Tag Archive for: high-asset divorce

The Impact of Divorce on Executive Compensation Packages and Stock Options

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When you’re navigating a high net worth divorce, you’ll face challenges and complex issues that rarely arise in other divorces. In these splits, the division of assets and the topic of spousal support often lead to the most bitter disputes between the divorcing spouses. If one spouse is a high-powered executive, navigating the division of assets and alimony requires even more experience and knowledge. The multiple types of compensation received by executives and the schedule on which they’re paid out can make this step of the process drawn-out and stressful.

It’s crucial to work with an attorney with experience in this type of divorce. Whether you are the executive in this equation or the lower-earning spouse, it’s important to fight for fair and equitable treatment. Call Pence Law Firm at 304-407-7852 to set up a consultation with our team now.

How Executive Compensation is Structured

Executive compensation may be structured in several different ways, depending on the company involved and what the executive in question negotiates for. Elements commonly found in an executive compensation package include:

  • Base salary: Executives do earn a base salary, but in comparison to the rest of what they bring in, it is a relatively small chunk of their income.
  • RSUs and stock options: Restricted stock units, known as RSUs, are shares of company stock given to executives with significant restrictions. Stock options allow an employee or executive to buy stocks at a predetermined price.
  • Bonuses: Bonuses, which are generally dependent on changes made by the executive and the company’s performance as a whole, can be a sizable part of an executive’s income each year.
  • Deferred compensation: Deferred compensation is generally paid out at retirement. It allows the executive to hold off on receiving part of their income until they retire, at which point they will have to pay taxes on it.

It’s clear that these types of income can lead to a drawn out division of assets. It’s easy to determine spousal support, child support, and an equitable division of assets when both parties earn a set annual salary or hourly wage. It’s much harder when their income may change by millions of dollars each year or hinge on the performance of the stock market.

Calculating Executive Compensation

One of the main challenges in this type of divorce is figuring out how much should be paid in child support and spousal support. Again, when there’s an annual salary or hourly wage being paid, it’s just a matter of plugging the numbers in and going from there. But how do you determine what’s fair when the high-earning spouse’s income is split across different assets, stock options that may not vest for years to come, and bonuses that are dependent on future performance?

Your attorney may look at what the executive has actually received in income throughout their time with their company. If they have held that position for a number of years, it’s easier to calculate the average income even with varying bonuses and stock options. The attorneys may also look at the standard of living that both spouses have come to expect, which gives them a guideline of how much the lower-earning or non-working spouse should receive.

For child support, it’s important also to think about the lifestyle that the child is accustomed to. It’s common for children of executives to be enrolled in private school, participate in costly extracurricular activities, and have other expensive needs. The court will likely want the child to maintain that standard of living even after a divorce.

Valuing and Dividing Stock Options

This is a huge hurdle to clear in a high asset divorce. Stock options are often a major part of an executive compensation package, but their terms and value may differ quite a bit. The vesting schedule may come into play, especially if the stocks cannot be purchased or accessed for several years. It’s also important to consider the tax implications of exercising stock options and determine how that may affect their division. When it comes to the valuation of stock options, the Black-Scholes model may be used or your attorney may recommend another option.

Choose Pence Law Firm for the Legal Support You Deserve

As you start to look ahead to life after divorce, make sure you have the financial support you need for a fresh start. Find out how Pence Law Firm can fight for the assets and support you deserve. Call us at 304-407-7852 or get in touch online now.

Mitigating the Risks of Business Depreciation During High Asset Divorces

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When a couple owns a business together, protecting that business during a divorce can be a top priority. It’s not uncommon for businesses to be negatively affected during a divorce. Stockholders worry about the future of the company, are uncertain about whether a massive stock transfer will affect the company’s value, and wonder if consumers will follow the company on its new path. A business’s value tanking during a divorce can make it incredibly hard to divide it fairly and leave both parties without the assets they need to move forward.

As you navigate divorce in Charleston, it’s important to work with a legal team you trust. Call Pence Law Firm at 304-345-7250 to set up a time to talk to our experienced team.

Valuation Strategies for Business Assets

It’s important to get a fair valuation of a business as part of your divorce. This ensures that the business is divided equitably and helps you verify that your efforts to protect the business’s value are successful. There are several different strategies you may consider.

Some couples opt to go for the market value of the business. This involves looking at what the business would sell for on the open market. This is in comparison to the book value method, which is what shareholders would get if the company’s assets were liquidated and debts paid off.

Another option that may make sense is income-based valuation. Income-based valuation can be fairly complex, as it looks at the company’s earnings and applies factors like amortization, depreciation, and taxes.

Regardless of which option seems to make the most sense for your needs, it’s important to work with a financial professional.

Protecting Your Business and its Assets

There are different ways that individuals can protect their business assets in the event of a divorce. Unfortunately, most of these methods rely on premarital or at least pre-divorce planning. Once you’ve reached the point of divorce, your options have already decreased significantly.

Prenuptial and postnuptial agreements are obviously useful in this situation. If one party owned the company prior to the marriage, a prenup or postnup may ensure that the business stays with them after a divorce.

Buy-sell agreements are another way to plan for divorce before a split actually happens. They lay the groundwork for how the business will be handled if the marriage ends. This takes a lot of guesswork out of the equation; should the couple decide to divorce, the terms of the buy-sell agreement simply go into effect.

If you did not make any sort of legal agreement before deciding on divorce, protecting your business assets may be more complicated. In these situations, it’s important to work with a high-net-worth in Charleston. They understand the factors at play and can provide different solutions that allow you to keep the business safe and growing.

Continuity Planning During Divorce

While navigating your divorce, you’ll also need to engage in continuity planning that secures the future of the business. Clear protocols regarding day-to-day operations ensure that important tasks do not fall by the wayside as the owners handle their personal issues. A contingency plan may name people to take on the owners’ daily tasks when personal issues arise.

You can also plan for the future success of the business by carefully handling how the divorce is announced and handled. A couple should decide when and how to announce their divorce, rather than letting the media get a hold of the news and control the narrative. This gives them the chance to present a united front, calm shareholders’ worries, and clarify the future direction of the company.

In the time between deciding to divorce and announcing the divorce, the couple can come up with their continuity plan. It can be difficult to work together under these circumstances, but remember that you both rely on the financial stability provided by the business—handling these matters together is best for everyone involved.

Facing Divorce? Choose the Pence Law Firm for Your Family Law Needs

As you prepare for your Charleston divorce, choose a legal team that you can rely on through the entire process. Call the Pence Law Firm at 304-345-7250 or fill out our online contact form to connect with a team member.

Dealing with The Tax Consequences of a High Asset Divorce

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A high net-worth divorce requires a sound legal and financial strategy in order to protect your best interests. The decisions you make at the time of divorce will majorly impact your finances going forward. High-asset divorces come with significant tax implications because of the large financial stakes involved.

The most prudent way to deal with this situation is to hire an experienced divorce attorney in West Virginia that has a thorough understanding of the potential financial and tax implications. The right attorney can provide you with the right advice at every step.

Asset Division in a High Net Worth Divorce in West Virginia

In West Virginia, marital assets are divided based on the doctrine of equitable distribution. This means that assets are not necessarily divided 50 – 50. Instead, the court will divide them in a fair and equitable manner. Several factors come into play that may leave one spouse with a larger share of the property. These are:

  • Contributions made by both spouses towards upkeep and acquisition of marital property.
  • Earning capacity of the spouses.
  • Liabilities and debts of the spouses.
  • Length of marriage.
  • Factors leading to the divorce.

Marital property essentially refers to those that are acquired after marriage. Property acquired before marriage may be termed marital property if the contributions made by either spouse led to a significant increase in its value.

Different types of marital property can be divided in the event of a high net worth divorce, such as business assets, residential and investment properties, vacation homes, bank accounts, overseas accounts and investments, stock market investments, retirement accounts, automobiles, jewelry and antiques, life insurance policies, and trusts among others.

Typical Tax Consequences During a High Asset Divorce in West Virginia

Change of Tax Filing Status

Divorce is likely to change your filing status since you won’t be allowed to file joint returns with your spouse. You need to adjust your withholdings after understanding the implications of the status change as the divorce proceedings move forward.

Possible Capital Gains Taxes on Liquidation of Valuable Assets

Capital gains tax is a tax levied on the profit from the investment or sale of a property. Divorcing couples with several high-value assets and property may decide to liquidate a few of them. You need to be careful while doing this. Asset liquidation may trigger capital gains tax liability. This means you could be taxed on the property acquired through the divorce.

It’s possible that your property is worth more now than what you had initially paid for. It is recommended to transfer the property to the other spouse. This way it will be taxed only when the spouse decides to sell it down the road. Capital gains taxes are calculated on the value increase in the property. These taxes don’t take into account the property’s value during the transfer.

Exemptions Related to Child Tax Credits

You and your spouse need to decide who gets child tax credits and any related exemptions. Only one taxpayer is allowed to claim child tax credits in a specific tax year as per the IRS. You may be able to increase certain breaks by claiming a dependent child. This includes earned income credits, dependent tax credits, or a more favorable filing status.

It can be difficult to determine which spouse gets to claim the children if a couple gets legally separated or divorced. In general, the parent with the primary physical custody gets to claim the child as a dependent. An experienced divorce attorney will usually recommend allowing the higher-income parent to claim the child as a dependent to obtain more tax savings.

Division of Retirement Benefits and Accounts

Tax-advantaged savings accounts, such as IRA and 401K are also divided during a divorce. You may get hit with an early withdrawal penalty if you don’t take the right steps to protect your savings. It’s fundamental to have an accomplished and committed divorce attorney look at your finances if you don’t want to incur penalties while sharing the retirement holdings.

Choose a Results-Driven High Asset Divorce Attorney in West Virginia

The skilled high-net-worth divorce attorneys at the law office of Pence Law Firm can ensure that you have fully considered the tax consequences of your decisions made during the divorce. With our extensive experience in handling complicated divorce and financial issues, we can help you arrive at the best possible resolution that not only protects your financial and tax interests but also allows you to take care of your family’s needs.

To set up your free and confidential consultation, call 304-345-7250 or reach us online.