Will Your Bonus or Equity Compensation Affect Spousal Support in a High-Asset Split?

Think your bonus or stock options are off the table in a divorce? In New Jersey, performance-based pay can directly affect spousal support, especially in high-asset cases.

For high earners in New Jersey, few divorce issues spark more conflict than how to handle variable income. Bonuses, stock options, RSUs, and deferred compensation can make up a significant portion of executive pay, but when it comes to calculating spousal support, these irregular earnings raise tough legal and financial questions.

These forms of executive compensation often make up a substantial portion of a professional’s earnings, but they don’t fit neatly into a W-2 box or a monthly paycheck. So how do New Jersey courts treat these irregular, performance-based perks when calculating alimony? 

Whether you’re the primary earner or the supported spouse, understanding how the courts evaluate bonus income and equity in a high-asset divorce is important to protecting your financial future. Let’s look at how New Jersey courts calculate alimony when non-salary compensation is on the table, and what legal and financial strategies can help you navigate it.

Equitable Distribution and Marital vs. Separate Income 

New Jersey uses an equitable distribution model for dividing marital property, prioritizing fairness over an automatic 50/50 split. Assets and income earned during the marriage, regardless of whose name is on them, generally qualify as marital property. Any income before marriage and after the date of separation is considered separate income. 

What Courts Consider When Dividing Assets

Under N.J.S.A. 2A:34-23, courts examine many factors to determine a fair distribution, including:

• Length of the marriage.
• The standard of living established during the marriage.
• Contributions by each spouse, financial and non-financial.
• Income and earning capacity of both parties.

Variable income, such as bonuses, stock options, and deferred compensation, adds complexity to this process. Courts look closely at the timing and purpose of these earnings to determine how they should be divided between the spouses.

How Courts Treat Each Type of Executive Compensation 

New Jersey courts consider several types of executive compensation when evaluating marital income and assets. These forms of payment often sit somewhere in the middle of earned and future income, necessitating a nuanced analysis of their implications.

Performance-Based Bonuses

Bonuses earned during the marriage, even if paid after separation, are typically considered marital property. Courts usually examine employment agreements to determine whether the bonus compensates for prior work performed during the marriage or for future efforts.

Let’s take, for example, a spouse who earned a $50,000 annual performance bonus in their corporate role during the year they separated. Even if the bonus were paid after the separation, it would likely be considered part of the marital property division.

These bonuses can also impact alimony. Judges may average bonus income over several years to calculate a stable alimony figure if these earnings recur annually.

Stock Options

Stock options are often included in divorce settlements, but their treatment depends heavily on vesting schedules. New Jersey applies a time-rule valuation to determine the marital portion of stock options. This formula calculates the percentage of options earned during the marriage versus after separation.

An example might be if an executive was granted stock options vesting over five years, and the couple was married for three of those years; in this case, 60% of those options may be considered a marital asset.

Unvested options, though technically separate property, can lead to disputes. Courts may use their discretion to divide a portion of these assets equitably, taking into account their speculative nature.

Restricted Stock Units (RSUs)

Similar to stock options, RSUs can be allocated during a marriage but may not vest for years later. Courts often apply the time-rule method here as well, categorizing only the marital portion of RSUs for division.

It’s important to note that RSUs granted as an incentive for future work following the marriage’s dissolution are generally excluded from marital property. They may still influence alimony if they impact the earning spouse’s future income.

Deferred Compensation Plans

Deferred compensation plans, including non-qualified options or pension-like accounts, often serve dual purposes as both marital property and a source of income. Courts consider when the plan was funded and what portion covers efforts made during the marriage.

Payments made from these plans after divorce may also be considered income for alimony purposes, leading to critical discussions about the potential for double-dipping. This is when the same asset is divided into property and later counted as income.

Alimony Calculation: How Variable Income Fits In

Calculating alimony becomes more complex when variable income is involved. Alimony is based on financial need, the paying spouse’s ability to pay, and the standard of living established during the marriage. 

Averaging for Income Predictability

To manage fluctuations in variable income, such as bonuses and stock options, New Jersey courts frequently use a multi-year average. For example, if a spouse earns between $200,000 and $400,000 annually based on performance incentives, the court may average the income over a three-to-five year period to ensure consistent alimony payments.

Supplemental Support Provisions

Courts may also incorporate supplemental support provisions, requiring additional payments to the receiving spouse when bonuses, RSUs, or other incentives vest or are paid.

Example of Lifestyle Preservation

Variable income is critical in maintaining the supported spouse’s pre-divorce lifestyle. While it adds instability to settlements, judges aim to ensure payments are substantial enough to avoid disruptions.

Typical Settlement Structures in High‑Asset Cases

There are various ways to achieve an equitable settlement in a high-end divorce. Here are some of the most common strategies that can be employed when attempting to reach a settlement.

Buy‑Out vs. Deferred Distribution

A settlement structure may involve either a buyout, where one spouse receives a lump sum or compensation in exchange for relinquishing rights to stock options or bonuses. There’s also deferred distribution, aligning with future vesting or payout schedules.

An example might be that Spouse A retains full ownership of an RSU account, while compensating Spouse B with tangible assets, such as cash or real estate.

Buyouts simplify the agreement but require substantial liquidity, which isn’t always feasible.

Fixed Alimony + Bonus Add‑On

To limit financial unpredictability, negotiators can propose bonus caps for spousal and child support. These caps set maximum amounts the recipient can collect from variable income, ensuring predictability for both parties.

Tax Efficiency and Avoiding Double Taxation

Settlements should account for tax implications. Splitting deferred compensation payouts as ordinary income could result in increased taxation, thereby reducing the shared value.

Courts strive to avoid double-dipping, where an asset, such as an unvested stock option, is divided in property division but later included in income calculations for alimony purposes.

Collaborating with financial professionals, such as forensic accountants or Certified Divorce Financial Analysts (CDFAs), is often necessary for structuring settlements that minimize tax liabilities.

Protection and Strategy Options

Always work with an experienced family law attorney. Not only will they protect you and your interests before and during a divorce, but they’ll also ensure that your interests are protected. They’ll work collaboratively with you to create strategies to establish an equitable settlement. Here are a few ways to achieve that. 

Prenuptial / Postnuptial Agreements: For executives with significant compensation packages, prenuptial agreements can protect future bonuses, RSUs, and stock options by explicitly excluding them from marital property. These agreements streamline divorce settlements and reduce costly disputes.

Financial Forensics and Documentation: To ensure appropriate asset division, both parties must provide exhaustive documentation of all compensation forms, including grant dates, vesting schedules, and incentive details. Financial forensics may be required if there is suspicion of hidden assets.

Negotiation Tactics: Attorneys can help you negotiate great settlements. One way to quickly settle a divorce is to offer more up front instead of having open-ended bonus obligations. 

Valuation: Collaborating with valuation experts ensures accurate assessments of complex compensation, preventing undervaluation or overvaluation in negotiations.

High-Asset Divorces Can Have Equitable Settlements With the Right Attorney

Variable income can complicate divorce proceedings, but a clear understanding of how New Jersey courts handle bonuses, stock options, and deferred compensation can help ease the process. By negotiating thoughtfully and leveraging expert advice, both parties can reach equitable outcomes that reflect their financial realities and long-term stability.

Contact the Compassionate Family Law Attorneys at Smedley Law Group, P.C. in Woodbury, NJ 

If you’re facing divorce, you’ll also most likely be dealing with another matter like child custody, child support, or division of assets, so you’ll need to speak with a qualified attorney. The New Jersey family law attorneys at Smedley Law Group, P.C. represent clients throughout the state, including West Deptford, Woodbury Heights, Runnemede, and Westville. 

We understand how challenging this time can be for you, so we’ll fight hard to protect your interests and those of your loved ones throughout the legal process. Call us at (856) 251-0800 or fill out our confidential contact form to schedule a consultation. Our office is conveniently located at 750 Cooper Street, Woodbury, NJ 08096.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.