January 10, 2020

Divorce, Bonuses and the IRS, Oh My!

by Joanne S. Beasy,Isaac Wiles

It’s that time of year. Time for celebration, gift-giving and holiday merriment. You may even receive a year-end bonus, which can be a great way to kick of the 2020 New Year. For some, though, the often-celebrated year-end bonus can serve as a reminder of how divorce not only impacts your current financial status, but your future one as well.

Under Ohio law, a bonus is income, and if you are in the middle of a divorce, that bonus income is generally not all yours; it’s 50 percent yours and 50 percent your spouse’s. The court can order a division of the bonus as part of the court’s “temporary orders.” Or, if your divorce is concluded, and you were ordered to share a percentage of future bonuses with your ex-spouse (which is not uncommon if bonuses are a “regular” part of your compensation), you may find yourself having to share that bonus with your ex-spouse.

Now, from the other side of things, if you are the ex-spouse receiving a share of that bonus, you have the opposite reaction -- getting your share of that bonus is well-deserved. I’m not here to judge either side of that debate. Instead, my advice to all is to consult the court’s order that terminated your marriage and make sure you follow it when that bonus comes in the door. If you must pay, then pay. If you are to receive a share of your ex’s bonus, make sure you get copies of the gross and net pay information to be sure you received your "fair share."

The kicker in all of this is the IRS. As much as you may dislike your ex-spouse, you may dislike the IRS even more because of the tax treatment of bonuses. Generally, bonuses are taxed at 22 percent, which can be a shock if your normal, withholding tax rate is much lower.