Divorce can be an intricate matter, particularly when it involves the division of assets and determining how to split property. One aspect that can complicate matters during a divorce is the question of what to do about deferred compensation. Deferred compensation refers to the money that an employee has earned but has not received in their paycheck. This can include various forms such as stock options, bonuses, or retirement plans. In the state of Minnesota, dealing with deferred compensation in divorces can be particularly complex. Here, we will provide you with all the essential information you need to know.
Understanding Deferred Compensation
To better grasp Minnesota’s approach to deferred compensation, it is helpful to have a clear understanding of what it entails. Deferred compensation is the money that an employee has earned but has not yet received as part of their take-home pay. There are several types of deferred compensation, including:
- Stock options
- Bonuses
- Retirement plans, such as 401(k)s or pensions
- Deferred compensation plans
Deferred compensation is typically included in an individual’s total compensation package and is often used as an incentive for employees to stay with a company for a specific period of time.
Minnesota’s Approach to Deferred Compensation in Divorce Cases
Minnesota follows the principle of "equitable distribution" when dividing assets in divorce cases. This means that any property acquired during the marriage is generally subject to division, including deferred compensation. However, Minnesota courts take various factors into account to determine how to divide property fairly. Some of these factors include:
- The duration of the marriage
- Each spouse’s financial resources
- Each spouse’s earning capacity
- Each spouse’s contributions to the marriage
Consequently, while deferred compensation is likely to be considered when dividing assets in a divorce, the specific treatment of deferred compensation will depend on the unique circumstances of each case.
Evaluation of Stock Options
Stock options represent one type of deferred compensation. They grant employees the right to purchase stock at a predetermined price at a future date. The value of stock options can fluctuate based on the price of the stock, which can complicate the process of valuing them during a divorce.
In Minnesota, stock options are typically viewed as property rather than income. This means that they can be divided between spouses during a divorce. However, accurately valuing stock options can be a complex task. It is crucial to seek guidance from a skilled divorce attorney and financial advisor to determine the value of stock options and how to fairly distribute them in a divorce.
Handling Bonuses in Divorce Cases
Another form of deferred compensation is bonuses. Bonuses are often awarded to employees based on their performance and can constitute a significant portion of their compensation package. In a divorce, bonuses may be treated as income, making them subject to division based on each spouse’s respective income levels.
However, if a bonus is tied to future performance, it may be considered as property rather than income. This means that the bonus would be divided based on each spouse’s contributions to the marriage.
Division of Retirement Plans
Retirement plans, such as 401(k)s or pensions, are yet another form of deferred compensation. These plans can be divided using a Qualified Domestic Relations Order (QDRO) during a divorce. A QDRO is a legal document that allows retirement plan assets to be fairly divided between spouses without incurring penalties or taxes.
In Minnesota, retirement plans accrued during the marriage are generally viewed as marital property and are subject to division in a divorce. However, the court may take into account each spouse’s contributions to the plan and divide the assets accordingly.
A Guiding Conclusion
Divorce is a challenging and emotionally charged process. It is crucial to collaborate with experienced professionals such as divorce attorneys and financial advisors to navigate the complexities of dividing assets, including deferred compensation. In Minnesota, deferred compensation is typically considered marital property and may be subject to division in a divorce. However, the specific treatment of deferred compensation will depend on various factors, including the type of compensation involved and the financial situation of each spouse. By seeking proper guidance, you can ensure a logical and reasonable approach to the division of deferred compensation in your divorce proceedings.