What Happens To The Year-End Bonus When You File For Divorce?
Back in September, Lucas and Joanne called it quits and decided to end their 15-year marriage. The New Jersey couple is currently separated, with plans to move forward with filing for divorce in January, once the holidays are over (waiting was Joanne’s idea because, as she explained Lucas, she didn’t need the added stress). Over the past few months, Lucas and Joanne have have had very little contact with each other, especially since each party established their own bank accounts as soon as they decided to separate. For all intents and purposes, except for the official paperwork, Joanne and Lucas are living like a divorced couple.
In late December, Lucas receives a year-end bonus at his job. Because his company had a successful year, the amount of the bonus turns out to be a considerable windfall. Before Lucas deposits the check in his personal back account, he thinks about the divorce he will be filing for in mere days, and how this money may come into play. Is this money — received after he and his wife separated — considered marital or separate property? If his wife can lay claim to it, how much will she get? Will this money mean a higher alimony payment? And what if Lucas holds off on depositing the money until after he files for divorce… would that be a loophole to keep it safe?
A few weeks later, Lucas brings up the bonus at his first meeting with his divorce attorney. The attorney has some immediate feedback about what Lucas should do with the money. Here is some of the basic information regarding work bonuses and divorce that he may hear:
Is bonus pay marital property? In New Jersey, the date of the divorce complaint is the end of the marital partnership, and, therefore, the date at which there is no longer an accrual of marital property. In other words, any assets acquired after the filing of the divorce complaint are generally deemed the property of the individual who acquired it and are typically not considered marital property for equitable distribution.
How bonuses are treated as marital vs. personal property, however, can sometimes fall into a gray area depending on the type of bonus received. When job bonuses are tied to a specific work period — say the first three quarters of the fiscal year, spouses in a divorce can typically lay claim to the bonus as marital asset if they were married (and no one had filed for divorce) during that same period. It is unclear what the terms of the bonus were that Lucas collected. If there was no work period tied to the bonus and he was given the check after filing for divorce, he might have a case for why the money is not marital property. However, because he received the bonus before filing for divorce, it may be subject to division as marital property.
On her end, if Joanne had done a little detective work and known her husband’s history of receiving work bonuses, she would have known in cases where a spouse is expecting a big year-end bonus, waiting until after the end of the year to file for divorce can help clarify that this income is marital property. This may have been part of her rationale for waiting.
If the bonus is marital property, how much will the other spouse get? In New Jersey, marital assets in divorce are subject to equitable distribution, which means the other spouse may be able to share in the asset, with the courts determining the appropriate amount.
Will receiving a bonus on top of regular job income lead to higher spousal and child support payments? Some types of jobs, including many Wall Street stockbroker and hedge fund jobs, rely on bonuses as an integral part of an employee’s pay structure. In these kinds of circumstances, the courts may include the amount in alimony and child support calculations, but typically, the law provides that when someones income is variable, that a 3 or 5 year average should be considered for support purposes. In Lucas’s case, using an average of his income + bonuses for the past few years could act to level out this year’s comparatively large bonus.
What about Lucas’s last ditch thought to hold onto the check until after he filed? Should he choose this path, Lucas may find himself accused of hiding assets. During the discovery process of divorce, both parties must disclose all sources of compensation, including bonuses. Should Lucas omit the bonus check he received during the marital time period, even if he hasn’t cashed it yet, it could really land him in legal hot water.
Some potentially good news for Lucas? Assets such as bonuses, when considered marital property, can become important bargaining chips. Lucas might be able to negotiate with Joanne that she can have a sizable share of the liquid cash of the bonus (more than equitable distribution rules would assign to her) if she is willing to give up her claim to a non-liquid marital asset, such as a car or even the family home. In this way, the work bonus could end up being a divorce bonus for Lucas.
Are you dealing with questions or concerns related to a year-end bonus either you or your spouse are expecting? Because the New Jersey law concerning divorce finances can be complex, it is in your best interest to speak with an attorney. To speak confidentially with a Weinberger Divorce & Family Law Group, LLC attorney, please contact us to schedule an initial consultation.
