In our previous article, “How Executive Compensation Impacts Divorce,” we presented the types of executive compensation that should be considered for purposes of marital property division, as well as future income that should be included for support calculations. This article will examine the basics of dividing executive compensation. We begin by identifying several key aspects of executive compensation in divorce.
Identifying the Marital Portion
In most cases involving divorce, we must first determine to what extent the compensation is marital and subject to division. In all cases, if the compensation was awarded and vested during the marriage, they are 100% marital. If awarded but not vested, we must first determine the extent the award is based on past service vs. future performance. To the degree based on future performance, that portion would be considered separate property. To the extent that there are no plan-specific rules regarding the division of benefits, coverture fractions are used to determine the percent marital.
Applying Coverture Fractions
Coverture fractions based on past performance are based on the Hug formula. The numerator (marital service credit) represents the total number of years or months during which the retirement benefits were earned or accrued while the spouses were married. This includes the period from the date of marriage to the date of separation or divorce filing, whichever is applicable. The denominator (total service credit) represents the total number of years or months that the spouse worked or accumulated service credit that counts towards the retirement benefit. Up to the present date or retirement date. Calculate the marital coverture fraction by dividing the numerator (years of marital service credit) by the denominator (total years of service credit).
Coverture fractions based on future performance are based on the Nelson formula. The numerator (period of marital service) represents the period during which the spouse earned or accrued retirement benefits while the marriage was intact. This typically starts from the date of marriage to the date of separation or divorce filing, depending on state laws. The denominator (total period of service) represents the total period during which the spouse worked or accumulated service credit that counts towards the retirement benefit up to the present date or anticipated retirement date. Calculate the marital coverture fraction by dividing the numerator (period of marital service) by the denominator (total period of service).
Divide or Offset?
Most executive compensation cannot transfer directly to the non-employee spouse. Even if it can be, it may not be advantageous to transfer it at the time of vesting or payment. In these cases, we need to be able to provide a value for the portion earned during the marriage so that the employee-spouse can keep the compensation while the non-employee spouse receives other assets to compensate. Valuation, however, is not always a straightforward exercise.
Tax Considerations
When transferring to a non-employee spouse, we need to adjust for the taxes paid at the time of vesting or exercise. Depending on the plan, the recipient’s marginal tax rate applies to some transfers when exercised. Only the employee spouse can exercise others, using the employee spouse’s marginal tax rate at vesting or exercise.
Attorneys may subpoena the employee spouse’s company or the employee spouse can provide documents that are necessary to determine if the executive compensation is based on past or future performance, granting conditions and vesting schedules. Request the following documents:
Compensation plans and all amendments
Grant agreements and all amendments
All correspondence (letters, memorandum, emails) relating to grants
Summary plan descriptions
Annual statements of employee benefits
Employee manuals the describe employee’s right to benefits
Employment contract or offer letter
Beneficiary designation forms
Employee’s employment file
Valuations conducted for IRC Section 409(A) purposes or other purposes
Employee’s W2’s
In our next article, we will look at some of the nuances of handling executive compensation across the more common types of executive compensation.
Take Control of Your Future
When you consider divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)
Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues. Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.
Whether you’ve decided to do it on your own or are preparing to work with TruNorth Divorce, there are several things to consider before filing. While there are extensive and pragmatic ways to financially prepare for divorce, much of the emotional preparation is up to you and the daily choices you make during the duration of the proceedings. This guide offers 5 ways to best approach the emotional side of divorce and prepare you for what can be a traumatic event.
The trauma associated with separation, however, is somewhat unique in that it can be planned and prepared for with some healthy amounts of patience and consistency. If you can respond from a more emotionally stable place, you’re going to be able to make healthier decisions in regards to the divorce.
1. Taking Care of Yourself During a Divorce
First and foremost, slow down, pump the breaks, and center yourself by taking care of you. While the phrase has been distorted by Instagram influencers, self-care applies to divorce too. Self-care encompasses the daily rituals or routines we practice in order to nourish ourselves. This includes the messages we send ourselves when we make choices about what goes into our bodies and minds.
Prepare for your divorce by by empowering yourself to make practical daily choices when it comes to your health and wellbeing. This reinforces your sense of self-worth. More reliable than high self-esteem, a strong sense of self-worth allows you to navigate the obstacles and stressors that often arise with divorce more easily.
Things to Do Before Filing For Divorce
So, stock up on fresh foods, arm yourself with supplements that will assist your immune system and combat stress and tell yourself you’re worthy of being taken care of. Find a physical outlet that allows you to let loose, the sillier and more recreational the better.
Setting even 5 minutes aside every morning to meditate can literally be the difference between feeling capable of handling the day or not. Last, do this on a cadence that works for you. The idea is to be compassionate with yourself; you are, after all, going through a divorce.
2. Accepting the Divorce Process
Our strongest cause of suffering is the attachment to our ideas of what should be happening, what we shouldn’t be doing, or most often than not, what someone else should be doing. These elements are entirely out of our control, especially during separation and divorce mediation, and when we cling tightly to a specific outcome, we suffer when our reality doesn’t match up to our expectations.
In the case of court proceedings with divorce lawyers, there isn’t an emotional “winning” or a “losing.” There is only finding the solution that will benefit both parties, children included, for the future. This requires letting go of the narrative of what happened or what your spouse did wrong.
Self Compassion & Divorce
Easier said than done, acceptance is a daily choice. With an attitude of acceptance, however, you can be aware of your triggers and prepare for the subjects that are touchy before the courtroom. Knowing what your triggers are ahead of time and communicating them with your divorce lawyers can save you a lot of self-loathing and feeling emotionally out of control.
The point is that you are human, and this is a process, one where you will move between stages of denial, isolation, bargaining, rage, and depression before you can fully accept the reality of the divorce. Accept you will have bad days and accept you may need to cry in order for your body to have a release. After accepting it, you can focus all of your attention on beginning your new life.
3. Focus Your Attention on the Divorce In Spurts
There can be a trap of fully immersing yourself into the doom and gloom of divorce papers and landing in a click bait circle of misery. While it is important to research what to expect in a divorce separation in order to fully understand the process, healthy boundaries still apply. An example of a healthy attention goal could be no divorce talk after 6pm. Strive to not allow the divorce to become a defining stick of furniture in the living room of your life; this is not the end, your life is not ruined, and it will ultimately be okay.
There are a myriad of tips on how to prepare financially for divorce, but from an emotional perspective, the object is to not create a story where you are a victim, powerless to choose how you feel. Choosing what you focus your attention on, and away from, can help you feel more empowered throughout the divorce.
4. Preparing for Separation If You Have Children
When it comes to emotionally preparing for divorce, often the greatest anxiety among parents is how this decision will affect their children. This anxiety may not go away for several years, but rest assured to know there are no perfect parents and no one knows exactly the right thing to say all the time. However, as long as you are willing to talk about the divorce and are emotionally available for their fears and concerns, you’re on the right track.
Some key guidelines are not disparaging your spouse in front of them, or using them as a source of sympathy to your stressors; they aren’t the therapist you need to vent to. Another good rule to follow is to not lie to your children about what’s going on. This only further complicates the situation, and will ultimately lead to your child resenting you or feeling as if they’ve been betrayed.
It’s best to keep things as honest as possible while also bearing in mind that your child’s age will have a lot to do with how they handle such a large change. If you feel challenged by talking with your children about divorce, there are a ton of great resources and self-help books that can provide valuable scripts on how to best communicate the changes that come with divorce.
5. Find Divorce Support
Your separation and unlimate divorce can be a tumultuous and incredibly grading stressor on your sense of well-being, not to mention the necessary grief that comes with mourning your previous life. Intentionally seek out support before, during, and after your divorce, even if it means fighting through the uncomfortable feelings of being vulnerable or feeling like you’ve messed up.
There’s nothing shameful about joining a Meetup or support group and talking to others who are also going through a divorce. In fact, having conversations with fellow divorcees can help you feel less alone and far less alienated throughout the divorce process.
Another essential way to prepare emotionally for divorce is to ask your friends and family if they have any referrals for a therapist or contact your insurance company to find out if your policy covers mental health; even if it’s only an online therapist, it’s wise to have a professional guide you through what can ultimately be a traumatic event.
TruNorth Divorce Can Help
These are just some ideas to consider when emotionally preparing for divorce. Taking care of your body and mind first and foremost, like putting on your oxygen mask on a plane before anyone else, allows you to approach the divorce with a greater sense of self-worth and stability.
Use these five best practices to make sure you are emotionally prepared for your separation, before it traumatizes you. If you need some extra assistance, we’d love to hear from you in the comments section. We’re also on Facebook, and if you want to learn more about divorce or want to explore your options, which includes my free ebook, reach out to me. TruNorth Divorce Solutions can help you.
“Divorce is Not for Wimps” is about the realities of divorce and how it too often leads to painful and long-term emotional, financial, social, and parenting consequences. Unless you’re made of steel, pain in divorce is unavoidable. Long-term trauma can be mitigated if you assume the position of a winner or champion in your divorce. There is, of course, no true winning in divorce but there is surviving, mitigating damage, and putting you and your family on track for a better future.
Whichever end you’re on—initiator or responder—you need to decide that divorce will not define you. At the same time, it’s going to be a dominant force in your life for a bit. That bit of time may be short or quite long depending on your circumstances and how you manage the process.
So, what are the essential steps?
Acknowledge that you can’t do it alone. Build your support team. Initially, it might be your best friend and sister or mother. But don’t stop there! Your best friend can’t fix this for you—they don’t have the skills or knowledge.
Build your divorce team. You need emotional, psychological, financial, and “legal” help. A divorce coach, therapist, divorce financial planner, parenting coach, mediator, real estate and mortgage professional who specializes in divorce and maybe a lawyer
Stop burdening your family, friends, and children. Especially your kids, whether young or adult, don’t want to shoulder your divorce! If they are young or teens, you can create long-term damage for them. Your family and friends will be there for you, ask questions, call to check in, but they can not fix this for you and trashing your soon-to-be-ex is going to grow very old very fast.
Get organized. Gather your financial statements, tax returns, trust documents, will, insurance policies, business documents and financial reports. Put them in a safe place (electronically or physically).
Develop a plan. Do NOT pick up the phone and call a lawyer! You are setting yourself up for an unnecessarily miserable and expensive divorce. Call a divorce coach, a divorce financial analyst, a mediator. Make a plan to champion your divorce. It does not start with an attorney, even if eventually you need the services of a lawyer to deal with a contentious divorce.
You got this. It’s going to be hard but you can do it and you’ll be glad you took charge.
The decision to divorce is never easy, but that doesn’t mean that settling your divorce needs to be complicated. Most modern divorces are seen as a division of shared property and the majority of today’s divorces never even enter the court system beyond the basic paperwork and procedure.
For individuals who are involved in uncontested divorces, mediation can be a quick and cost-effective alternative to working with a lawyer. But how do you go about divorce mediation, and what can you do to help smooth out the process? TruNorth Divorce Solutions offers a few divorce mediation tips to better set you up for success.
1. Consider divorce mediation
It’s not uncommon for couples involved in uncontested divorces to seek out divorce mediation services as an alternative to shelling out the big bucks for a family law lawyer. In Maryland (and across the United States), divorce mediation is quickly becoming a popular alternative to working with family law attorneys.
The most important divorce tip, once you’ve decided on mediation, is to the first step is to spend some time exploring your local options. Do your research so you know what to expect. A good mediator won’t mind answering questions about their professional experience, services, and metrics of success. Interviewing your mediator during your initial consultation can help you gauge your prospective mediator’s expertise and whether or not they fit your needs.
2. Don’t forget to consider the taxes
Some say taxes are one of the only two things you can’t escape in this life. One of the most common divorce settlement mistakes that divorcing couples make when selling and dividing joint assets—like retirement accounts and the family home—is that they don’t consider the taxes.
Failing to account for tax considerations when dividing marital assets can throw a major wrench into the system despite best intentions. Things aren’t always apples-to-apples and not all retirement accounts are governed by the same tax laws. An experienced divorce mediator can help navigate any tax issues that arise along the way, such as whether or not you need to get a Qualified Domestic Relations Order (QDRO).
3. Get your custody arrangements in writing
When it comes to divorce mediation tips, getting custody arrangements in writing is high on the list. Parents who don’t create a parenting plan ahead of time might get blindsided down the road and getting things in writing will help hold you and your soon-to-be-ex accountable. Taking the time to hash out your co-parenting schedule and expectations can help you avoid future hiccups when it comes to parental duties.
Remember, it’s important to remain flexible and treat your co-parenting plan as an adjustable framework. Schedules may change and dates might need to be shuffled around to accommodate that surprise business trip work sprung on you last minute. It’s a great idea to discuss your summer co-parenting plans yearly.
4. Consider your post-divorce budget
While not a mistake made during the mediation process, post-divorce budgeting is a topic worth touching on. Being realistic about your post-divorce budget is a crucial step for independent financial success.
Unless you were the sole breadwinner bringing that bacon to the table, your household income is going to decrease during the transition from a double to a single income household and your expenses often increase because they’re no longer shared. It’s important to assess your post-divorce finances and make adjustments to account for changes in income and expenses. Be sure to speak with a Certified Divorce Financial Analyst to help you plan for your future and make the best choices during your divorce.
These are just a few divorce mediation tips to help guide you through some of the pitfalls. Considering divorce mediation? Schedule a free strategy session online.
The relationship you have with your spouse is likely the most important connection in your adult life. At one time, not long ago, you were in love and could not imagine a life without them. You may have had children together, even grandchildren! But something shifted and now here you are contemplating or in the midst of a divorce. Hold on, because divorce is not for sissies.
Whether you initiated the split, or your spouse did, whether it was sudden or has been years in the making, this is among the most traumatic and life-changing events you’ll ever experience. Divorce permeates all aspects of our lives: emotionally, psychologically, financially, socially, and physically. I see the impact of separation and divorce on people’s lives every day in my practice as a divorce mediator, financial advocate, and coach.
I know it, too, because I’ve been there. Growing up, I was a child of divorce, and it fundamentally impacted my life. My mom didn’t get the emotional, legal, or financial support she needed after my father left her while pregnant with her fourth child. She never really recovered and that was terribly sad. As for me, it certainly dampened my remaining childhood years and, in some ways, still has adverse effects.
I also divorced the father of my own three young children many years ago now and went through the incredibly painful and expensive process of a litigated divorce. All I knew back then was to pick up the phone and call an attorney. What ensued were years of court battles and what today would amount to about $100,000 in attorney’s fees. I knew there had to be a better way.
Today, I am fully dedicated to assisting individuals and couples through the divorce process in a way that leaves them as unscathed as possible, so that they and their children can move on to build a better future without long-lasting trauma. Be clear, though, divorce is not for sissies and you will need support.
Financially, you may wonder how you’ll ever be able to support yourself and your children, how you’ll be able to afford to retire or live the life you’ve worked so hard for. Will you be able to keep your home? Will you have to get a better-paying job?
As a mom or dad, you will have to adjust to the reality that your children will be sharing their time with the other parent and, potentially, a new partner. I cried my eyes out the first Thanksgiving that my children spent with the father and his family five hours away. As prepared as I thought I was, I was still alone without the ones I loved the most.
You will worry what effect all of this will have on your children, whether young or adult. Don’t kid yourself that the kids seem to be just fine. They aren’t. They need you to be a full-time parent if they are young and empathetic to their changing lives no matter what the age.
Socially, you will lose many friends that you shared as a couple. Some of your friends may treat you differently, be wary of your stories and woes, or feeling awkward when you’re the only single person in a group of couples. As for intimate relationships, will you ever be able to love someone again, and how about dating, how is that going to work?
Emotionally and psychologically, you aren’t going to be yourself for a while. You may feel confused and overwhelmed, question yourself about even the smallest things, be less productive at work or at home, occasionally or often be emotionally volatile, anxious, and/or depressed.
Your health may suffer, too. You may eat or drink too much, skip routine, preventative care, not get enough exercise, and have difficulty sleeping.
All of this is completely normal. Divorce is not for the uninformed and it won’t go away if you put your head in the sand. The question is not whether you need support but what kind and from which sources. It will not all be okay if you just hire the right lawyer.
I am here to tell you: divorce is not for sissies! So, get informed, build your support team, and keep reading this blog—its mission is to give you the information you need and show you the way to making the right decisions for a brighter future for you and the ones you love.
