Could deferred compensation be at risk in a divorce?

 Posted on July 16, 2022 in Divorce

One of the earliest steps people take in a divorce is creating an inventory of their property and obtaining copies of their most important financial records. Both you and your ex will need to provide each other and the courts with information about your property.

Some belongings will be separate property that you don't have to share, but much of your income and many of your assets will be subject to division in an Illinois divorce. There may be certain assets that are harder to categorize than others, especially for high-asset couples facing a complex divorce.

If you are an executive or another highly compensated professional, you may have deferred compensation included in your employment contract. Will that deferred compensation play a role in property division proceeding in your Illinois divorce?

When you earn the income is what matters

For the purpose of the equitable distribution of marital property, it is when you learn or acquire income or assets that determines whether those assets belong to you and your spouse or you separately. A portion of your deferred compensation could be vulnerable to claims by your spouse, even if you won't receive that money for several years.

If you will qualify for deferred compensation or stock options three years into your work contract and you divorce after the second year of employment, then two-thirds of your deferred compensation may be at risk in property division proceedings. One of the big challenges if you have to report and divide deferred compensation will be putting a price on it, especially if you will receive stock or other compensation that does not have a fixed financial value.

Learning more about the property division rules for Illinois divorces ensures compliance and allows you to better negotiate with your ex.