Tag: What is Deferred Compensation?
Deferred Compensation in Divorce Attorney in Ocean and Monmouth County NJ
Serving clients throughout Brick, Sea Girt, Toms River, Wall Township and the Jersey Shore
Much like other complex assets, New Jersey law considers retirement accounts eligible for equitable distribution during the course of a divorce or civil union dissolution. They may even be seen as an income stream for the purpose of calculating spousal support and child support. Assets such as real estate holdings, investment portfolios, and family businesses and business partnerships first need to be accurately valued, then separated into marital and private ownership. Only then can they be divided in a “fair” manner. No asset is too complex or intermingled for our qualified attorneys to properly value, provide experienced legal advice on, and subsequently divide in an equitable manner favorable to you.
At The Bronzino Law Firm, our retirement asset division legal team believes in simplifying the asset division process for our Ocean and Monmouth County clients from towns including Sea Girt, Asbury Park, Neptune, Brick, Wall, Point Pleasant, Toms River, Jackson, Manasquan, Brille, and the surrounding communities. Our firm does not provide one-size-fits-all legal solutions like some larger firms. Instead, we take pride in working closely with our clients to deliver uniquely tailored legal service that addresses their individual needs and concerns.
What is Deferred Compensation?
Many businesses offer unique assets like benefits, bonuses, profit units, incentives, and other forms of remuneration to attract and retain top employees. This portion of an employee’s compensation is set aside to be paid out at a later date, usually when they retire. Taxes related to this particular income (i.e., bonus deferral plans, pension plans, stock options, retirement plans, etc.,) are “deferred” until it is paid out, often reducing the tax burden.
With additional resources such as financial experts, our attorneys can help you navigate a complex financial and legal landscape and find clarity in your rights, so you can move on from your marriage.
What are Qualified and Non-Qualified Deferred Compensation Plans?
Qualified retirement plans have contribution limits, are offered to all employees and are taxed when the contribution is made to the account, such as for:
- Traditional IRAs
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
- Simplified Employee Pension (SEP) IRA
Non-qualified deferred compensation (NQDC) plans are offered to executives and key employees. As there are no limits on contributions, these plans allow the company to postpone payment of some compensation, while giving the recipient a way to save more for retirement than a qualified plan, such as with a:
- Supplemental Executive Retirement Plan (SERP)
- Savings Accounts
- Money Market Mutual Funds
- Certificates of Deposits (CDs)
What is a Qualified Domestic Relations Order or QDRO?
QDROs cover plans which are qualified due to the fact that plan participants still owe taxes at the time they withdraw funds. Retirement assets are highly regulated by the U.S. Securities and Exchange Commission (SEC) and the IRS and cannot be divided at any time. Distributions or withdrawals from most retirement plans often carry significant tax implications and penalties. QDROs are court orders which allow retirement assets to be distributed without the usual tax implications. Since early withdrawal often carries a minimum 10% mandatory penalty in addition to whatever else you might owe in taxes, if your retirement plan distribution is done through a QDRO during divorce litigation, it will not be considered taxable.
To avoid these issues, if you are a spouse eligible to receive all or a portion of a retirement account, your Sea Girt retirement plan asset division attorney can seek a QDRO for a judge to sign.
What About My Spouse’s Vested and Non-Vested Compensation?
Vested Compensation is compensation available now because of the specified amount of time for that particular asset has passed. This type of asset distribution is often pretty straight forward and easy to handle. The courts will determine the value of the compensation and:
- require that it be cashed out or have the stock options exercised or
- award it to the employee spouse and have equivalent assets awarded to the other spouse
Non-Vested Compensation can be a bit more challenging as they have not yet reached the specified amount of time, and as such are not a tangible asset that can be distributed. In some cases, the non-employee spouse may not be eligible for the full amount, only for the time period “earned” during the marriage, in which that particular asset was deferred.
Will Setting Up a Callahan Trust for Non-Vested Compensation Assure A Fairer Division of Assets?
In some circumstances, where the asset remains non-vested, the employee spouse can buyout the non-titled spouse from his/her share by valuing the asset using the current market value and deducting the applicable taxes or by holding the asset in a constructive Callahan Trust, for the other party. By setting up a trust one avoids some risk and the perception of any unfairness due to the potential loss and speculative value of the assets.
Contact Us At Our Brick Or Sea Girt Office Locations
Our Toms River equitable distribution and retirement asset attorneys will help you through the sensitive legal process to ensure fairness and the equitable distribution of stock options, retirement plans and other forms of deferred compensation, that may be in question.