Division of property in a divorce can be a contentious issue for many reasons. One reason is that it is not always obvious what property is subject to division. In Ohio, if couples do not reach a mutually-agreeable property settlement, the court must divide their property according to principles of equitable distribution. “Equitable” sounds like “equal,” but an equitable distribution is not necessarily exactly 50/50. Instead, “equitable” refers to a division of property that is fair under all of the circumstances; in practice, it is often close to being equal.
There are many types of marital assets; some are obvious, such as joint bank accounts, the marital home, vehicles, and other tangible property. There are other types of marital property that we refer to as “hidden assets” because they can be valuable, but easily overlooked.
Of course, to know whether a distribution of property is equitable, it’s important to understand what property needs to be divided. Property that is “marital,” and therefore subject to division, is property that either spouse acquired during the marriage, with very limited exceptions. Separate property, such as property one spouse owns before the marriage or inherits during the marriage and keeps apart from marital assets, is not usually divided in divorce.
Some assets are clearly marital or clearly separate. But other times, it is not as straightforward. Deferred compensation may appear to be separate property, when in fact, it should be considered marital. Let’s discuss this style of compensation in an Ohio divorce.
Ohio Compensation Issues
What is deferred compensation? In the simplest terms, it is compensation earned at one time and paid at a later time. In some cases, compensation may be deferred in a deliberate attempt by one spouse to exclude the payment from marital assets. That could take place when a spouse who earns a performance bonus of several thousand dollars but is able to get the company to avoid paying out the bonus for six months, until after their divorce is final.
More often, though, this is not deferred with any nefarious purpose in mind. Many types of compensation are deferred either for tax benefits or as an incentive for an employee to join or stay with a company. Retirement plans such as 401(k) and 403(b) plans are common examples of deferred compensation. Senior executives or key talent may be offered stock options or other financial inducements (often referred to as “golden handcuffs”) that they will lose if they leave the company before a certain time period expires. Valuing the marital assets contained within these stock units can be difficult and may need an expert valuation.
In many cases, deferred compensation represents a significant amount of money, perhaps hundreds of thousands of dollars. If it is earned during the marriage, but not payable until afterward, can it be considered marital property?
Deferred Compensation and Ohio Property Division
No matter how long after a divorce this kind of deferred compensation is to be paid, the rule is that if it was earned during the marriage, it is marital property subject to division. However, one exception to that rule is if one spouse waived their right to deferred compensation in a valid prenuptial agreement.
It is often a challenge to determine the value of compensation in this manner, especially when there is a pension earned during the marriage (defined benefit plans), which is a promise on the employer’s part to make periodic (usually monthly) payments in the future. An expert is needed to conduct an evaluation to place a present value on a future stream of income, and then devise a method such as a QDRO to divide the income when it begins to be paid based on the marital portion of that income stream at retirement.
This difficulty is also present for defined contribution plans (such as 401k, 403b, and 457 Plans) because retirement accounts often appreciate in value over time. Some defined contribution accounts are established when a person is single, and contributions continue to be made from earnings during the marriage. That makes a portion of the account separate, and a portion marital. The help of a financial professional, an expert witness, may be needed to determine what percentage of the account is marital property, and determine how the separate property part of the asset grew and declined during the marriage.
Do You Need a Divorce Attorney if You Have Deferred Compensation?
If deferred compensation (either yours or your spouse’s) is an issue, you should have a divorce attorney help you to understand your rights, and to advocate for you. This is often an issue in high net worth divorces, which are usually complex and benefit from an attorney’s insight. See our article on high asset divorces as well.
If you believe your spouse is deliberately deferring compensation in order to keep you from having access to marital assets, you definitely need an attorney to stand up for your rights.
The bottom line is that it is always a good idea to have an attorney negotiate, or at least review, your division of property in an Ohio divorce. An experienced family law attorney knows the right questions to ask to discover whether there is marital property to which you may be entitled, including deferred compensation.
To learn more about deferred compensation in divorce and related marital property issues, contact Melissa Graham-Hurd & Associates to schedule a consultation.