When we handle high-net-worth divorce cases in Chicago, one of the most complex financial issues we address is executive compensation. Many corporate executives and professionals receive more than just a salary; they earn performance-based bonuses, restricted stock units (RSUs), stock options, and deferred compensation. These assets often have significant value, but because they don’t always vest immediately, they have unique tax implications, may not be transferable to a spouse, etc., dividing them in a divorce becomes complicated. If you or your spouse holds executive compensation, it’s important to understand how Illinois law treats these benefits and what steps we take to ensure a fair distribution.
Illinois follows the principle of equitable distribution under the Illinois Marriage and Dissolution of Marriage Act (750 ILCS 5/503(b)). This means that marital property is divided fairly, not always equally, based on various factors, including the duration of the marriage, contributions by each spouse, and each party’s economic circumstances. Stock options, RSUs, and bonuses earned during the marriage are typically considered marital property, even if they won’t vest until after the divorce. Our job as attorneys is to identify which portions are marital, calculate their value, and determine a fair method for dividing them.
Understanding Stock Options In Divorce
Stock options give an employee the right to buy company stock at a set price after a certain date. If the options were granted and vested during the marriage, they are typically marital property. However, if the options were granted during the marriage but vest after the divorce, we must analyze whether they were earned for past or future services. Illinois courts may apply a “time rule” or “coverture fraction” to determine what constitutes an equitable allocation.
We work with financial professionals when helpful to calculate the marital share and determine the best way to divide it. In many cases, the spouse who owns the options retains them, and the other spouse is awarded a percentage of the value when the options are exercised.
Dividing Restricted Stock Units (RSUs)
RSUs are another form of equity compensation. They are granted to employees and vest over time, typically based on continued employment. Like stock options, RSUs granted during the marriage may be considered marital property, even if they have not yet vested. Most restricted stock units cannot be transferred to the non-employee spouse. A key issue is to ensure that the non-employee spouse receives his or her agreed-upon share after the divorce, once the shares vest and are distributed. We address tax implications as well, since RSUs are generally taxed as income at the time of vesting.
Bonuses And Deferred Compensation
Bonuses can be tied to past performance, future performance, or both. If a bonus was earned for work performed during the marriage, even if it’s paid after separation, it may be considered marital property under Illinois law. Similarly, deferred compensation plans, including non-qualified plans, must be reviewed to determine whether the value was earned during the marriage.
We carefully review employment contracts, compensation agreements, and tax records to identify and value these assets. When appropriate, we also use subpoenas to ensure full disclosure of compensation plans that may not be immediately visible.
Protecting Your Rights In Executive Compensation Disputes
Whether you’re the spouse receiving executive compensation or the one seeking a share of it, it’s important to work with an attorney who understands how to analyze these complex assets. We draft settlement language to cover vesting schedules, taxes, transfer restrictions, and compliance with company policies. In some cases, we may also recommend valuation experts or accountants to ensure accurate reporting.
When stock, RSUs, or bonuses represent a large portion of the marital estate, mistakes can be costly. That’s why we are diligent in identifying, valuing, and protecting our clients’ rights to executive compensation.
Executive Compensation In Illinois Divorces – Frequently Asked Questions
Are Stock Options Considered Marital Property In Illinois?
Yes, stock options earned during the marriage are typically considered marital property under 750 ILCS 5/503. If they were granted and vested during the marriage, they are usually divided like other assets. If they vest after the divorce, we analyze whether they were earned for past services or as an incentive for future work to determine how they should be treated.
How Do Illinois Courts Divide Unvested Stock Options Or RSUs?
Illinois courts will divide options and RSUs equitably, sometimes using the coverture fraction method, which divides the value based on how much of the vesting period occurred during the marriage. Even if the stock or RSUs haven’t vested, a spouse may be entitled to a percentage of the value once they do.
What If My Spouse Is Hiding Bonus Income Or Equity Awards?
We use discovery tools, such as subpoenas, depositions, and forensic analysis, to uncover hidden compensation. Employment contracts, payroll records, and tax filings often reveal bonuses, deferred income, and equity grants. Full disclosure is required in divorce proceedings, and we take legal steps to enforce that requirement if necessary.
Can My Spouse’s Company Prevent Me From Receiving A Share Of Their RSUs Or Stock Options?
While most companies restrict the transfer of stock or options, the court can still award the non-employee spouse his or her portion. In those cases, agreements or court orders will provide a process that requires the employee spouse to pay the non-employee spouse a share at the time of vesting, taking into account tax and other factors.
Will I Have To Pay Taxes On The Stock Or Bonus I Receive In The Divorce?
Stock options and RSUs are typically taxed when they vest or are exercised, not at the time of divorce. The employee spouse who receives the income is responsible for the taxes. As a result, we address the tax impact in settlement negotiations and may adjust the division of assets to reflect anticipated tax liabilities.
Is Executive Compensation Treated Differently In A Military Divorce?
While military retirement pay is governed by federal law, executive compensation is still governed by Illinois law. If one spouse serves in the military and the other receives equity awards from a civilian employer, both sets of assets may be divided. We ensure compliance with both state and federal guidelines in these cases.
Call Michael C. Craven For Help With Dividing Executive Compensation In Divorce
Whether you or your spouse receives executive compensation in the form of stock options, RSUs, or bonuses, it’s critical to understand your rights and obligations under Illinois law. These assets often make up a large portion of the marital estate and deserve careful attention.
We represent clients throughout all of Chicago, Illinois, and have the experience to help you protect your financial future. Contact our Chicago divorce attorney today by calling (312) 621-5234 to schedule a free consultation.
