A salary is easy to divide and easy to count. Executive compensation is neither. Unvested RSUs, options with staggered vesting, a bonus paid next February for this year's work, and deferred compensation that pays out years after the decree all raise the same two questions: is it property, is it income, and can it be both?
Equity Awards Can Be Marital Even Before They Vest
Colorado's approach to stock options was set by the Colorado Supreme Court in In re Marriage of Miller, and courts apply the same reasoning to restricted stock units and similar awards. An award granted during the marriage is marital property to the extent it compensates for work already performed during the marriage. An award granted to induce future performance is treated differently: the portion tied to work after the marriage ends may be the employee's separate property.
Because most grants do both — reward past work and retain the employee going forward — courts apportion them, often with a time-based fraction that compares the months of marriage during the earning period to the total earning period. The characterization of each grant depends on the plan documents and the employer's stated purpose, which is why the grant agreements and plan terms are among the first documents counsel will request.
Bonuses Follow the Work, Not the Payment Date
A bonus paid after the divorce is filed is not automatically separate. If it compensates work performed during the marriage, the marital portion is divisible property. The same logic applies to commissions and profit-sharing. The relevant question is always when the compensation was earned.
Deferred Compensation and Nonqualified Plans
Nonqualified deferred compensation, supplemental executive retirement plans, and similar arrangements are property to the extent they accrued during the marriage, even though payment may be years away and contingent on future events. These plans generally cannot be divided by a qualified domestic relations order the way a 401(k) can, so the decree must address how and when the non-employee spouse will be paid, who bears the tax, and what happens if the plan forfeits.
The Subtle Fight Is Double Counting
Here is where sophisticated cases are won. Colorado's definition of income for maintenance and child support is broad and includes bonuses, exercised options, and similar compensation. That creates the risk that an award divided as property is then counted again as income when the support numbers are set. Courts are alert to the problem, but there is no mechanical rule, and the outcome depends on how the property division and the support analysis are constructed together. Counsel who build the two side by side — deciding which awards are divided, which are treated as future income, and documenting why — avoid both double counting and the opposite error of missing compensation entirely.
Valuation and Tax
Unvested equity must be valued for division, and the valuation must account for the risk of forfeiture and the tax due on vesting or exercise. An RSU worth $100 on paper is worth materially less to the spouse who will pay ordinary income tax when it vests. Deferred comp carries similar tax drag. A division that ignores these adjustments is not equal, whatever the spreadsheet says.
What Executives Should Gather Now
- Every grant agreement and the governing plan documents
- Vesting schedules and current statements for all equity awards
- Bonus plan terms and the history of payments
- Deferred compensation plan documents and account statements
- Employment agreements, including change-of-control and severance provisions
Talk to a Denver Divorce Attorney Who Handles Complex Estates
Aaron Herzberg is a divorce attorney in Greenwood Village, Colorado, serving Denver and the Front Range, with more than 30 years of trial experience and a practice focused on high-net-worth and financially complex divorce. If your compensation has more than two line items, your divorce needs more than a two-line analysis.
Request a Consultation or call 303-507-5529
This publication is attorney advertising. It is educational information only, it is not legal advice, and it may not reflect the most current legal developments. Reading it does not create an attorney-client relationship. No attorney-client relationship exists until a conflicts check is complete and both parties have signed a written engagement agreement.
Read the full guides on DenverDivorce.com: Executive Compensation in Divorce and Stock Options & RSUs in Divorce.
