For certain professionals – including those in upper management or sales – annual bonuses and performance awards can represent a significant part of their yearly income.
When a couple separates with the intent to divorce near the end of a bonus period, that issue alone can become a source of disputes. Does the bonus belong to the spouse who earned it, or is it included in the marital estate and subject to California’s community property rules?
When was the bonus actually earned?
Forget about the day that the bonus check rolled in or got deposited. Instead, it is necessary to determine when it was actually earned. Even a bonus received months after a couple separates could still be considered community property (in whole or in part) if it was earned through prior work.
Suppose, for example, a couple separates in January, and one spouse receives a large annual bonus in February based on work performed through December of the previous year. The fact that the money arrived after the couple separated does not necessarily make the bonus separate property. In fact, it is likely part of the marital estate.
In comparison, imagine that the couple separates in November, and one spouse is in sales. They earn a significant bonus solely on their sales figures from December. That money may belong solely to the spouse who earned it, as their separate property.
The situation gets even more complicated when a bonus is tied to work both before and after separation. Employment records, bonus payment schedules and more can all become important pieces of evidence.
These issues can matter greatly in a high-asset divorce. It can take a skilled divorce attorney to properly classify community property versus separate property and advocate for your interests.