The financial consequences of a divorce give rise to both parties having a requirement to give full disclosure of their assets (family home, other property, pensions), income, and liabilities. ‘Income’ includes income from all sources – whether by way of rental income from property interests, dividend income from shareholdings, interest etc.
However, you have to look deeper than this and consider whether, particularly in cases of higher earners, there are additional benefits and income from incentive plans linked to their employment active now or to which they will benefit. They can also be extremely valuable and a highly contentious area to deal with, with arguments about whether they are matrimonial and whether full disclosure has been provided. Employee incentive schemes are also complex and are rarely straightforward to deal with but understanding what is included, the structure is vital to shaping settlement negotiations from both sides of the coin.
It is essential to provide full disclosure, this is a legal requirement and duty of both parties. Usually this will be by way of a Financial Statement (Form E) even if you are not in a court process, it is considered good practice to use this form. The disclosure needs to be accompanied by the supporting documentation. This applies to all possibilities whether uncertain or contingent.
How Will the Court Deal with Employee Incentive Schemes
The court seeks to achieve fairness, in all the circumstances of the facts of the case before it. The Court needs to consider the parties’ needs i.e. ensuring reasonable housing and income for each party and any children of the family (with the priority being given to children under the age of 18 years old). Depending on the income and assets, there can be a need to consider the lifestyle enjoyed during the marriage, school fees and other provisions. The court must also consider sharing assets built up during the course of the marriage. Any assets determined to be non-matrimonial i.e. pre marriage or post separation would not generally be shared but can be invaded by the court to meet another parties’ needs. This is case and fact specific.
The court will be mindful that the nature of incentive schemes means that that they can be part matrimonial i.e. if they vest during the marriage or relate to past work done, but do not vest until a later date. Work undertaken following the parties’ separation, that results in an award at a later date, could be considered non-matrimonial in whole or part. Again, this is fact specific.
It is always tricky dealing with awards which are considered to be performance (either individual or company) or discretionary in nature. They are uncertain and cannot be quantified. By contrast, some schemes are guaranteed and therefore certain and quantifiable.
The court could consider
- Offsetting i.e. trading other assets for the award so one spouse keeps the awards, and another is paid a lump sum or receives another class of assets of equivalent value. The value, however, needs to be determinable for the court to be attracted to this option.
- Wells sharing i.e. dividing an asset in the form in which it is held at the time the court makes and order, but the spouse does not receive the funds until the award comes into fruition
- Whether a clean break should be made i.e. to sever ongoing ties and how this will be achieved
Our Top 3 Tips
Identify and Classify the Incentive Accurately
It is important to have an early understanding and overview of all earnings and benefits to include base salary, guaranteed allowances, discretionary bonuses, commission, LTIPs, RSUs, share options, phantom shares, carried interest, deferred/vesting awards, buy‑outs, retention awards, and non-cash benefits.
Obtain or Provide Focused Disclosure Early
It may be necessary to request some or all of the following
- Employment contract and current incentive plan rules.
- All award/bonus letters for the last three years and current year.
- Vesting schedules, performance criteria, and leaver/clawback clauses.
- Annual remuneration statements and P60s/P11Ds/payslips evidencing awards.
- Employer policy documents or remuneration committee summaries where obtainable.
Expert Evidence / Valuations
Obtain independent expert advice if needed to ensure a full understanding of value, timing and taxation.
Specialist Advice
Ensure you have specialist advice from a family solicitor, tax advisor, and other relevant professionals as needed to make sure you have the legal, practical, and financial guidance to make informed decisions.
We are often instructed in cases where high earners have shared incentive schemes or more nuanced income (such as royalties) and can guide clients though dealing with these assets and reaching outcomes.
