Successful professionals living in Michigan have more to lose if they divorce than those just barely making ends meet. They may have a diversified portfolio of assets ranging from their primary residence to tax-deferred retirement savings accounts.
They may have significant financial support obligations if they have minor children or a dependent spouse. They may even need to worry about income that they have not yet received in some cases. Many successful professionals with competitive compensation packages have an agreement for deferred compensation.
Deferred compensation comes in many forms. Employers may offer retention or performance bonuses. They may extend workers stock options after a specific vesting period. Deferred compensation can incentivize better job performance and loyalty to a business. Does a professional who may be eligible for deferred compensation in the future have to worry about that income during divorce proceedings?
Some deferred compensation may be vulnerable
Those with complex marital estates often set valuation dates with their spouses as they begin addressing property division concerns. Frequently, that valuation date reflects when one spouse filed or when they started living separately. That valuation date can play an important role in the division of deferred compensation.
Any deferred compensation that an employee earned as of the valuation date is likely subject to division during the divorce proceedings. For example, if the valuation date falls three years into a five-year agreement, then more than half of the deferred compensation may technically be part of the marital estate.
The fact that the employee has not received the compensation yet is not what matters. Instead, the courts expect spouses to divide the deferred compensation because one spouse earned that compensation during the marriage.
Deferred compensation can complicate divorce
Even in cases where spouses try to work together to divide their shared property amicably, deferred compensation can become a stumbling block. Spouses might disagree about how to value the deferred compensation.
They may also find themselves disagreeing about how to adjust asset distribution to account for that value, given that the spouse who earned the deferred compensation may not receive it for several more years. In some cases, concessions related to deferred compensation can be an important bargaining chip when attempting to settle divorce issues with a spouse.
Professionals preparing for complex divorces involving high-value assets often need help understanding their rights and obligations, and that’s okay. Recognizing that deferred compensation may be at least partially marital property can help people understand what to expect when it comes to equitable asset distribution.