Understanding different types of income is an essential part of dividing marital property in a divorce. Failure to do so can mean leaving money on the table. With this in mind, it is wise for a husband or wife to understand how their spouse is compensated. This helps their lawyer determine if the pay is marital property or separate property.
Different jobs have different payment methods. For example, it may be a stockbroker who often gets a sizeable year-end bonus, a salesperson who works on commission but sees their major accounts renewed at a specific time, or a spouse who is in line for pay raise that comes with a new position.
Types of compensation to consider
Alimony and child support are based on the total income of the spouses. The trick is to recognize and account for all sources of income, which may include:
- Prepaid bonus: This is a bonus that paid before filing for divorce, but a portion of that amount may need to pay back if they leave the job or break their contract. This can be an argument for designating the bonus as separate property that is not subject to division.
- Bonus paid during divorce for previous work: This is considered marital property, and whatever amount is shared with the other spouse should be accounted for in the total compensation.
- Bonus for prior work paid after divorce: This should be considered at least partially marital property, regardless of whether they received the reward after the final decree.
- Stock options: Those owned during the marriage are marital property, but those held before the wedding may or may not be separate property. Issues include when it was purchased and when it was fully vested.
- Commissions: The circumstances of the commission will likely need to be examined by the two sides or a judge to determine if the pay is marital property.
Being strategic and pragmatic are keys to success
Both sides need to remember that fighting over whether a bonus is marital or separate property can add unnecessary expense to the divorce. However, both sides have a right to a fair and equitable settlement. This may include litigation and cost that comes with it, or the two sides can negotiate an agreement outside of court that works for them.