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Country Club Memberships as Divisible Property in Divorce
2004 National Legal Research Group, Inc.

In determining whether an interest constitutes marital property, the court must first determine whether that interest meets the legal definition of property. Interests which do not constitute property, such as educational degrees and future inheritances, cannot be divided upon divorce. See generally Brett R. Turner, Equitable Distribution of Property 5.06, 6.20, 6.27 (2d ed. 1994 & Supp. 2004).

Two recent decisions provide an interesting look at how the courts are defining property in the 21st century. The decisions reached different results, but in each case the result was arguably required by the facts presented.

Solomon v. Solomon

In Solomon v. Solomon, 2004 WL 2021407 (Md. Sept. 13, 2004), the most interesting issue was the classification of a country club membership. Shortly after marrying the wife, the husband was admitted to full membership in the Congressional Country Club. To become a full member, the husband paid a $25,000 initiation fee. By the time of the divorce, the fee had risen to $80,000. The membership could not be transferred to another person, and no portion of the initiation fee was refundable under any conditions.

Relying upon cases from other jurisdictions treating country club memberships as marital property, the wife argued that the husband's membership was marital property. The trial court accepted the wife's argument, but Maryland's intermediate appellate court reversed. The husband then took the case to the court of appeals, the highest court in Maryland.

The court began its opinion by noting that the term property is inherently broad, and includes many intangible rights:

We interpret the term "property" as used in the statute as encompassing "everything which has exchangeable value or goes to make up a man's wealth every interest or estate which the law regards of sufficient value for judicial recognition." Deering v. Deering, 292 Md. 115, 125, 437 A.2d 883, 889 (1981) (quoting Diffendahl v. Diffendahl, 239 Md. 32, 36, 209 A.2d 914, 915 (1965)). Property "may reasonably be construed to involve obligations, rights and other intangibles as well as physical things." Bouse, 180 Md. at 686, 26 A.2d at 769 (1942).

Id. at *13.

Nevertheless, the term property does have limits, particularly where intangible rights are concerned. "An intangible item must have certain characteristics to be considered appropriately marital property." Id. at *14. The court cited as an example Archer v. Archer, 303 Md. 347, 357, 493 A.2d 1074, 1079 (1985), which held that a professional degree did not constitute property, primarily because it could not be transferred, exchanged, or otherwise used to produce value in a more tangible form. Because the country club membership at issue also could not produce value, the court held that it too was not property:

We conclude on this record that the Club membership is not property and therefore not marital property. On this record, the only conclusion that may be reached is that the Club membership cannot be sold, transferred, exchanged, redeemed, inherited, or liquidated in any way. It does not count "to make up" Mr. Solomon's wealth. See Deering, 292 Md. at 125, 437 A.2d at 889.

Even under the broader Bouse standard, supra, for intangible assets, no conceivable method has been advanced for how this intangible asset could be converted into a monetary amount that could be distributed equitably between the parties. It is this inability to sell or divide the Club membership that makes the membership different from the intangible assets that previously have been held to be marital property. Workers' compensation awards, stock options, and pension rights may be similar to the Club membership in that they may be held only by the original holder and may not be sold or transferred freely to another party. The holders of these assets, however, have the option of exercising or exchanging the assets in order to receive a particular monetary amount, which may then be distributed. It is this characteristic that sets them apart from the Club membership in the present case.

Solomon, 2004 WL 2021407, at *15. The court noted, however, that its decision would not apply to all country club memberships:

A non-equity club membership lacks the same fundamental characteristics of property that a professional degree or license does, making them both inappropriate for inclusion in marital property. This is not to say that a club membership may never constitute marital property. Those memberships that may be transferred to other parties or can be sold, exchanged, or redeemed for some monetary amount give the holder the ability to convert the membership to an asset with ascertainable value, which could be distributed equitably as marital property. Because Mr. Solomon's non-equity membership does not partake of these abilities, we agree that it does not constitute marital property.

Id. Thus, the court drew a key distinction between equity and non-equity country club memberships. The former constitute property; in Maryland, at least, the latter do not.

Courts in other states have generally held that country club memberships constitute marital property. See Cole v. Cole, 82 Ark. App. 47, 110 S.W.3d 310 (2003) (country club); In re Marriage of Fink, 25 Cal. 3d 877, 160 Cal. Rptr. 516, 603 P.2d 881, 883 (1979) (country club); Gates v. Gates, 256 Mich. App. 420, 664 N.W.2d 231 (2003) (yacht and golf clubs); M.A.Z. v. F.J.Z., 943 S.W.2d 781 (Mo. Ct. App. 1997) (country club and golf club).

While the above decisions reached a different end result than the Solomon court, there may be less difference in the holdings than the differing results would suggest. Solomon recognized that a membership would be property where it could be transferred for consideration, or where a portion of the fee was refundable upon termination of the membership. It is also significant to note that the fee paid in Solomon was an initiation fee a sum paid to gain initial entry into the club and not a true membership fee paid for the use of club facilities.

Two cases from other states, both cited in Solomon, expressly described the club as one which charged an initiation fee, and nevertheless held that the membership was property. The Solomon court distinguished McIntyre v. McIntyre, 722 S.W.2d 533, 536 (Tex. App. 1986), on the basis that the initiation fee in McIntyre was refundable after 30 years, so that the membership did produce monetary value. No attempt was made to distinguish McClerin v. McClerin, 310 S.C. 99, 425 S.E.2d 476, 479 (Ct. App. 1993), where the court simply valued the membership as an amount equal to the current initiation fee. McClerin and Solomon therefore seem to conflict fairly directly.

The hard cases in the future will probably be those in which a country club membership was literally acquired by purchase, but where the membership is non-transferable and non-refundable. If payment of the membership fee actually gives the paying party a legal right to use the club facilities for a stated period of time, that legal right was acquired in consideration for tangible dollars. The right will not ever yield a financial benefit if it is non-transferable and non-refundable, but it still gives the buyer a benefit which is both certain and legally enforceable. If the right to use the facilities continues after the date of classification that is, if a payment of marital funds acquired the right to use club facilities after the termination of the marriage then a financial benefit is conferred upon the owner, who would otherwise be required to purchase that right with separate property.

It is not clear how far Solomon intended to take its holding that rights constitute property only if financial benefits can be received from them. Non-transferable, non-refundable contracts which provide the buyer with the right to use a service are often the subject of actual bargaining. For example, a long-term lease with a significant initial payment might in some cases be non-transferable and non-refundable, yet the law has traditionally treated leasehold interests of all sorts as property. If this sort of right is not treated as property, it is potentially possible for a spouse to steal marital property by conveying it to a third person in return for a legal enforceable agreement to provide valuable services after the divorce is over, as long as the agreement is non-transferable and non-refundable. To the extent that Solomon is construed in future cases to provide that a right which produces no value is never property, even if it grants the legally enforceable right to benefit from a service offered by the seller, the result reached is questionable.

Perhaps the issue could be finessed by holding that a non-transferable or non-refundable contract to provide services after the termination of the marriage does give the buyer a form of value the right to receive the services at issue. Since receipt of these services gives the buyer a significant financial savings, such a contract really does produce value for the buyer. Solomon at times seems to require that a right produce money in order to constitute marital property, but it ought to be sufficient if the right produces money indirectly, by allowing the buyer to avoid a future expense. For example, an enforceable agreement to receive free groceries from a supermarket for a year, in exchange for a lump-sum payment at the start of the year, ought to constitute property even if it is non-transferable and non-refundable, because the buyer is freed from purchasing groceries for a year a right which has a significant financial value.

To analyze the question in this way, however, suggests a deficiency in the Solomon opinion. The husband surely received substantial social benefits, and very possibly professional benefits as well, from belonging to Congressional. If Congressional were organized on the basis of yearly membership fees rather than a single lifetime initiation fee, it is not difficult to imagine the husband deciding that the benefits of continued membership justified payment of the annual fee. But this hypothetical situation shows that payment of the initiation fee may very well have given the husband a continuing financial benefit, by freeing him from the need to spend separate funds after termination of the marriage on the membership fee of another country club. Solomon paid too much importance to whether the membership generated monetary value in the future, and too little importance to whether the membership generated economic value by giving the husband a legally enforceable right to receive valuable future services from the club.

Because the husband may have received economic value from his Congressional membership, it is extremely important to determine exactly what rights the husband acquired by paying the $25,000 and joining Congressional. If he acquired a legally enforceable right to use Congressional's facilities for a period of time which extended after the divorce, that right gave the husband a significant benefit. The right could be valued by dividing the initiation fee by the period of time over which the right existed (the husband's life expectancy if the benefit lasted for his lifetime). Alternatively, it might be possible to use the annual cost to join a similar country club operating on the basis of an annual membership fee, multiplied by the time period and discounted to present value. If the husband had a legally enforceable right to use Congressional's facilities after the divorce, acquired in exchange for a single $25,000 lump-sum initiation fee paid with marital funds, Solomon should have treated the remaining value of that right as marital property.

For a variety of reasons, however, it is possible that the husband did not have an enforceable right to use Congressional's facilities. The Solomon opinion does not provide much evidence as to how Congressional was organized, but the author suspects that Congressional almost certainly retains the right to terminate the husband's membership under various conditions. By describing the $25,000 as an initiation fee, the court suggested that the fee did not purchase any legal rights at all, but rather that the fee was essentially the cost of entry into an exclusive social club. Membership in a purely social club is surely not property.

Still another possibility is that Congressional charges fees for access to some or all of its services. If the initiation fee gave the husband only the right to benefit from future services by paying the fee charged by the club, the membership is like an option. An option has value only to the extent that it allows the purchase of property at a favorable price; an option to purchase property at its current fair market value is worthless. If Congressional required its members to pay fair value for access to club facilities, then the members received no economic benefit from paying the initiation fee. Since Congressional is one of the most prestigious country clubs in the Washington area, it is very conceivable that members might pay the initiation fee simply for the prestige of membership in which event the fee really does acquire nothing more than membership in a social club.

The property result in Solomon was therefore heavily dependent on the extent to which the husband's payment of the initiation fee gave him a legally enforceable right to receive future services from the club. To determine this key fact, it was almost certainly necessary to examine in detail the club documents stating what legal rights accompanied payment of the initiation fee. By failing to discuss this key issue, Solomon failed to give a persuasive justification for the result reached. In the future, when a country club membership is an enforceable agreement to provide future services and not a mere entry fee for a social club, the membership should be treated as property, even if it gives the member no future right to acquire money directly from the club.

Ketterle v. Ketterle

In Ketterle v. Ketterle, 61 Mass. App. Ct. 758, 814 N.E.2d 385 (2004), the husband was an outstanding scientist and professor at the Massachusetts Institute of Technology (MIT) who had just won the 2001 Nobel Prize in Physics. The after-tax proceeds from this prize were $166,000. The project which won the prize was originally operated by the husband's mentor, who in 1993 had turned the entire project over to the husband, for the purpose of ensuring that the husband would remain at MIT. While no legal obligation accompanied the transfer of the project, the husband felt a considerable moral obligation. He therefore announced publicly an intention to give one-half of the Nobel prize proceeds to his former mentor.

The trial court included in the marital estate the $83,000 in prize money which the husband retained, but did not include in the marital estate the $83,000 which the husband intended to give to his mentor. The court further awarded the wife 68% of the marital estate, relying primarily upon the parties' differing abilities to acquire property in the future. The husband, as a Nobel prize winner, had a substantial opportunity to acquire future income. The wife, who had worked part-time as a teacher's aide, was in excellent physical health but questionable mental health; indeed, she had been hospitalized in late 2001 because of a suicide attempt and severe depression.

The husband appealed, arguing that the wife's award was too large. Because the wife failed to appeal, the issue of whether the trial court properly refused to treat the gift to the mentor as marital property was not before the appellate court. Nevertheless, the court reached beyond its limited scope of review to state that the trial court's exclusion of the gift to the mentor was wrong, such that it would have been reversed if the issue were properly presented:

The husband was also awarded the right to give $83,000 of the Nobel Prize proceeds to his mentor. The judge correctly treated this commitment as a professional or moral obligation and not a legal debt. See Restatement (Second) of Contracts 71 comment c (1970) ("a gift is not ordinarily treated as a bargain, and a promise to make a gift is not made a bargain by the promise of the prospective donee to accept the gift") and 86 ("Nor are moral obligations based solely on gratitude or sentiment sufficient of themselves to support a subsequent promise"). Although the wife has not appealed, and therefore this issue is waived, the $83,000 promised to the mentor should have been included in the marital estate. . . . It was within the judge's discretion to allow the husband to transfer the $83,000, but only if she assigned the $83,000 to the husband's side of the ledger and did not allow him to claim that he was entitled to assets otherwise properly allocated to the wife, whose devotion to their family life had also contributed to his professional triumph.

61 Mass. App. Ct. at 764, 814 N.E.2d at 390. Thus, because the husband had no actual enforceable legal obligation to give the $83,000 to his mentor, the court held that that amount should have been treated as marital property.

The appellate court further noted that the trial court's award of 68% of the marital property to the wife would have been an award of only 62% if the $83,000 gift to the mentor were included in the marital estate. On this basis, the trial court's decision was affirmed:

The judge's findings on the wife's inability to acquire future income and assets are well-supported, given the wife's limited vocational skills and mental illness. In regard to the husband, the judge emphasized not only the Nobel Prize but also the husband's lucrative retirement plan. There is no dispute regarding the valuation of the retirement plan. We also discern no error in the judge's determination that the Nobel Prize, in combination with the husband's brilliance, work ethic, good health, and relative youth (he was forty-four years old at the time of the trial), will provide him with significant future income and assets given the extraordinary nature of his scientific breakthrough, its worldwide recognition, and its projected near and long-term technological applications. The husband's and wife's ability to acquire future income and assets are therefore strikingly different and justify the judge's heavy reliance on this factor.

61 Mass. App. Ct. at 762-63, 814 N.E.2d at 389.

Ketterle demonstrates that property which has actually been given away can be treated as marital property if the gift was improperly made during or after the marital breakdown. While no reported case involves a transfer to a former mentor, there is ample support for the proposition that a voluntary gift to a third party cannot remove property from the marital estate. See In re Marriage of Cerven, 317 Ill. App. 3d 895, 252 Ill. Dec. 93, 742 N.E.2d 343 (2000) (gifts to church were dissipation); In re Marriage of Uehlein, 265 Ill. App. 3d 1080, 202 Ill. Dec. 838, 638 N.E.2d 706 (1994) (dissipation existed where checks earned by husband were cashed and used by his co-worker); Luckeroth v. Weng, 53 S.W.3d 603 (Mo. Ct. App. 2001) (gifts to parents); Morris v. Morris, 951 S.W.2d 739 (Mo. Ct. App. 1997) (husband used $75,000 in marital funds to purchase duplex in name of brother); Buchsbaum v. Buchsbaum, 292 A.D.2d 553, 740, 740 N.Y.S.2d 359 (2002) (gifts to charity and to husband's family); Ferraro v. Ferraro, 257 A.D.2d 596, 684 N.Y.S.2d 274 (1999) (husband made pension plan distribution to his mother); Syslo v. Syslo, 2002 WL 31166937 (Ohio Ct. App. 2002) (husband gave marital tax refund checks to brother). Cerven and Buchsbaum, involving respectively gifts to a church and gifts to charity, are the closest cases factually to Ketterle. Gifts to third parties, no matter how morally justified, cannot prejudice the rights of the donor's spouse.

The unique point about Ketterle is that the transfer to the mentor may have been more than a mere moral obligation. Unlike a gift to a church or a charity, the transfer at issue in Ketterle was to some extent the return of value previously given, for it was based upon the former mentor's transfer to the husband of the very project which led to the Nobel prize. As the opinion seems to recognize, the transfer to the former mentor would have been clearly permissible if it had been required. Payment of an enforceable marital debt is not dissipation. See Pietras v. Pietras, 842 So. 2d 956, 959 (Fla. Dist. Ct. App. 2003) ("Paul paid off this liability by withdrawing funds from a marital asset. . . . This amounts to a 'wash,' and where the parties agreed to use the most recent valuation dates for the marital assets, should not have been included in the equitable distribution."). The law of unjust enrichment could perhaps be used to construct an argument that the transfer in Ketterle was something materially different than a simple gift. But there is no indication that the husband presented such an argument, and, given the vigor of the opinion, it is doubtful that the argument would have been accepted.

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