Strong Legal Protection For A Shifting Family Foundation

Protecting what you’ve worked to build for the next chapter of life.

Photo of Professionals at Langlois Family Law, APC

Addressing retention and performance bonuses during divorce

On Behalf of | Jun 20, 2024 | property division

Divorce often becomes much more challenging and stressful as marital estates increase in size. Those who have achieved professional success during marriage may have hundreds of thousands of dollars of resources and a variety of different types of property to address when they divorce.

The resources that they share and even their employment compensation packages may be more complex than those of the average married couple. Larger overall marital estates combined with more complex holdings can create a variety of reasons for couples to fight during a divorce. For example, if one spouse has a very complex compensation package that includes sizable bonuses, that extra compensation from their employer could potentially become a source of conflict in their divorce proceedings.

Are future bonuses separate property?

Employers offer bonuses in part to incentivize the best performance possible. They may offer a sizable bonus if someone stays with the company for a certain number of years or regular bonuses based on worker or company performance. Spouses may end up fighting over those bonuses during property division proceedings.

One of the common reasons that people fight about bonuses during a divorce is that they misunderstand whether a bonus not yet paid might be marital property or separate property. In many cases, the chances are good that the unpaid bonus could potentially be partially marital property.

What matters is how much of the bonus someone earned during the marriage, not whether the employer paid the bonus before the divorce occurred. There may be some complicated math that needs to happen when determining how much of a bonus is marital property.

Maybe someone has a five-year retention bonus in their contract. Determining how many months of employment fall within the marriage can help determine how much of that bonus is part of the marital estate. Performance bonuses can be even more complicated to evaluate, especially if employers award them on an annual basis instead of a monthly or quarterly basis. As such, it is possible for part of a bonus to play a role in the property division process while part of it remains separate property.

Understanding when the courts expect people to divide assets and when they are likely to be classified as separate property can help people feel more comfortable about the negotiation process during a California divorce.