The physical property and financial resources that spouses accumulate during marriage can complicate divorce proceedings. Trying to fairly or equitably divide resources can be quite difficult when spouses have enjoyed a comfortable standard of living throughout the marriage and have a relatively large marital estate.
Certain types of resources are more likely than others to lead to conflict. Spouses frequently disagree about possession of the home where they lived together. Conflict related to business ownership when there is a small business or professional practice in the marital estate is also quite common.
Successful professionals employed by outside companies may also find that their employment compensation and benefits become a sticking point. Both pension benefits and deferred compensation can prove challenging for spouses to address during the financial discussions necessitated by divorce.
What do spouses need to know about pensions and deferred compensation as they prepare for property division proceedings?
Resources may be partially marital
Not all property falls cleanly into the categories of marital and non-marital property. Some resources are partially marital property. Both pensions and deferred compensation can be partially marital and partially separate.
In a scenario where a successful professional has accumulated pension benefits during the marriage, they could well have begun accruing pension benefits before they got married and might continue doing so after the divorce. Spouses may need to look carefully at the accrued pension benefits to determine what portion is marital and what is non-marital.
A similar process is often necessary with deferred compensation. Professionals may need to retain their positions for years and meet certain performance metrics to be eligible for stock options, retention bonuses and other forms of deferred compensation.
Spouses may need to determine how much of those resources are marital and how much may be separate property. Valuing deferred compensation can also be a challenge, especially in cases where the deferred compensation includes stock options for a company that has not yet had its IPO.
Splitting work benefits can be difficult
The lack of liquidity for pension benefits and deferred compensation can become a stumbling block during property division proceedings. People may not be able to actually access, liquidate or split deferred compensation or a pension. In such cases, determining what these benefits are actually worth and factoring that into the division of other marital assets and debts may be necessary.
Those facing complex, high-asset divorces may need help understanding and making use of their legal rights. Applying equitable distribution rules to pensions and deferred compensation often requires the support of a legal professional, and that’s okay.
