Divorce involving high net-worth individuals can be a complicated matter in New York. There are a lot of income sources and assets to consider, and it is easy to make mistakes that lead to big tax bills or missed opportunities. This is especially true with executives and other employees of a company that have stock-related compensation.
How executive compensation works in divorce
There are two major types of executive compensation that can cause issues in a divorce. The first is stock options. Stock options are the right for an employee to sell stock in their company, and their value is based on the date they were awarded the option. If the stock price has gone up, they are worth more money. However, the sale of this stock is taxable as income, so it can lead to a big tax hit if it has to be sold as part of a divorce asset division. Restricted stock is similar– the difference is that they are actual holdings of stock rather than options contracts.
Importantly, both of these stock compensation choices have a vesting period. They can’t be sold or have no value until the end of their vesting period. This can be a problem in a divorce because they can’t be sold, but still count as an asset. This can lead to being forced to forfeit their value completely, or to having to take a major tax hit. The property division issues are complex and need careful planning to resolve.
A high net-worth divorce comes with a whole set of unique concerns. They need to be addressed with care and attention to ensure they don’t lead to a waste of assets.