In high net worth divorce, determining appropriate spousal support becomes significantly more complex when one spouse’s income includes substantial bonuses, commissions, profit-sharing, or other variable compensation. Unlike salaried employees with predictable income, executives and sales professionals with variable compensation can see annual earnings fluctuate by hundreds of thousands—or even millions—of dollars. Understanding how Texas courts treat variable compensation in spousal maintenance calculations is critical for both the paying and receiving spouse.
If you or your spouse receives significant bonuses or variable compensation, understanding how this affects alimony obligations is essential to protecting your financial interests.
Types of Variable Compensation
Variable compensation takes many forms:
Annual bonuses: Discretionary or formula-based year-end bonuses common in corporate settings, often ranging from 20% to 200%+ of base salary.
Performance bonuses: Payments tied to individual, department, or company performance metrics.
Sales commissions: Percentage of sales, common in sales roles, can far exceed base salary.
Profit sharing: Distributions based on company profitability.
Signing bonuses: One-time payments when joining a new employer.
Retention bonuses: Payments conditioned on remaining employed for specified periods.
Transaction bonuses: Payments upon completing specific deals or projects.
Stock option gains: Realized gains from exercising options (though technically not “bonuses,” these create variable income).
RSU vesting: When restricted stock units vest and are sold, creating variable income.
Carried interest distributions: In private equity and hedge funds, performance-based profit sharing.
Each type requires different analysis in determining sustainable income for support purposes.
Texas Spousal Maintenance Law Overview
Texas law on spousal support (called “spousal maintenance” in Texas statutes) is more restrictive than many states:
Eligibility requirements (Texas Family Code § 8.051):
A spouse is eligible for maintenance only if the marriage lasted at least 10 years AND the requesting spouse:
- Lacks sufficient property to provide for minimum reasonable needs, AND
- Cannot earn sufficient income due to incapacitating physical or mental disability, OR
- Has custody of a child with disability requiring substantial care preventing employment, OR
- Clearly lacks earning ability to meet minimum reasonable needs
OR if domestic violence occurred within 2 years before filing or during pendency.
Duration limits (Texas Family Code § 8.054):
- Marriage 10-20 years: Up to 5 years maintenance
- Marriage 20-30 years: Up to 7 years maintenance
- Marriage 30+ years: Up to 10 years maintenance
- Longer if spouse has disability or cares for disabled child
Amount limits (Texas Family Code § 8.055):
- Maximum of $5,000 per month OR 20% of paying spouse’s average gross monthly income, whichever is less
- Court determines actual amount based on various factors
Important: These are statutory minimums and maximums. Courts have discretion within these bounds, and parties can agree to higher amounts through contract.
How Variable Compensation Fits Into Support Calculations
Determining income for support purposes requires analyzing variable compensation:
The fundamental question: What is the paying spouse’s “average gross monthly income” that determines the support ceiling?
Texas approach: Courts look at a reasonable period (often 3-5 years) of earnings history to determine average income when substantial variable compensation exists.
Calculating Average Income with Variable Compensation
Several methodologies exist:
Method 1—Multi-year averaging:
Average total compensation over recent years:
Example:
- 2021: $300K salary + $200K bonus = $500K
- 2022: $300K salary + $400K bonus = $700K
- 2023: $300K salary + $150K bonus = $450K
- 2024: $300K salary + $300K bonus = $600K
- Average: $562,500 annually ($46,875 monthly)
20% of this = $9,375, but statutory cap is $5,000, so maximum support would be $5,000/month under this calculation.
Method 2—Exclude extraordinary items:
Distinguish between recurring and one-time payments:
Example:
- Base salary: $300K annually
- Typical annual bonus: $200-250K
- 2023 exceptional bonus: $1.5M (one-time transaction bonus for major deal)
- Analysis: Exclude the extraordinary $1.5M bonus; base support on salary plus typical bonus = $500-550K annually
Method 3—Base vs. variable split:
Calculate support based on base salary, with additional payments tied to actual bonus receipt:
Example:
- Base salary: $300K ($25K monthly)
- Variable bonuses: Average $200K but fluctuate
- Support structure: $5,000/month fixed (20% of base salary) + 15% of any bonuses received
This approach shares upside and downside of variable compensation.
Method 4—Good year/bad year analysis:
Identify “floor” and “ceiling” income levels:
Example:
- Best recent year: $900K
- Worst recent year: $400K
- Typical year: $500-600K
- Support based on: Mid-range expectations, perhaps $550K average
Texas courts have discretion in choosing methodology based on evidence and circumstances.
Distinguishing Sustainable vs. Unsustainable Income
Not all historical income will continue:
Questions courts consider:
- Is the current employer/position stable?
- Were recent bonuses due to extraordinary circumstances unlikely to repeat?
- Has the industry or company changed affecting future compensation?
- Is the spouse nearing retirement or career change?
- Were bonuses discretionary (uncertain) or formula-based (more predictable)?
Example—unsustainable income:
- Investment banker earned $2M annually during bull market (2020-2021)
- Markets declined; 2023 income dropped to $600K
- 2024 income: $500K
- Analysis: The $2M years were unsustainable; support should be based on current market realistic expectations of $500-700K
Example—sustainable income:
- Salesperson consistently earned $400-500K for 10 years
- Company and industry stable
- No indication income will change
- Analysis: Use historical average as sustainable expectation
Imputing Income
Courts can impute income—attribute income to a spouse even if not currently earned:
When imputation occurs:
- Spouse voluntarily reduced income to minimize support obligations
- Spouse turned down opportunities or reduced work hours
- Spouse’s earning capacity exceeds actual earnings
Example:
- Husband earned $800K annually as senior executive
- When divorce filed, resigned and took lower-level job paying $300K
- Wife argues his earning capacity is $800K; he should pay support based on that
- Court may impute $800K income if resignation was to minimize support
However, courts won’t impute income for:
- Involuntary job loss (layoff, termination for cause)
- Reasonable career changes
- Retirement at appropriate age
- Market conditions reducing compensation
Bonus Timing and Support Payments
When bonuses are paid affects support:
Issue: If husband receives $500K bonus in January but pays $5,000/month support, the support calculation doesn’t capture the bonus windfall proportionally.
Solutions:
Annual true-up provision: “Support is $5,000/month. Within 30 days of receiving any bonus or variable compensation, Husband shall pay Wife an additional 15% of the net after-tax amount.”
Example:
- Husband receives $300K bonus
- After taxes (assume 35%): $195K net
- Additional support payment: $29,250 (15% of net)
- Wife receives her share of the bonus windfall
Quarterly bonus reconciliation: Calculate what support would have been based on actual income, pay difference.
Percentage-of-income support: Rather than fixed dollar amount, support is percentage of actual income received. This automatically adjusts for variable compensation.
Example: “Husband shall pay Wife 18% of his gross monthly income as spousal maintenance. Gross income includes salary, bonuses, commissions, and all other compensation.”
This approach perfectly tracks income fluctuations but requires ongoing calculation and potential disputes.
Declining or Fluctuating Income
Variable compensation creates challenges when income declines:
Scenario: Support established based on $600K average income. Income drops to $400K due to market conditions, company performance, or industry changes.
Options:
Modification: Texas allows modification of spousal maintenance for material and substantial change in circumstances. Significant income decline may qualify.
Texas Family Code § 8.057 permits modification if circumstances have materially and substantially changed since the order.
However, modification requires:
- Filing motion
- Proving material change
- Court hearing
- Attorney fees
Planning alternative—graduated support: Build flexibility into original order:
Example: “Support shall be:
- $6,000/month if Husband’s annual income exceeds $600K
- $5,000/month if income is $450K-$600K
- $4,000/month if income is $300K-$450K
- $3,000/month if income is below $300K
Income calculated based on prior calendar year tax return.”
This avoids modification litigation while automatically adjusting for income changes.
One-Time Bonuses vs. Recurring Bonuses
The distinction matters:
Recurring bonuses (annual performance bonuses, regular profit sharing) should be included in average income for ongoing support calculations.
One-time bonuses (signing bonuses, retention bonuses, deal-specific transaction bonuses) arguably should not increase ongoing support obligations but might trigger one-time additional payments.
Example:
- Executive receives $5M retention bonus for staying through merger (one-time)
- Should ongoing monthly support increase?
- Better approach: One-time allocation (Wife receives 15-25% of the after-tax bonus as a lump sum; monthly support remains based on recurring income)
Deferred Compensation and Future Bonuses
Some variable compensation is earned during marriage but paid later:
Deferred bonuses: Bonuses earned in Year 1 but paid in Year 3. These are community property if earned during marriage, but when are they counted for support?
Retention bonuses: Require continued employment for 2-3 years. If divorce occurs before payout, how are they treated?
Texas approach: Generally, income is counted when received for support purposes, but deferred/earned compensation may be divided as property.
Example:
- Husband earned $500K retention bonus in 2022 (during marriage)
- Bonus pays out in 2024 (after divorce)
- Property division: Bonus is community property; Wife entitled to 50% as property division
- Support calculation: Bonus likely counted in 2024 income for that year’s support calculation if there’s a variable component
Stock Options and RSUs: Income or Property?
Stock compensation blurs lines between property division and income:
For property division: Options and RSUs earned during marriage are divided using time rules (discussed in earlier blogs).
For support purposes: When options are exercised or RSUs vest and are sold, the gains/value may be counted as income for that year’s support calculation if support is tied to actual income received.
Example:
- Support is “$5,000/month plus 15% of all income exceeding $400K annually”
- Husband exercises options generating $2M gain in Year 2 of support payments
- Result: Wife receives $5,000 × 12 months = $60,000, plus 15% of $1.6M excess ($2M – $400K) = $240,000, for total of $300,000
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However, if options were divided as property, receiving separate support based on the same options could be double-recovery. The settlement must clarify the relationship between property division and support calculations.
Self-Employment and Business Owner Complications
Business owners have even greater variable compensation complexity:
Discretionary distributions: Owners control how much they take as salary vs. distributions vs. retained earnings.
Income manipulation: Reducing salary/distributions during divorce to minimize support is common.
Lifestyle analysis: Courts can examine actual spending to determine true income capacity regardless of reported compensation.
Example:
- Business owner reports $200K salary
- But financial analysis shows: Company pays personal expenses of $150K annually, Owner’s lifestyle requires $500K annually, Business generated $800K net profit (most retained in company)
- Court may impute income of $500-600K for support purposes despite $200K reported salary
Professional Athletes and Entertainers
Unique considerations for high-profile careers:
Short career spans: Professional athletes may earn $10M annually now but have 5-year career expectancy.
Unpredictable earnings: Success-dependent income fluctuates wildly year to year.
Endorsement income: Separate from employment compensation; may continue beyond playing career.
Courts consider:
- Peak earning years vs. career average
- Post-career earning capacity
- Endorsement/residual income streams
- Financial security needs given short career span
Support often structured with higher amounts during peak earning years, adjusting downward post-career, or with lump-sum components to provide security given income volatility.
Tax Treatment of Variable Compensation and Support
Tax law changes affect planning:
Prior to 2019: Alimony was deductible to payer and taxable to recipient. This affected negotiation.
Since 2019 (Tax Cuts and Jobs Act): Alimony is NOT deductible to payer and NOT taxable to recipient for divorces finalized after December 31, 2018.
Implication for variable compensation: Since support is not deductible, there’s less incentive for high earners to agree to support tied to bonuses. Previously, deductibility meant paying support with pre-tax dollars (effectively costing less). Now support is paid with after-tax dollars.
Example:
- Husband receives $500K bonus
- After 40% taxes: $300K net
- Pays Wife 20% of net: $60K
- Under old law: Could deduct $60K, saving $24K in taxes, net cost $36K
- Under new law: No deduction, full $60K cost
This has reduced willingness of high earners to agree to percentage-of-bonus support formulas.
Strategic Considerations for the Paying Spouse
If you have substantial variable compensation facing support obligations:
Document income volatility: Show historical fluctuations to argue against using peak years as basis.
Distinguish extraordinary vs. recurring: Clearly identify one-time bonuses that shouldn’t inflate ongoing support.
Don’t manipulate income: Reducing income to minimize support can backfire through imputation and may constitute fraud.
Consider fixed support: If your income is highly volatile, fixed monthly support (even if higher) may be preferable to percentage-based formulas that create uncertainty and potential disputes.
Negotiate caps: If agreeing to bonus-based support, negotiate caps on total annual amounts.
Plan for taxes: Under current law, support is not deductible. Factor this into your negotiation—you’re paying with after-tax dollars.
Consider lump-sum alternatives: Rather than ongoing support tied to uncertain future income, consider larger upfront property division in exchange for lower/shorter support.
Strategic Considerations for the Receiving Spouse
If your spouse has substantial variable compensation:
Don’t accept “variable means unpredictable” arguments: Courts can and should account for variable compensation in support calculations.
Examine multi-year history: Look at 5-10 years if available to establish true income patterns.
Investigate income manipulation: If bonuses suddenly declined when divorce was filed, scrutinize whether this was strategic.
Push for percentage-based formulas: These ensure you share in upside of good years rather than being locked into fixed amounts based on average years.
Legal Disclaimer: This blog post is provided for informational purposes only and does not constitute legal or medical advice. The information presented here is general in nature and should not be relied upon as a substitute for consultation with qualified medical and legal professionals. What constitutes adequate care for high-risk pregnancies varies based on specific risk factors and circumstances. Not all complications in high-risk pregnancies involve medical negligence. Nothing in this article creates an attorney-client relationship. If you believe inadequate care for your high-risk pregnancy contributed to birth injuries or maternal harm, please consult immediately with an experienced birth injury attorney to discuss your specific situation and applicable legal deadlines. State laws vary regarding medical malpractice claims, and failure to act within required timeframes may result in loss of your right to pursue compensation.