Unintended Casualties: Compensation Caps Pushed By Government Complicate Divorces and Pinch Dependent Spouses

Recent restrictions on executive compensation are having significant impact on divorces of people in the financial services industry. Nowhere is this felt more than in New York, where so many people are employed in the targeted financial services industry.

Employers have dramatically reduced cash bonuses, until recently a huge component of compensation. Instead, employers are compensating employees with company stock of speculative value and varying vesting dates, and deferred cash payments.

The effect is to reduce current cash income for purposes of calculating child support and spousal support.

Depending on exactly how the compensation is structured, it may also change the character of the compensation from income available for support to property which must be divided.

Meanwhile, the reduced current cash income is overextending family resources for private school tuition payments and carrying costs for existing second homes, not to mention support payments.

The timing and uncertainty of real, cash income is breeding increasing litigation over the financial aspects of divorce for financial professionals.

Dependent spouses seem to be getting the shorter end of the stick in these situations. Less cash income available for support now. Disputes over whether deferred cash or benefits / assets is even marital and, if so, as of what date should they be valued.

Ultimate impact on divorces of financial professionals? More, expensive litigation in filed cases … but markedly fewer cases filed.

Read more in this Bloomberg BusinessWeek article: Bonus Pay Changes Put ‘Massive Wrench’ in Wall Street Divorces.