned for work you do before the date of the divorce filing is probably community property under California law. However, especially if you receive the compensation after the date of the filing, the authors of the Forbes article remind you to make sure your spouse’s representation does not use the full bonus to calculate support payments.

Or consider that your employer might offer you a bonus at your hiring, for example, or when they renew your contract. You keep the bonus if you meet your goals and stay at the company, but if you move on or fall short, the employer claws back the bonus.

The Forbes article suggests that, in essence, your employer may not strictly pay the compensation until the potential for clawback has passed, which may be after the divorce filing. In any case, assuming the bonus does count as a marital asset, the divorce settlement should include provisions for you clawing back your spouse’s part of the bonus, and any calculations based on it, if the employer claws it back from you.

Your rewards may remain yours

Consider a case where, close to the time of the divorce filing, you are close to closing on deal or finishing a job that will then pay you a sizable commission. In this case, you might count the commission as post-filing income and not community property by either filing the divorce as sooner or formally ending the deal later.

Also, when some employees leave a job, they lose vesting rights or options they would have gotten had they stayed with their previous employer. Some hiring agreements lure the employee by compensating them in one way or another for what they would lose. From one point of view, a former spouse and their attorneys may argue that the assets covered in the new contract are actually the old assets from the previous employment in a new form.