Be aware of executive compensation divorce loopholes

| Jul 12, 2021 | Uncategorized |

Every high-net-worth individual navigating a divorce in Mississippi should pay close attention to executive compensation matters. If these issues get neglected or overlooked, an individual could end up leaving loads of money on the table or paying exorbitant taxes while their estranged spouse pays nothing.

What is executive compensation?

Executive compensation is made up of monetary and asset rewards that companies give in addition to salaries. Stock options, restricted stock awards and bonuses are the most common types, and division of these assets might be overlooked when a marriage is dissolved.

Types of stock awards

When going through divorce, it’s important to look out for two types of stock compensations: options and restricted awards. The former is when a company offers an employee the right to buy a certain amount of stock at “grant price” sometime in the future, usually one to five years.

For example, say a person received 30 shares of stock as part of a salary package, and on the day they signed the contract, the stock was trading at $100 a share. Fast-forward five years when the person’s interest is fully vested, and the stock is worth $1,000 a share. At that point, the person can buy 30 shares for $3,000 and then turn around and sell them for $30,000, netting a pre-tax sum of $27,000.

Restricted stock awards are similar, but the individual receives a set amount of stock right off the bat. However, they cannot sell it immediately. Typically, employees must wait out a five-year vesting period. As such, they’re known as “golden handcuffs” because the stocks go away if the individual leaves the company or is fired.

Potential executive compensation divorce pitfalls

There are three main things to keep an eye on when crafting a settlement portfolio that accounts for executive compensation. They include:

  • Disadvantageous tax implications
  • Stock option and bonus concealment
  • Workaround accommodations for immovable assets

Divorce negotiations involving executive compensation can be a minefield. Having an experienced family law attorney to chart the path might make a world of difference.