October 1, 2019 saw some changes to the North Carolina laws regarding equitable distribution, specifically with regards to pensions. For this blog, N.C.G.S. §50-20.1(h) is amended so that the division of benefits applies to all vested and non-vested pension and retirement benefits. It went on to further define the benefits to include executive benefit plans, church plans, charitable organization plans, and IRAs. Traditional 401(k) and 403(b) as well as 457 accounts are still divisible.
Generally non-vested benefits were not divided because neither party actually owned the benefits. When something is not vested, there is a good argument that the ownership interest has not yet been created. For example, if you have a stock option that you cannot exercise until you have worked at your company for six (6) years, and it is only year three (3) of employment when you separate, then that option has in the past not been divided. It technically did not exist, it was more of a hope or wish that it would exist if everything went correct, the stars aligned, and you kept working at the same company.
However the winds are a changing. There are many, many different types of non-vested benefits which only vest with more work, bonus structures, or other actions which would happen after date of separation. Let’s examine for a moment how this might work. For example, both vested and non-vested stock options are often forms of executive benefits plans. If you are only married for 3 years, why should your spouse be entitled to benefits not accrued or earned on the date of separation? This is new territory folks. The argument on the other side is why should the spouse not be entitled to receive the three (3) years of value when/if they vest? Another good question.
Let’s be honest, it is also ripe for more costs to the client which they don’t need since attorney fees already eat away their estate. It is law changes like this that create so much expense for clients and increase attorney fees. Now a client will almost always need to hire an expert to value the interest that is non-vested. And just how do we value the marital interest of a non-vested stock option that may not be real, owned, or otherwise have value for years to come? Better yet, what about the malpractice of not valuing it when it becomes worth tens of thousands on the strike date?
And even more, the language attorneys must draft into separation agreements between spouses becomes twice as important. Ensuring that the non-vested benefits may be obtained by the spouse when/if they become vested is a drafting nightmare of Addams Family proportions, without the humor that Fester Addams brings to the table.
So what does that mean for you? It means you must request and provide all non-vested benefits. This is vitally important in cases with non-vested retirement or pension plans, executive or unusual compensation plans, structured bonuses, and if paid commissions.
If you are not scared, well then you are either a seasoned divorce professional waiting for a new law to come out or (the more likely option) you have no idea what any of this means, do not own non-vested benefits, and wonder why I cannot find more child support or alimony things to write about! Touché … and in the memorable words of Wednesday Addams, “You might find a nice girl to be miserable with.”