Posted in Divorce
Executive compensation packages aren’t simple. They’re not just a salary that shows up in your bank account every two weeks. When you’re dealing with stock options, restricted stock units, performance bonuses, golden parachutes, and deferred compensation plans, figuring out what belongs to whom during a divorce gets complicated fast. California is a community property state. That means anything earned during the marriage gets split 50/50. But with executive pay, “earned” doesn’t always mean “received.” And that’s where things get messy.
What Counts as Community Property
The date you earned compensation matters more than when you actually got paid. If your employer granted you stock options while you were married, those options are community property even if they don’t vest until after your divorce is final. Courts use something called the time rule to figure this out. They look at how much of the vesting period overlapped with your marriage versus how long you were separated or divorced. Under California Family Code Section 2552, the community gets credit for the portion of unvested options attributable to the marriage. A Manhattan Beach high net worth divorce lawyer can walk you through the specific calculations for your situation, but the basic principle stays the same. Work performed during marriage creates community property rights even if the payday comes later.
Types Of Executive Compensation That Get Divided
Different compensation vehicles create different division challenges. You can’t just cut a stock option certificate in half and call it even. Common executive compensation components include:
- Unvested stock options that mature over multiple years
- Restricted stock units with performance-based vesting schedules
- Annual performance bonuses tied to company metrics
- Deferred compensation plans that pay out at retirement
- Golden parachute severance packages
- Phantom stock and stock appreciation rights
Each type requires its own valuation method and division strategy. Restricted stock that vests based on continued employment gets treated differently from performance shares tied to hitting revenue targets.
Valuation Problems With Unvested Compensation
How do you value something you can’t sell yet? Or something that might never vest at all if you leave the company or performance metrics aren’t met? Courts often bring in financial professionals who specialize in executive compensation. They’ll look at the likelihood of vesting, the company’s financial health, market volatility, and whether continued employment is required. For publicly traded companies, there’s at least a market price to reference. Private company stock creates even more uncertainty.
Timing matters too. Divorcing right before a major stock option vesting event looks different than separating years before options mature. Sometimes one spouse keeps the options but owes the other their community share in cash or other assets. Other times, the court orders a “if, as, and when” division where the non-employee spouse gets their portion only if and when the options actually vest and get exercised. A Manhattan Beach high net worth divorce lawyer understands these valuation approaches and knows when to push for immediate buyouts versus deferred distribution arrangements.
Bonus Money And Performance Pay
Year-end bonuses earned during the marriage are community property even if they’re paid after the separation date. But what about bonuses that reward both past performance and future retention? California courts have addressed this in multiple cases. If the bonus compensates you for work performed during marriage, it’s community property. If it’s designed to incentivize you to stay with the company going forward, it may be separate property. Most bonuses contain elements of both, which means you’re back to doing time rule calculations. The documentation matters. Employment contracts, bonus plan descriptions, and company communications about what the bonus rewards are all become evidence in determining how to characterize and divide the payment.
Protecting Your Share
The executive compensation division isn’t something you figure out with a basic online calculator. The financial stakes are too high and the legal questions too specific to wing it. Skarin Law Group works with clients whose compensation packages include substantial equity and deferred pay components. We coordinate with financial professionals who understand how to value these assets properly and develop strategies that protect your interests, whether you’re the executive or the spouse seeking your community property share. Reach out to discuss how your specific compensation package should be handled in your divorce case.
