Navigating Executive Compensation in Divorce: What You Need to Know
Dividing assets during a divorce can be challenging, especially when executive compensation is involved. Unlike regular salaries, executive compensation often includes complex financial tools like restricted stock units (RSUs), stock options, and non-qualified retirement plans. These assets can carry significant value, but they’re not always easy to understand or divide.
If you or your spouse earns executive compensation, it’s essential to know how these assets are handled in divorce. A clear understanding can help you protect your financial future and how to reach a fair settlement.
NQDCs, Stock Options, RSUs, and Divorce Settlement
Executive compensation refers to the non-traditional pay and benefits given to high-level employees. It usually includes:
- Non-qualified retirement plans (NQDCs): Retirement plans offered to executives that don’t follow the same rules as traditional 401(k)s or pensions. These often include deferred income.
- Restricted stock units (RSUs): Shares of company stock given to an employee, which vest over time or upon meeting specific goals.
- Stock options: The right to purchase company stock at a set price in the future. These may increase in value depending on the company’s performance.
These forms of compensation are often designed to retain executives and reward long-term performance, but they can complicate divorce asset division.
Executive Compensation and Marital Property
In Illinois, marital property includes most assets acquired during the marriage, regardless of whose name is on the title. This means that RSUs, stock options, and NQDCs earned during the marriage may be considered marital assets, even if they have not vested yet.
However, the court must determine:
- When the asset was granted
- Why it was granted (for past, present, or future work)
- Whether it is separate or marital property, or a combination of both
This analysis is key to deciding how much of the asset is subject to division.
Valuing Executive Compensation in Divorce
Because executive compensation is often tied to company performance or vesting schedules, valuation can be more complex. Courts may look at:
- The current market value of any vested shares
- The projected value of unvested shares
- Tax implications for the recipient spouse
Hiring a financial professional or forensic accountant is often necessary to determine the fair market value of executive compensation. This ensures that both parties understand the true worth of these assets before negotiating.
Divorce Asset Division Strategies
To handle executive compensation reasonably, spouses often use strategies such as:
- Deferred distribution: Waiting until the asset vests and then dividing it
- Offsetting assets: One spouse keeps the executive compensation while the other receives a different asset of similar value
- Trust or escrow arrangements: Using third-party accounts to manage future payouts
These methods help balance risk, ensure fairness, and provide clarity on how future compensation will be handled.
Protecting Your Interests
If you’re dealing with RSUs, NQDCs, or stock options in divorce, it’s important to protect your interests—whether you’re the executive or the spouse. You’ll require:
- Accurate documentation of all compensation plans
- A clear understanding of vesting schedules and performance requirements
- A skilled divorce attorney who can help analyze and divide these complex assets
Work with an Experienced Divorce Attorney in Chicago
Executive compensation can add layers of complexity to a divorce. If you’re facing a divorce involving RSUs, stock options, or non-qualified retirement plans, having the proper legal guidance is crucial.
Contact our Chicago area family law attorneys at Conniff & Keleher, LLC to discuss your case. We’ll help you understand your options, protect your rights, and work toward a fair and informed resolution.
