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Navigating divorce with executive compensation

On Behalf of | Sep 14, 2023 | Divorce

Many executives in Florida companies have the pleasure of being awarded stock options for their service and time at their job, but there is an issue regarding divorce. This form of executive compensation with the division of property, taxes and even discovery of the held stocks.

Executive compensation: what is it?

Employers offer these types of awards as executive compensation instead of a bonus. There are two types: stock options and restricted stock. Stock options let employees purchase company stock at the day’s sale price. They can sell them for a profit if they wait until the stocks vest. However, the tax bill increases with the stock’s value.

Restricted stocks are much like normal stock options, including waiting for the time limit for the shares to vest. However, if the employee no longer works for the company, these stocks stay with the company. Once vested, the entire value is taxable at a high-income tax rate.

Separating these two types of stock in a divorce is nearly impossible, due to restrictions from employers.

Division of executive compensation

Employers will not allow the transfer of shares while the employee is still working and alive. So, to split the shares during divorce, there are a few options to consider:

  • Negotiate monetary compensation to keep the shares.
  • Place the shares in trust.
  • Negotiate divorce terms to keep the stocks in exchange for another revenue.

When the stocks do vest, the employee may sell the stock for the current day’s price for a profit. Afterward, the employee must pay the taxes and pass the agreed-upon stock profit to their ex-spouse. This split leaves the employee paying all taxes and the non-stockholder spouse getting the full value of their stock and should be part of the compensation in divorce agreements.

Once an agreement on how the division of assets completes, a legal contract or trust can ensure each party satisfies their obligations and needs. Divorce with executive compensation will require extra time, negotiation, and excellent communication.