When deferred pay is marital
Deferred compensation divorce disputes usually start with timing: pay earned during the marriage is generally marital even if it arrives after the divorce, while pay for work after the divorce action began is usually separate. The difficulty is that deferred awards often mix the two, such as a bonus earned partly before and partly after filing, or an award that requires continued employment to vest. Courts look at the plan terms and the purpose of each award to allocate it. Retention awards that look forward rather than backward are often among the hardest to classify. The same compensation may also count as income for support, so care is needed to avoid counting it twice.
Plan rules and records
Ask for the plan documents, deferral elections, account statements, and any employment agreement describing vesting, forfeiture, and payout timing. Nonqualified deferred compensation plans are not divided with a QDRO in the usual way and are often unsecured promises subject to the employer's creditors, so the other spouse's share may be handled by offset, by payment as amounts are received, or by a domestic relations order if the plan accepts one. Governmental deferred compensation plans often can be divided by a domestic relations order under their own procedures. Tax timing matters too, since deferred compensation is usually taxed when it is paid.
Structuring the division
Our first step is to identify each type of deferred compensation and when it was earned. We discuss whether an offset, a share of future payments, or another arrangement suits the situation, and how to secure payment if the employee spouse changes jobs or the employer's finances weaken. If the plan lets the employee change payout elections, the agreement can address who controls those choices and whether the other spouse gets notice. We also review taxes and reporting so each side bears an appropriate share. Clear language now prevents disputes when the payments finally arrive.
