If part of your pay comes through restricted stock units (RSUs), incentive stock options (ISOs) or delayed bonuses, your divorce may involve assets you cannot access yet. This can matter for executives in automotive technology, healthcare, private equity and other fields where incentive pay makes up a large part of compensation.
In Michigan, the fact that compensation has not yet vested or been paid does not automatically make it separate property. State courts follow equitable distribution and divide marital property fairly rather than automatically splitting it 50/50. What matters is when and why you earned it.
Can unvested compensation be marital property?
The state generally treats compensation earned during the marriage as marital property, even if you receive it after divorce. However, compensation tied entirely to work you must perform after the marriage may fall outside the marital estate.
For example, a court may treat a delayed bonus for work completed during the marriage differently from a retention bonus that requires continued employment after divorce.
How can a coverture fraction apply?
Some Michigan family law practitioners use a coverture fraction. This formula compares the time you earned a benefit during the marriage with the total vesting period to estimate the marital portion of an unvested benefit.
Suppose a stock option vests over five years and two of those years fall within your marriage. A 2/5 share of its value when exercised might be marital property. This is one valuation method, not a required formula.
Some equity plans restrict transfers. The employee spouse may keep the award while the other spouse receives a later payment or other property for their share.
What records can help identify future compensation?
Deferred compensation may not appear in a regular paycheck. Useful records include:
- Equity award and grant agreements
- RSU and stock option vesting schedules
- Bonus and incentive compensation plans
- Employment and retention agreements
- Compensation statements and tax records
These documents can show when your employer granted an award, what you had to do to earn it and whether future employment affects vesting. Expected taxes may also affect the value considered when dividing the asset.
Understand what your compensation is worth
Deferred compensation can affect your divorce before shares vest or a bonus reaches your account. Reviewing why an award was granted, when it vests and what taxes or plan restrictions apply can clarify its value. Consider speaking with a Michigan family law attorney who can help you identify the marital portion, evaluate tax and vesting issues and address complex compensation as part of an equitable property division.