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Relevant NJ divorce focus: treatment of income, Part 2

We referenced a landmine that potentially exists for select New Jersey divorcing parties in our immediately preceding blog post. We noted in our September 11 entry that material and unanticipated problems can arise for soon-to-be exes who “fail to properly distinguish among different forms of income during the dissolution process.”

The writers of a recent Forbes piece on that subject matter stress that such a concern does not often feature in marriages where virtually all the income derives from a straight salary only. However, a necessary focus on income treatment and linked timing considerations relevant to divorce filing often emerges in high-asset decouplings, where negotiations commonly concern myriad types of property.

How income is construed by a court, and when it is deemed subject to equitable division, is of obvious importance. Following are a few examples to illustrate the point.

A prepaid bonus might come with a so-called “clawback” clause. That is, a company might demand money back if a worker subsequently quits or fails to meet stated performance requirements.

Although such income is typically viewed as divisible marital property, its recipient might be able to argue that it should be exempt from division owing to its potential to be withdrawn. Or it can be alternatively argued that a divorcing partner making a marital claim on that asset should be required to pay back what was received if an employer does ask for the return of paid-out money.

The Forbes contributors duly note that the relevant inquiry under such a scenario is whether an employer clawback “was triggered due to circumstances beyond [a spouse’s] control.”

Commissions can be fundamentally relevant, too. A recipient might be logically motivated to finalize a divorce prior to the payment of sizable commission money, arguing thereafter (if necessary) that the received funds are separate property. Conversely, notes the Forbes writing team, the non-receiving spouse might stress “that the work that went into the deal happened before the divorce was filed and is therefore marital property.”

There are many additional scenarios underscoring the importance of income treatment and related divorce timing considerations. We will continue our spotlight on them in the firm’s next blog post.