For anyone considering the JOY of DIVORCE Emancipation here in Texas, knowing how to treat various types of income is vital to how they may fare financially when the proceeding ends. For instance, can you protect a future bonus from being divided, or know how will stock options play into a settlement?
Texas is a community property state, which means that all assets acquired during the time two people were married can be divided when they divorce. However, that does not necessarily mean that it will be a 50/50 split, as a judge has the discretion decide how assets and debt are equitably shared.
Types of compensation to consider
Dividing income received as salary or hourly wage can be a relatively straightforward process, but it can be complicated if earnings come from other sources, including:
- Prepaid bonus: Bonuses paid before divorce proceedings began can be considered marital assets under Texas law. However, sometimes a person must pay back all or some of the bonus if they leave the job early (sometimes called a “clawback provision”). In that case, a legitimate argument could be that all or part of the bonus is not a shared asset subject to division.
- Bonus paid during divorce for prior work: A bonus received during a divorce for work completed before filing may be considered a marital asset. However, when a bonus is divided between the two parties, the spouse who received the bonus should be wary of the full amount being added to their total compensation when calculating support obligations, which is known as “double counting.”
- Bonus paid after divorce for prior work: A bonus received after the divorce is granted for work at least partially completed during the marriage should at least be considered as partially being a marital asset. The party receiving the bonus may have had a say in deferring the receipt of the bonus until after the Divorce Decree had been signed.
- Commissions: For someone expecting a sizable bonus, it may make sense to file for divorce sooner to retain as much of the bonus as possible. The date of the payout can be critical for negotiations even though your spouse may argue that the work that triggered the bonus happened before the divorce was filed.
- Stock options: Income from stocks owned by both parties during a marriage can also be community property. However, a judge can determine that a stock owned by one party before they were married should continue as separate property. The court will look at several factors, such as why the stock was purchased, when it was purchased and when it became fully vested.
Make informed decisions over dividing income
Ending a marriage can bring financial difficulties and take an emotional toll on both parties. Sometimes litigation can be avoided. However, each party must be held accountable for acting fairly and equitably throughout the process. An experienced Board-certified Family Law expert attorney in Collin County, Dallas County, Denton County, or elsewhere throughout Texas can help ensure that a client’s rights are protected and that they get the assets they deserve.