What happens to deferred compensation in a Texas divorce?

What happens to deferred compensation in a Texas divorce?

On Behalf of | May 10, 2023 | Asset And Property Division

One of the most stressful challenges divorcing couples will face involves the division of their marital property. In Texas, the assets and debts that couples acquire during their marriages are community property that the courts will seek to divide in the event of a divorce.

Community property statutes often result in a 50/50 division of assets, although the outcome in a Texas case may be slightly different than that, as the statute allows the courts to consider details from the marriage that would make an even split unfair. While couples may recognize that they need to report and share whatever property and income they obtained during the marriage, there are some assets that fall into a confusing gray area in the minds of many people.

Deferred compensation is a perfect example, people may not know what to do with as-of-yet unpaid compensation in a Texas divorce. What can people expect during divorce when one spouse has an employment arrangement that includes deferred compensation?

Deferred compensation may be subject to division

It is when someone earns property, not necessarily when they gain control over it, that determines what they share when they divorce. A deferred compensation arrangement with an employer typically means that a worker must stay with the company for a specific number of years and that either their job performance or the company overall will need to meet certain standards for them to receive their deferred compensation.

Provided that they meet the requirements as outlined in their employment contract, they could potentially receive stock, bonuses or one-time payments as a form of deferred compensation for their loyalty or job performance. In a scenario involving a multi-year arrangement for deferred compensation, the courts would look at how much of the compensation someone earned during the marriage, and that balance would likely be subject to division in the divorce.

Valuing deferred compensation can be a challenge as well

Simply figuring out that a portion of the deferred compensation is subject to division isn’t the solution to the property division challenges a couple faces but rather merely the starting point for their negotiations. Couples may have to discuss how to share deferred compensation that may not be available for payment compensation that might include company stock.

The process of determining what deferred compensation is worth can have a profound impact on property division matters in a Texas divorce. Those with an employment contract that includes an agreement for deferred compensation may need to report that compensation as part of their property during the early stages of divorce and may very well need to address the deferred compensation they hope to receive in their property division negotiations as the divorce process moves forward.

Understanding what complex assets may create challenges during a Texas divorce can help professionals and their spouses develop a strategy based on their needs.