Unvested Stock Options: What Constitutes “Double-Dipping?”

May the calculations for alimony payments include a spouse’s unvested stock options, particularly if those options were not considered to be part of marital property for purposes of equitable distribution? This question was recently answered by the Massachusetts Supreme Judicial Court. In Ludwig v. Lamee-Ludwig, the Court said yes. [1]

At issue was a practice colloquially known as “double-dipping,” which brings up “the seeming injustice that occurs when property is awarded to one spouse in an equitable distribution of marital assets and is then also considered as a source of income for purposes of imposing support obligations.” [2] As an example, double-dipping would occur where a party’s unvested stock options were divided equitably during the divorce, and later, when vested, counted as the party’s income for purposes of calculating alimony payments.

In the case at hand, the parties were divorced in 2014. Under their separation agreement, the wife was awarded alimony based on a portion of the husband’s annual base salary, and also awarded additional alimony based on a sliding-scale calculation of the husband’s bonuses and other forms of compensation. The trial court applied “the time rule” to this case: this rule considers the number of unvested options, as well as the length of time the employee spouse has owned those options PRIOR to the dissolution of the marriage.

The Court noted that because the trial judge did not consider the unvested stock options as part of the marital property to be divided among the parties during the divorce, no double-dipping occurred. “Here, there is no such injustice because the contested shares were not part of the equitable distribution of assets; by operation of the time rule, they were assigned to and retained by the husband outright.” [3] The source of property assignment only included options which were attributable to the marital partnership, and did not include stock options which were given for post-marital efforts. Therefore, the Court noted, those unvested options could be considered income for alimony calculation purposes.

Interestingly, the Court also pointed out that the practice of double-dipping is not prohibited as a matter of law—it may be done, so long as the trial judge considers the equities of each situation.

 

 

[1] Ludwig v. Lamee-Ludwig, No. 15-P-1177 (October 17, 2016-February 7, 2017).

[2] Id., at 5, quoting Champion v. Champion, 54 Mass. App. Ct. 215, 219 (2002).

[3] Id., at 5.

The Conduct of the Parties During the Marriage: A Factor in Dividing Marital Property

Larry and Leah have been married for a decade, during which Leah was the main bread-winner through her job as a human resources director. Though Larry has held a string of low-paying jobs, he has not managed to hold down a job for very long, and he can’t seem to manage saving any money—on top of that, Larry has spent substantial amounts of money on his gambling habit for the past ten years.

Leah has recently filed for divorce. She is concerned about the division of the property she has accumulated while she was married to Larry, particularly the marital home which was purchased with a down payment that she saved up from her job. Is the Court possibly going to order that Larry take half of the things Leah has worked so hard to accumulate and maintain, or will the Court take into consideration Larry’s lack of contribution and detrimental decisions?

Larry’s conduct during the marriage will likely be considered by the court here. The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how best to divide marital property in the fairest manner in each particular case. There are many factors that the Court considers as part of this process, and one of those factors is the conduct of the parties during the marriage.

As of the passage of the Massachusetts Alimony Reform Act, the conduct of the parties is no longer a factor in awarding alimony. However, the conduct of the parties remains a factor in the division of marital property. In what ways might it affect the judge’s decision? Past cases have looked at a slew of issues with conduct, including the following:

  • Failure to take care of the marital assets and responsibilities: in one case, the Court conveyed to the wife the primary home where the husband “did very little in house maintenance and spent much time outside the home” and the wife “was responsible for raising the children and taking care of the marital domicile.” [1]
  • Using the marital assets for a spouse’s own purposes, while relying on the other spouse to pay the family bills: in one case, where the wife contributed her money to home repairs while the husband, supported by his wealthy mother, spent his on motorcycles and a motor home, the Court considered the husband’s conduct and assigned almost all of the marital assets to the wife; [2]
  • Conveying marital property to another person in anticipation of divorce: the court in one case, where the husband obtained by fraud and coercion his wife’s permission to establish a trust to benefit his siblings, and moved marital property into that trust, the judge was able to invalidate the trust; [3]
  • Using the marital funds to “entertain” an extramarital affair; and [4]
  • Causing waste of the marital assets, such as by gambling; among other things. [5]

Typically, the conduct of the parties will be considered a factor in marital division only when it impacts the financial or economic state of the marriage. In other words, conduct which does not affect the couple’s finances or economic status—such as one spouse who is perhaps mean and condescending to the other but pulls his or her weight in maintaining the couple’s financial status—likely won’t be a controlling factor. Should that conduct impact finances, however, it may be considered by the Court.

If you have any questions about division of marital property, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

 

[1] Tanner v. Tanner, 14 Mass. App. Ct. 922 (1982).

[2] Johnson v. Johnson, 53 Mass. App. Ct. 416 (2001).

[3] Yousif v. Yousif, 61 Mass. App. Ct. 686 (2004).

[4] See, for example, the cases of Ross v. Ross, 385 Mass. 30 (1982) and McMahon v. McMahon, 31 Mass. App. Ct. 504 (1991).

[5] See, for example, Yee v. Yee, 23 Mass. App. Ct. 483 (1987).

In What Ways is the Age of the Parties Considered in Property Division?

Ellen and Earl have been married for more than twenty years, making the age of the parties more relevant in a divorce. During the marriage, Earl worked full-time as an engineer, while Ellen stayed home to care for the parties’ two children. Ellen, who has a high school education, went back to work part-time at a retail store once the kids learned how to drive.

However, Earl’s recent Complaint for divorce has thrown Ellen for a loop. She has few skills that would make her employable—on top of that, she is in her fifties and worries about attempting to go back to work full-time. Ellen wonders if her age will have anything to do with how the Court will divide the marital property. Will the Court consider her plight in allowing her to keep her marital home, for example?

The Massachusetts Probate and Family Courts use a process called equitable distribution to divide marital property in general. Here, the term “equitable” means “fair,” and not necessarily equal: the court will determine how to best divide marital property in the fairest manner in each particular case. There are many factors that the Court considers as part of this process, and one of those factors is the age of the parties. Together with other factors such as employability.

Typically, the older the parties are, the more important their age becomes when factoring it into the Court’s decision regarding assignment of the marital estate. In particular, if one party is elderly and has devoted a large part of his or her life to homemaking, and if the couple had a long-term marriage, then those factors coupled together will pose an important consideration for the Court. By contrast, if the couple is fairly young, with good prospects for employability, and had a fairly short marriage, then the age of the parties will become a much less important factor in dividing property.

In one case, the Appeals Court considered the advanced age of the wife (in her sixties) who had stayed home with the children, ran the household, and assisted the husband in his medical practice during a 36-year marriage. The Court held that the wife was unlikely to become financially independent, and that the trial court’s decision to award alimony and property to the wife was fair and equitable.[1]

If you have any questions about property division issues, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

[1] Serino v. Serino, 6 Mass. App. Ct. 926 (1978).

Pets and Divorce: Property or Something More?

There is a long line of case law that has established pets as personal property. From personal injury cases that dealt with the loss of a pet in an accident to cases considering whether the pet could “inherit” its owner’s estate, the courts have largely held that pets are indeed considered personal property.

Family law is no different. In a Florida divorce case, the Court ordered that the husband keep the couple’s dog, but also granted “visitation” to the wife. On appeal, the appellate court reversed that decision and firmly noted that the dog was merely personal property, giving the court no authority to make decisions regarding custody or visitation. [1]

Of course, Fido is not just “property” in the strictest sense—to most people, a pet is much more significant than, say, a toaster. In recent years, the number of cases dealing with “pet custody” has increased manifold; in fact, the Los Angeles Times reported on this phenomenon in a 2005 article. [2] In a Virginia divorce case, the Court took into consideration that the family dog had “bonded” with the husband and the husband “adopted” it; the Court also noted that the dog was “like a child” to both husband and wife. [3] In a New York case, similarly, the Court looked at the fact that a divorcing couple’s cat had a limited life expectancy and had prospered at living in the marital home when it ordered assignment of the marital property, including the cat. [4] Those types of analyses suggest that the Courts looked at the best interests of the pet to decide with whom the pet should stay.

However, in none of these cases did the courts hold that “custody” of pets is to be considered using the same standard and factors as would be used to determine the custody of minor children. In other words, none of these cases went so far as to suggest that dividing time with the family pet is an issue of “custody” or “visitation;” rather, each case still considered the pets to be personal property for purposes of division.

So, are pets truly personal property, to be divided using the typical standard for equitable distribution during a divorce? Currently, in the Commonwealth of Massachusetts, the answer is yes. Time will tell whether the Courts shift towards considering pets to be anything more in the course of a divorce.

If you have questions about pets in the context of a divorce, schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

[1] Bennett v. Bennett, 655 So.2d 109, 110 (Fla. Dist. Ct. App. 1995).

[2] Sanjiv Bhattacharya, To Love, Honor and Belly Scratch: Marriages Come and Go But Judging by the Number of Rising Pet-Custody Disputes, Some Passions Endure, L.A. Times Mag., Jan. 9, 2005, at 20.

[3] Conahan-Baltzelle v. Baltzelle, 2004 WL 1959486 (Va. Ct. App. 2004).

[4] Raymond v. Lachmann, 264 A.D.2d 340, 695 N.Y.S.2d 308 (1st Dep’t 1999).

Stocks and Divorce, Part I: Valuing Stocks and Bonds for Property Division

Gene and Gerri are in the middle of a contentious divorce case. Gerri knows that Gene bought valuable stocks during their marriage, using money from the couple’s joint bank accounts, but the portfolio is under Gene’s name only. Gerri wants to know whether she is entitled to ask the Court that some of the stocks be transferred to her as part of the divorce settlement.

In Massachusetts, stocks and bonds are expressly part of the marital estate, making them eligible for division. When dividing any marital property, the Massachusetts Probate and Family Courts use the standard of equitable distribution; here, equitable means fair, and not necessarily equal. The Court uses a sixteen-factor test, generally, to determine what is an equitable way of dividing property, and that same test will apply to these assets, as it does to all other real and personal, tangible and intangible property.

In some cases (mainly when the marriage is short-lived and there is little contribution by the other spouse to the stock-holder spouse’s acquisition and growth of the stocks) the Court may order that each spouse gets to keep the stocks and bonds held under his or her name.

In some other cases, the Court might order division of the stocks, after considering the contributions of the other spouse, the length of the marriage, and the needs of the parties, among other factors. The Court may consider and give weight to the parties’ actions in acquiring the stocks, investing prudently, and causing the appreciation in value of the portfolio involved—if one party was significantly better at this than the other and contributed significantly more in this regard, then the Court will give that fact great consideration.

Stocks are usually valued at the time of divorce. If the stock is readily sold on one of the stock markets, its value can be easily obtained and ascertained by the court. If the stock is not trading publicly, however, its valuation might be more difficult. A key example is stock held in a closely held corporation: one which is typically small, with few shareholders and no readily available market for its shares. Valuing stocks in a closely held corporation might require the use of an expert, such as an actuary.

If you have questions about stock and bonds or their valuation in your case, schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

How does Property Division Work in a Massachusetts Divorce in Plain English?

Massachusetts has long adopted the equitable distribution approach to property division in divorce.  Equitable distribution is the most popular approach in the United States, with a primary focus on achieving “equity” or fairness.  How fairness is determined, however, varies to some degree from state to state. Massachusetts gives the probate and family judges arguably the most discretion in distributing in the state.

Property division is established by Mass General Law 208, Section 34. The statute says “The court may assign to either her husband or wife all or any part of the estate of the other, including but not limited to, all vested and nonvested benefits, rights and funds accrued during the marriage.”

The statue then goes on to list a nonexclusive list of types of assets that would be included in the marital estate, essentially creating an extremely broad interpretation of “marital estate”.  The statute further provides various factors the court may consider in determining what would be a fair or “equitable” distribution of the estate.  While in many marriages, the court distributes and equal distribution to each spouse, the court has broad discretion in determining what it gives to each spouse.

There are two conflicting but important interests at play in the formation of the statute. On the one hand, as a society, we recognize that every situation is different. The less flexible the discretion, the more opportunity there could be for one party to exploit the law to his or her unfair benefit.  We give a tremendous amount of discretion to the family law judge because it establishes a commonsense check in the system.

The opposing argument to this also has merit. That is, because there is so much discretion in the probate and family judges hands, the spectrum of what might happen at trial is so great that it becomes very difficult to settle cases. What might happen at trial becomes simply too speculative to define.

There are, however, factors that the court must consider in determining an equitable result. The court must consider the length of the marriage, the conduct of the parties during the marriage, each parties’ age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities in needs of each parties.  The court can even consider the opportunity of each spouse for future acquisition of capital assets and income, which means that the court can consider potential inheritances, as we were recently reminded in the Pfannenstiehl case.

So between leaving discretion with the court and reigning that discretion in with more clearly defined statutory language, the court’s discretion wins in Massachusetts.  How does property division work in plain English?  The court first determines what’s in the marital estate, which is likely but not necessarily everything you own.  The court then considers essentially every possible factor that impacts your financial world now and may impact it in the future.  The court then orders an equitable distribution, which may or may not be equal.

The result of the law being this way is a bit wishy-washy, which can make resolving your case difficult without wondering if you’ve left a lot of money on the table.  But, resolving cases happens the vast majority of the time because the litigation costs required of taking a case to trial can be cost prohibitive.  And it should be noted that, even when there is a broad spectrum of what could happen at trial, the parties both have a reason to compromise.

The best course of action for an individual facing divorce, particularly when there are complex assets at stake such as business interests or trust interests, are to seek the counsel of a competent divorce attorney.  Many do free consultations, including our office. To schedule a free consultation with our office, call 978-225-9030 during regular business hours or complete our contact form here and we will call you when we are back in the office.