It might seem like divorcing an executive in New Jersey is easy. However, several major issues affect how to handle this type of divorce. Here are a few things to watch out for when divorcing a wealthy executive.
Stocks and vesting periods
Depending on where they work, most executives receive shares of company stock. To encourage company growth, many companies issue stocks to executives at a grant price. If the company’s stock goes up, this situation is like buying shares at a massive discount. Most companies require executives to wait until vesting periods pass to exercise their stocks, which typically takes one to five years. If the right to vest a stock hasn’t happened yet, it could complicate the share distribution process.
It’s understandable to assume that receiving a large sum of money in a divorce is a simple process. Unfortunately, many people get a shock from their post-divorce payday when they see how much they’ll owe in taxes. An executive can incur sizeable tax penalties for early withdrawals from cashing out their plans. If their ex-spouses receive money from this pay-out, they’ll often have to also share the tax penalties.
Backlash from an employer
Another potential problem in the world of executive compensation involves the company this person works for. Most people are unaware that certain companies have rules in place to disallow a former spouse from receiving compensation from one of their executives. Fortunately, there are situations where this situation doesn’t apply.
Capital gains taxes
If a vesting period passes, there’s another challenge to watch out for when an executive sells company stock. When someone sells stock and profits, they must pay capital gains taxes. If you’re the one receiving these financial gains, you could also have to pay a sizeable tax bill.
In conclusion, divorcing an executive or someone formally in this role presents certain challenges. By understanding these challenges ahead of time, you can save yourself a lot of potential headaches in the divorce process.