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High asset divorces and executive compensation

On Behalf of | Feb 7, 2022 | High-Asset Divorce

Going through a divorce is never easy. However, high asset divorces can be especially difficult. If your soon-to-be ex-spouse was a high-earning Texas company executive, there are likely to be a multitude of financial assets to deal with.

Executive compensation

Executive compensation is used by a lot of companies to reward and incentivize high-ranking employees. Executives may receive a number of different types of stock options at different periods of their career. These stock options may vest at different times, which can make them a huge headache during property division negotiations.

Vesting periods

Company stock options granted to executives typically have vesting periods. That means that executives are given the opportunity to purchase stocks in the future at the price that they are worth today.

An example of this is when Amazon employees were granted stock options in 2016 that vested in five years. The stocks were valued at $600 in 2016 and $3,000 when they vested, so Amazon employees who exercised them made $2,400 per share covered by the option.

Some executives are awarded restricted stock options that are a little more complicated. Restricted stock options have both a vesting period and a requirement that the employee remains with the company. Sometimes referred to as “golden handcuffs,” restricted stocks are forfeited if the employee quits or gets fired. This can be a difficult issue during a high asset divorce, since restricted stocks could potentially be forfeited in the future.

Tax consequences

Tax consequences can be a huge drawback of executive compensation and company stock options. Stock options that have a vesting period are taxed like regular income when they vest. That means that although employees take advantage of the lower purchase price, they can’t take advantage of the lower tax rate. During property division negotiations, it’s important to consider that assets like company stocks could potentially be taxed at up to 40%.