|
|
|
Stock Options Awarded One Day After Divorce
© 2004 National Legal Research Group, Inc.
MISSOURI: Clance v. Clance, 127 S.W.3d 716 (Mo. Ct. App. 2004).
The classification of stock options depends upon the time at which the options were earned. Depending upon the facts, stock options can be consideration for past, present, or future service. On the facts presented, stock options awarded to the husband one day after entry of the divorce decree were consideration for past marital efforts. They were nevertheless separate property because the husband did not own the options on the date of the divorce, which is the date of classification under Missouri law.
The husband appealed the trial court's order granting a divorce which classified certain stock options as marital property and awarded a share thereof to the wife. The parties had agreed to a division of assets, but the order adopting that agreement was set aside on the ground that the husband had failed to reveal the existence of certain stock options that had been granted to him during the marriage by his employer. The trial court entered a new judgment declaring that the stock options were marital property and divided them equally between the parties, and then later amended that order to account for a stock split that had occurred. The husband appealed.
The husband argued first that the trial court had erred in classifying the unexercised stock options as marital property, which had been granted to him on December 13, 2000, because the judgment dissolving the marriage had been entered on December 12, 2000. In recognizing the function of the trial judge in this regard, the appellate court stated that the trial court is charged with the task of setting aside nonmarital property to each spouse and dividing marital property between the spouses and that, save certain exceptions, marital property is generally defined as property acquired by either spouse subsequent to the marriage, but before a legal separation or dissolution. Mo. Rev. Stat. 452.330.3. In classifying the stock options as marital property, the trial judge determined that, because the husband's labor which justified the granting of the options had been performed during the marriage, before the December 12 date, those options were also "acquired" during the marriage. This reasoning is in line with how the term "acquired" has been defined under Missouri law, namely, by the source-of-funds rule. Under that rule, the character of property is determined by the sourceof the funds financing the purchase. Property is considered to be acquired as it is paid for so that, in the context of marriage and distribution of the marital estate, a portion of the property's ultimate value will be marital property to the extent that it was paid for by labor during the marriage. To "acquire," therefore, is an ongoing process of making payment for acquired property. The husband countered by arguing that (1) the stock options were compensation for future services, as opposed to compensation for work already completed; (2) the stock options were unvested and their potential for vesting were contingent upon many things, including continued employment; and (3) the stock options were not in existence during the marriage and were, therefore, not "acquired" during the marriage.
The appellate court rejected the husband's first two contentions. It first recognized that had the options been compensation for future continued employment they would not be considered "acquired" during the marriage as the efforts leading to their creation would occur after the marriage was dissolved. However, in analyzing the record, it concluded that the evidence demonstrated that the options were compensation for past performance. The stock plan clearly stated that it was employees who contributed to the growth and profitability of the company who were eligible to receive stock options. As to the husband's argument that the stock options were not marital property because they were unvested, the court responded by noting that, although the options were not exercisable by the husband on the day that they were granted, it did not prevent them from being classified as marital property. Under the terms of the stock plan, 25% would vest each year as of December 31, so the stock options granted on December 13, 2000 would be fully vested as of December 31, 2003. The options, according to the court, were fully earned and created by the efforts of both parties and their value was fixed, and they were properly classified as marital property. However, as to the husband's third contention, that the stock options had not been "acquired" during the marriage because they did not exist as of December 12, 2000, the date of the entry of the dissolution order, it found in favor of the husband.
The court reasoned that the fact that the husband did not have an enforceable right to the stock options until they were awarded on December 13 was the determinative factor because, without either party having an enforceable right to such options, the trial court did not have jurisdiction to divide them between the parties. Inherent in the trial court's authority to divide marital property, Mo. Rev. Stat. 452.330.1, is the basic principle that a judgment or decree may only affect property belonging to the parties to the action. It added that the source-of-funds rule reveals that whether a piece of property should be classified as marital or nonmarital depends on the source of funds financing the purchase. Here, on December 12, the date the divorce action became final, however, the stock options had not been "purchased," and they did not constitute property because the husband had absolutely no legal right to them. Under the terms of the stock options plan, no right to the options was given until they were awarded. These options, therefore, did not become the property of the husband until December 13, the date the committee actually made the award. Had the options been awarded on December 11, added the court, established precedent would no doubt have led it to declare that they were marital property. While recognizing that this two-day difference may seem harsh, the court acknowledged that this case of first impression simply happened to be the most extreme example possible in that all of the work performance leading to the stock option award occurred during the marriage, but that the award was actually not made until after the divorce became final. It noted that if it were to adopt a rule that allowed an item to which neither party had any enforceable right on the date that the divorce decree becomes final to be classified as marital property courts would be required to reopen an inordinate amount of divorce decrees up to an indefinite time into the future. Stock options would not be the only type of award under the potential reach of a different holding. Any type of discretionary award made in consideration of labor that occurred even partially during the marriage could be affected by such a decision. It was better for judges and divorcing parties to know that only those items to which one or both parties had some enforceable right on the day the divorce decree became final could be classified as marital property.
As part of its conclusion, the court noted that it was important that no evidence of any collusion was presented. The record did not indicate that the husband did anything to postpone the grant of the stock options until after his divorce became final, nor did it indicate that he even had the ability to do so.
Go to: Stock Options Category
Go to: Cases of Interest by Category
Go to: Previous Page
| Featured Services | |
|
| The Research Center: (Divorce Cases of Interest) | Research Home | ||||
Find Case Law, Case Analysis, and Divorce Information...
| |||||
Copyright© 1996-2011. All rights reserved by Divorce Source, Inc.
Comments & Suggestions? or Recommend This Page to a Friend!