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What happens to deferred compensation in a Texas divorce?

On Behalf of | Jan 25, 2023 | Divorce

The more successful you have been during your professional career and marriage, the more you and your spouse may have to fight over when one of you files for divorce. Most couples do not have prenuptial agreements, so they have to settle property division matters to themselves or turn to the Texas family courts to divide their marital property.

The state has community property laws that make the vast majority of your income and resources potentially divisible in the divorce. The more successful you are, but more likely you are to have complicated personal assets to divide with your spouse. High-asset couples frequently find themselves facing contentious property division negotiations that sometimes result in litigation because they cannot agree on the appropriate way to share their resources.

If you are the primary wage earner in the family and hold a highly-compensated executive position, you may have to share not only the income that you have already received but also potentially any deferred income you earned during the marriage.

When you earned it is typically what matters

Deferred compensation can be a bit of a gray area in a high-asset divorce. The type of compensation and the terms related to its receipt can influence how couples decide to split the deferred compensation.

Maybe what the company offers is deferred stock options if workers stay with the company for a certain amount of time or if they achieve certain goals during their tenure at the company. On the other hand, there may be a bonus payable after a specific amount of time or when the company reaches certain milestones under new leadership.

In some cases, you may not even be able to clearly and easily value the deferred compensation, as it may come in the form of stock that is not yet available and is therefore very hard to accurately price.

Careful negotiations help high-asset spouses

The last thing you want is to make a decision early in the divorce that leads to accusations of misconduct. Intentionally not disclosing assets to your spouse or the courts could have the opposite of the impact you would likely prefer, as it may result in the courts granting more of your marital estate to your spouse rather than to you. Undervaluing assets can also be a mistake.

You also need to have a realistic idea of what community property laws in Texas will mean for your deferred income in other assets if you do go to court to divide your property. Negotiating with your spouse to reach a mutually beneficial settlement is a popular strategy employed by those dividing complicated assets during a Texas divorce.