To attract and retain top talent, many Bay Area companies compensate business executives and highly skilled employees through stock options, restricted stock units (RSUs), tiered salaries, structured bonuses and similar methods that vest over time. Deferred compensation is prevalent in the Bay Area, particularly in Silicon Valley.Such compensation can be a major source of conflict in divorce. Does it count as income available for payment of spousal support, or as a separate property asset with a future interest, not earned until after the date of divorce? Schoenberg Family Law Group, P.C., has extensive experience in negotiating and litigating this hotly contested issue. We represent high earners, and spouses of high earners, in the characterization and valuation of deferred compensation in property division and determination of spousal support.
Stock Options And Other Delayed Compensation
In the tech industry, management and key employees are commonly paid through a graduated salary structure that rewards loyalty and performance. For example, the salary might be $500,000 the first year, set from the beginning to triple to $1.5 million over five years as benchmarks are met, rather than a higher starting salary with incremental raises. Similarly, employees may earn incentives and stock options in graduated steps until the executive or employee is “fully vested.”
For purposes of divorce, the manner in which employers structure, project, and promise compensation affects whether and how the parties factor those future considerations into the divorce settlement. In representing the employee, our goal is to characterize delayed compensation as reimbursement for later performance. In representing the other spouse, we want any deferred compensation to be considered upfront as presently earned income, with only payment deferred.
In compensation plans that vest gradually, the employee’s spouse may claim a community interest in those options that have been earned as of the date of separation.
We work with CPAs, forensic accountants, executive compensation specialists and other experts to prepare a persuasive case for deferred compensation treatment in the divorce. We have experience with all forms of remuneration, including:
- Graduated salaries
- Bonuses and commissions
- Executive perks
- Stock options and Restricted Stock Units (RSU’s)
- Severance packages
- Other deferred compensation
Stock option valuation is a highly complicated and volatile area of family law, and in many cases, the company forbids the transfer of options to a spouse. We typically create a constructive trust which obligates the employee spouse to maintain his or her former nonemployee spouse’s options to be exercised at a later date. The constructive trust provides for the sale of these options once they mature, upon which the employee spouse then pays the net proceeds to the nonemployee spouse.
“Not that I have a lot of law experiences to go by, but I can tell you that my experience with Debra far exceeds the preparedness and sense of caring of that of the lawyer that my ex worked with. Would recommend Debra without any hesitation.”
— R.T. (See other testimonials from our clients.)
Sophisticated Knowledge Of Deferred Income
Debra R. Schoenberg is a Certified Family Law Specialist,* who understands the nuances of “golden handcuffs” incentives and deferred compensation income. Our legal team skillfully advocates on either side of the argument, arguing for the most favorable disposition of this significant asset to our clients. Our attorneys also knowledgeably address the tax implications of deferred compensation and cashing in stock options.
To discuss your marital property concerns with our experienced San Francisco family lawyers, please contact us online or call us at 415.834.1120.
* Certified in Family Law by the State Bar of California Board of Legal Specialization.