Executive compensation packages often include benefits that extend far beyond salary and annual bonuses. You may have found yourself wondering, “How is executive severance divided in a Texas divorce?” There are several important factors to consider, including why severance was paid, when the right to receive severance was earned, and whether the benefit is considered community or separate property for Texas divorce purposes.
Why Work With The Law Office of Ben Carrasco, PLLC?
The Law Office of Ben Carrasco, PLLC, handles family law cases only, and we frequently litigate complex high-asset divorces all over Central Texas. We understand severance division laws, so we know how to assist you in your case. A Stanford graduate, Ben Carrasco is board-certified in family law. Our clients receive personal contact with an attorney at every phase of their case.
What Is Executive Severance?
Simply put, executive severance refers to compensation paid to an executive upon the termination of employment, according to the terms of an employment agreement or severance plan. Depending on the employer, severance packages can include:
- Lump-sum payments
- Bonuses
- Contributions to retirement
- Continuation of salary
- Health insurance benefits
Because different benefits may serve different purposes, it can be useful to understand why each benefit was granted.
The date of a severance agreement can be important in dividing property. Courts typically look at the facts of each case to determine the intent behind the severance agreement, instead of just when the money was actually received. Employment agreements, separation agreements, and company policies may also address when one can receive severance.
Texas Community Property Divorce Laws and Severance
Texas is a community property state. Texas Family Code § 3.002 begins with a presumption that property acquired during marriage is community property. Texas Family Code § 7.001 then mandates that community property be divided in a manner that the court deems just and right. Simply because severance is paid before or after a divorce, it does not automatically make it community property or separate property.
Courts in Texas often look at the reason why severance was paid in executive employment agreements. Certain types of severance pay can cover work an executive completed while married. Others may be intended to replace future income after employment ends. The reason behind the severance can affect how it is characterized for community property purposes.
According to a 2025–2026 survey of 100 S&P Composite 1500 companies, 86% of CEOs and 82% of CFOs are eligible to receive severance benefits if their employment ends due to a change of ownership. Not all benefits included in a severance package are granted for the same reason.
Valuing Severance Benefits
Executive severance can be worth hundreds of thousands, if not millions, of dollars to senior executives and corporate officers.
Agreements may be included in:
- Employment contracts
- Compensation agreements
- Payroll documentation
- Bonus arrangements
- Stock options
- Benefit summaries
Some executive severance benefits are guaranteed and can be easily calculated. Other benefit provisions may be based on future events, or they might be contingent on the executive’s continued fulfillment of their employment agreement.
Accountants can be brought in to calculate the present value of future payments when needed. To properly divide property, these benefits must be valued correctly so that all relevant financial interests are included.
Tax Implications
The after-tax value of severance payments may differ based on how they are taxed. For example, cash severance benefits may be taxed differently from stock options, retirement packages, or continued benefits. What looks like a hefty sum on paper might actually be worth less once future tax obligations are factored in.
Negotiating parties typically consider the estimated after-tax value of executive compensation instead of the published stated payout.
Hire a Property Division Lawyer
Executive severance benefits often require an extensive analysis of employment agreements and compensation history. Because of this, it’s important to hire a property division lawyer. A Texas property division attorney can assess each severance benefit’s intended purpose. Then, they can evaluate potential valuation disputes that could impact your overall property division.
The Travis County Civil and Family Courts Facility, at 1700 Guadalupe Street, Austin, TX 78701, hears many divorces involving Austin-area executives. Depending on where the parties reside, cases may be heard in Williamson County, Hays County, or other Texas jurisdictions.
FAQs
Can an Executive Negotiate Severance Terms During a Pending Divorce?
Yes, executives can negotiate severance agreements when employment terminates, even if divorce proceedings have already begun. The timing of the agreement and details of the negotiation may be factors when dividing property. Keeping good records of the negotiation process and the ultimate agreement can demonstrate the nature of the benefits conferred.
Can Severance Include Benefits Other Than Money?
Yes, severance can include benefits other than money. Severance benefits for executives can also include:
- A continuation of health benefits
- Outplacement services
- Acceleration of retirement benefits
- Reimbursement of legal expenses
- Executive coaching
- Use of a company car or office
Each of these may have varying financial value and can be considered separately.
Can an Executive Receive Severance After Voluntarily Resigning?
Yes, an executive can receive severance after voluntarily resigning. Although most think of severance in the context of involuntary termination, some employment agreements provide for severance upon resignation if certain conditions are met, such as resignation after a material diminution of duties or a qualifying event of corporate restructuring. This is dependent on the language of the employment agreement.
Can Future Consulting Obligations Affect the Value of Severance?
Yes. Occasionally, severance agreements may require the executive to provide consulting or other advisory services following the termination of employment. When future services are a condition for receiving specific payments, these duties factor into the payment’s valuation, potentially framing them as compensation for upcoming work instead of just for prior employment.
Reach an Attorney Today
Employment severance given to an executive is not automatically considered community property or separate property in Texas divorces. Typically, courts look at the reason for the severance package, when the employee earned the right to receive severance, and under what terms, before deciding how severance may be treated when dividing assets and debts.
If you are facing a high-net-worth divorce, you should know how Texas courts view severance benefits. The Law Office of Ben Carrasco, PLLC, can provide detailed and reliable counsel. Contact us today to learn more.
