If your spouse is a highly paid key employee, your spouse may participate in a nonqualified deferred compensation plan offered by an employer. By using this kind of plan, your high net worth spouse might reduce taxes by deferring an employer’s payment of salary, stock share certificates, cash or other assets. The YouTube video above explains why some employers offer key employees a nonqualified deferred compensation plan. An Investopedia webpage also talks about what a NQDCA is.
I. IS YOUR SPOUSE HIDING COMMUNITY PROPERTY AT A NONQUALIFIED DEFERRED COMPENSATION PLAN?
If you are in a high net worth divorce and your spouse is a highly paid key employee, your spouse might use a nonqualified deferred compensation plan, (hereinafter “NQDC”), to hide community property from you. Your spouse can do this during your divorce by failing to disclose a NQDC to you. Then, after your divorce is over, your spouse might be able to collect the compensation / assets due under the NQDC from an employer. Meanwhile, assets distributed to your spouse under a NQDC, can be community property / can be part of your marital estate. This means when your spouse hides a NQDC, your spouse could be cheating you out of community property the Court would have distributed to you because of your divorce.
II. COLLECTING EVIDENCE ABOUT A NQDC
Accordingly, you should elicit evidence during your high net worth divorce about any NQDC your spouse might have as a highly paid key employee. You should be able to collect this evidence by using legal tools available to you during the pretrial discovery phase of your divorce. These tools may include a subpoenaed deposition of your spouse’s employer, & / or an oral deposition of your spouse, & /or requests for the production of documents, etc. You would use these legal tools to ask detailed questions about whether your high net worth spouse had a NQDC. Here is an example of just four of the kinds of questions you can ask:
1. Did the Employer directly or indirectly maintain any nonqualified deferred compensation, (hereinafter “NQDC”), arrangements for “Mr. XYZ,” including but not limited to any trusts, escrows, or separate accounts? If so, provide the details. For instance, regarding “Mr. XYZ,” did the Employer maintain any of the following:
a. Salary Reduction Arrangements (i.e. which defer the receipt of otherwise currently includible compensation by allowing the participant to defer receipt of a portion of his or her salary).
b. Bonus Deferral Plans (i.e. resemble salary reduction arrangements; except they enable participants to defer receipt of bonuses).
c. Top-Hat Plans also known as Supplemental Executive Retirement Plans or SERPs (i.e. NQDC plans maintained primarily for a select group of management or highly compensated employees).
d. Excess Benefit Plans (i.e. NQDC plans that provide benefits solely to employees whose benefits under the employer’s qualified plan are limited by IRC§ 415).
2. To the extent not already disclosed by the Employer herein, did the Employer provide a compensation plan for “Mr. XYZ” which used any of the agreements / plans /trusts listed below at (a)-(d)? If so, provide the details.
a. Salary or bonus deferral agreements
b. Phantom Stock Plans
c. Restricted Stock Plan
d. Offshore Rabbi Trusts, Springing Rabbi Trusts, and/or Rabbi Trusts funded for the benefit of company executives.
3. Were there any written communications between the Employer and “Mr. XYZ” that set forth “benefits,” “perks,” “savings,” “severance plans,” or “retirement arrangements”? If so, please identify each of these written communications.
4. If the Employer directly or indirectly maintained NQDC plans, (or any NQDC arrangement involving trusts, escrows, or separate accounts), for or on behalf of “Mr. XYZ”, identify all documents the Employer possesses regarding the same. This includes but is not limited to the following:
- Copies of each NQDC plan/arrangement “Mr. XYZ” participated in, including all attachments, amendments, restatements, etc.
- “Mr. XYZ’s” deferral election forms and any amended or changed election forms.
- Ledger accounts/account statements concerning “Mr. XYZ”, noting deferrals, distributions, and loans.
- All other documents created by the administrator of each NQDC plan/arrangement “Mr. XYZ” participated in.
Copyright 2022 Fred L. Abrams