Executive Compensation In Colorado Dissolution and Family law

When a couple divorces, marital property is valued and divided. Some executive compensation comes in the form of property. Such property may be subject to vesting requirements or other restrictions. It is important to determine whether an aspect of compensation or benefits is property, what portion may be marital property, and how to best value and allocate the property.

Executive compensation refers to a compensation package typically received by highly compensated employees such as executives, officers, and directors. These benefits generally focus on providing compensation in exchange for results. For example, stock options provide a greater payout when a company’s stock price rises.

On a basic level, only vested stock options constitute property for purposes of property division in divorce. A right that becomes vested during a marriage is typically marital property. Vesting may occur at specified times, upon specified events or when specified services are rendered. However, if there is an present enforceable right to exercise the option, that right is a property interest rather than a mere expectancy as well. The fact that the right has not actually been exercised is not determinative of a characterization as property. Property interests that are only speculative are not considered to be property.

Some compensation documents may include:

• Contract for executive compensation
• a stock plan or stock purchase plan
• an employment offer letter
• a summary plan description
• a deferred compensation plan
• an incentive plan document
• an executive retirement plan a bonus plan

Performance-based compensation promotes performance by associating compensation with achievement of financial or other goals beneficial to the business. They can be cash or stock-based. The amount of the compensation may be tied to the performance accomplishment. For example, compensation may be associated with amount of sales of the companies product. The fact that a performance bonus or compensation is not guaranteed does not mean that it will not be considered property. In such cases, an analysis of historical bonuses may be helpful. Bonuses are often considered income, depending on the history of receipt and the amount of discretion in the award.

Once an asset or interest is determined to be property, a court must determine whether the property is marital or separate. Sometimes property can have both marital and separate interest aspects and be apportioned as to interest earned during the marriage. There is a presumption that any property acquired after marriage, regardless of ownership form is marital property. There are four exceptions to the presumption of marital property.

• gifts and inheritances;
• property acquired in exchange for property acquired before the marriage or in exchange for gifts or inheritances;
• acquired after a decree of legal separation; or
• excluded by a valid agreement between the Parties, such as a prenuptial or postnuptial agreement

Property is valued and divided in divorce as of as of the date of the final orders hearing or decree insurance. Stock values are volatile so the best solution is often to divide the stock equally if possible, allowing both parties to share equally in any loss or gain. If the stock is divided equally, then valuation is not as important.

Three methods are used to determine the division of executive compensation: current valuation, deferred distribution, and retained jurisdiction. For immediate distribution of marital property, a current value method is used. If distribution will be deferred, or if value can not be presently determined, then the court can retain jurisdiction over division of certain property assets. Perhaps, for example, when the asset vests.

How can an attorney help in compensation matters? A Colorado Springs divorce and family law attorney can guide you through the Colorado court process to include assessing the relevance of compensation to the proceedings. This allows you to focus on moving forward to a better future rather than on spending your time trying to tackle the overly complex court system. Contact us at 719-344-5523 or complete our online form to set up a free thirty-minute informational consultation.