An often overlooked community property asset to be equitably divided in a Texas divorce settlement is any company or employer bonus given to one or both of the spouses involved in a divorce.
Sometimes attorneys fail to address the community nature of bonuses. Or, they forget to ask if either spouse typically receives, or is expected to receive, an annual or other type of bonus as part of his or her compensation.
Bonuses are typically paid for the preceding year’s services or performance. Even if they are paid in the year following divorce, they are still considered community property. I recommend that b
onus allocation be prorated based on either the date of mediation or when the divorce is finalized. The bonus is then apportioned to each spouse accordingly, since no one knows the amount of the bonus until it is paid out.
For instance, if the divorce is final on 9/30/18, but the bonus is paid in February of 2019, three-quarters of that bonus is community property and should be shared with the ex-spouse. (Nine months of 2018 the couple was married, versus three months unmarried). So, one-half of three-quarters of the bonus is community property and should be submitted to the non-employee spouse. This refers to the after-tax bonus.
In addition, the ex-spouse should be required to provide a copy of the check stub showing receipt of the bonus. It is important that the details of this division and proof of the bonus amount be adequately documented.
One of my Houston divorce clients was awarded 28 percent of her husband’s bonus to be paid in March of the following year. He sent her a check, with a note saying, “Here is your share.” There was no pay stub or proof of the bonus amount. She would never know if the sum was a fair submission of the award to her. It wasn’t worth it to bring an attorney back into the case, since the fees would not be cost effective. Had she detailed how the bonus would be paid to her in the divorce decree as described above, she would have gotten a copy of the bonus check pay-stub or other proof as an assurance of its accuracy.
In mediation or when working as a divorce financial analyst with a client, I always make sure that a potential company bonus doesn’t slip through the cracks as we gather all pertinent financial documents. For more information about divorce financial planning, contact me at 832-858-0099 for a free phone consultation.