When going through a high-net-worth divorce, you are likely to face many challenges when dividing your marital estate. You may wonder how dividing deferred compensation packages in a NYC high-net-worth divorce could work.
Since New York follows an equitable distribution method for dividing marital property, deferred compensation packages can be split using several different methods. The preferred method depends on the unique circumstances of the divorce and the other marital assets.
Hire a High-Net-Worth Divorce Lawyer
Since 2005, The Levoritz Law Firm has worked with couples going through a high-net-worth divorce in SoHo, the Upper East Side, the West End, and throughout New York City. Our team engages in strategic filing to protect your assets and position.
When you hire a high-net-worth divorce lawyer from The Levoritz Law Firm, you gain an advocate who works directly with each client to fully understand your concerns, your short-term goals, and long-term needs as we navigate the divorce process.
The Population in New York City
The United States Census Bureau estimated New York City’s population for 2025 at 8,584,629 residents, making up 3,334088 households. The median home value was $777,600. As of 2023, the rate of divorce in New York State was 2.4 per 1,000 residents.
Going through a divorce can cause many disruptions to your life as you adjust to your new day-to-day reality. The process of petitioning for a divorce can be complex, especially for high-net-worth couples. In New York, divorces are handled solely by the Supreme Court.
New York City has a Supreme Court in each of the five boroughs representing the five counties that comprise the city. Manhattan’s Supreme Court is located at 60 Centre Street. Brooklyn’s is found at 360 Adams Street.
In the Bronx, the Supreme Court is located at 851 Grand Concourse. The Queens Supreme Court is located at 88-11 Sutphin Boulevard. For residents in Staten Island, the Supreme Court is located at 18 Central Avenue.
Deferred Compensation Package Challenges During Divorce
Under the Internal Revenue Code Section 457, government employees have the option to supplement their pensions and Social Security by taking advantage of deferred compensation plans offered through their employers.
Within the private sector, employers can offer their employees non-qualified deferred compensation plans that work in a similar way as those offered to government employees, but with fewer tax protections and the risk of forfeiture if the company runs into financial trouble.
The challenge of distributing deferred compensation packages during a divorce is the need to accurately calculate what percentage of these plans is owed to either spouse. There are two main ways of making these calculations:
- The DeJesus formula calculates which portion of the plan was earned during the marriage and which portion was earned after the marriage ended. The portion earned during the marriage is subject to equitable distribution.
- Dividing the plan based on marital factors: This method is more subjective and looks at the length of the marriage, each spouse’s financial contributions to the plan, the future earning potential of each spouse, and the nature of the compensation.
Since deferred compensation is designed to be paid out at a later date, it can be difficult to distribute it directly at the time of the divorce. Distribution is often handled in one of two ways:
- The percentage share owned by each spouse is calculated, and the amount owed to the spouse who is not named on the plan is provided with additional marital assets equal to their share of the deferred compensation plan.
- Both spouses could also wait until the plan becomes payable. With this method, the percentage owed to each spouse is calculated and paid out accordingly when the plan becomes vested, and payments begin.
FAQs
What Is the Ten-Year Rule for Deferred Compensation?
The ten-year rule for deferred compensation refers to an IRS guideline that allows for plan payouts of deferred compensation to be taxed solely in your state of residence when distributed.
This rule prevents deferred compensation from being taxed in the state where it was originally earned. To qualify, the payouts must be in equal installments over a period of at least ten years. Deferred compensation paid as a lump sum or over less than ten years loses this benefit.
Does My Spouse Get Half of My Retirement Savings in a Divorce in New York?
Your spouse does not automatically receive half of your retirement savings during a New York divorce. Since New York is an equitable distribution state, the marital estate is divided fairly, but not necessarily equally.
For retirement savings, only the portion of the savings that accumulated during the length of the marriage is subject to equitable distribution as marital property. Your spouse can be compensated for the value of the retirement account with other marital assets of equal value.
What Assets Are Untouchable in a New York Divorce?
Assets and debts considered separate property cannot be touched during a divorce in New York. During the divorce process, any assets and debts considered part of the marital estate are subject to equitable distribution.
Separate property includes items you acquired prior to the start of your marriage, as well as inheritances and gifts you receive during the marriage. The only exception is gifts given from one spouse to the other; these are considered marital property.
What Are the Disadvantages of Deferred Compensation?
There are several disadvantages to deferred compensation. If your employer files for bankruptcy, your deferred compensation is not guaranteed and could be seized by creditors. If you leave your employer, these funds cannot be rolled into an IRA or other account.
During a divorce, deferred compensation must adhere to strict distribution rules. If you selected to receive compensation starting at retirement, it can be impossible to access those funds early. Early distribution can also trigger high tax burdens.
Contact The Levoritz Law Firm
At The Levoritz Law Firm, our goal is to leave each client in a favorable position post-divorce so they can support themselves and move forward with their lives as comfortably as possible. We achieve this goal by listening to our clients and offering strategic advice.
We have years of experience helping professionals, business owners, executives, and dual-income households navigate the complex divorce laws in New York. Contact us today to schedule your initial consultation.
