Divorce And Complex Employee Benefits – By John P. Paone, Jr., Esq. and Megan S. Murray, Esq.

Equitable distribution in divorce is the process of fairly dividing all assets acquired by both parties during a marriage or civil union.  In most cases, these assets are easy to define and value.  For example, a home can be valued by obtaining a real estate appraisal.  Basic bank and brokerage accounts and retirement plans, such as 401(k)s and IRAs can be valued by reviewing current statements for the account in question.

Certain assets are not so easy to identify and value.  Parties going through a divorce should be aware that today many employers offer sophisticated and complex employment benefits as part of a compensation package to employees.  Very often, these employment benefits do not show up on a W-2 form or an income tax return, and without appropriate inquiry may become an undisclosed or hidden asset.

Some examples of benefits which may be difficult to find and value include:  restricted stock units; stock options; contingent cash awards; accumulated paid sick leave; employee forgivable loans; performance based commissions and bonuses; deferred compensation; severance arrangements (including change in control protection, golden handcuffs, confidentiality and non-competition agreements); fringe benefits (including housing assistance, relocation benefits, meals and lodging, employer-provided automobiles, and expense accounts); split-dollar life insurance arrangements; and other benefits.

Litigants should understand that after employment benefits are clearly defined, the inquiry does not end there.  Often times, the assistance of an accountant or actuary may be necessary to evaluate the benefits involved.  Thereafter, the attorney will need to determine whether the benefit in question is an asset to be divided between the parties, or an income stream relevant to a potential alimony or child support obligation.  If the employment benefit is deemed an asset, the question arises whether it should be equally divided or whether there should be an unequal division, taking into account the condition for receipt of the benefit.  For example, if the employee spouse must remain employed for a period after the divorce to receive the benefit, that asset may be shared with the other spouse differently than a benefit earned during the marriage with no contingencies.  Income tax implications regarding these benefits must also be considered in the distribution of such benefits.

The point is what may sometimes appear to be a straightforward divorce case involving a W-2 employee, may not be straightforward at all.  Individuals in cases where either party has a sophisticated employment benefit package should seek the advice of a divorce attorney who has experience with such benefits and will know what to look for.  A lack of understanding or inquiry into the extent of these employment benefits could result in a windfall to one party to the detriment of the other.