Equitable Distribution

Very often, we deal with cases where our client or his/her has compensation from employment that is more than just salary plus bonus. Rather, with all of the financial services companies, pharmaceutical companies and other corporations in this area, we see all sorts of different compensation structures, including stock options, restricted stock, RSUs, REUs, etc.  Moreover, when the employee is in management or higher up in the company, the types of deferred compensation and/or equity plans can get even more complex.  Further, by its very nature, deferred compensation is not realized as income immediately, but usually over several years, typically 3 to 5 years.  Often it vests in two ways.  On way is serial vesting – 100 options are granted which vest over 5 years – 20 per year.  Sometime there is cliff vesting which means that the options all vest in year 5.  When an employee has been with a company for several years, then often start to have deferred compensation vesting each year and possibly available for income.

The question often arises as to whether these deferred compensation vehicles are income, assets or both,  While the answer is not simple, it is not as complex as many make it out to be..

Typically, deferred compensation that was granted prior to the date of the Complaint for Divorce is treated as an asset and is subject to equitable distribution.  If the deferred compensation is vested, meaning it can be immediately cashed in, then quite often it is equally divided (though again, New Jersey is an equitable distribution state not an equal division stated so it is not an automatic that these assets will be equally divided – sometimes it just seems that way.)

If the deferred compensation is not vested and requires continued, post-divorce Complaint service in order for vesting to occur, that is where things get more difficult.  I have seen some simplistically argued that anything granted before the Complaint gets equally divided no matter when it vests.  More recently, I have seen a greater use of some type of calculation (coverture fraction) used to recognize the post-complaint service of that spouse.  Many believe this to be the fairer way of equitably dividing deferred compensation.


Continue Reading DEFERRED COMPENSATION – INCOME, ASSET OR BOTH?

In a perfect world, marital settlement agreements (MSAs a/k/a Property Settlement Agreements) are crystal clear and cover every possible contingency under the sun (I say this as when first drafting this post, I was being contacted frantically by a client regarding custody provisions in the event of school closure because of hurricane.)  That perfect world rarely exists for many reasons, including the main reason that most cases would never settle and/or the cost would be outlandish if every possible contingency is contemplated and negotiated.  That said, we do our best to address to the most germane and likely issues.

If the document cannot cover every possible thing under the sun, at least the final document should be clear and include the parties’ actual meeting of the minds on the included issues.  Sadly, this does not always happen either.  Sometimes, the parties meeting of the minds is really not a meeting of the minds – that is, they each believe that the settlement is something else but the language of the agreement is vague or imprecise enough where they both think that they are right.  Some people actually do this on purpose to keep an argument on a "hot button" issue alive for the future.  Other times, it is simply inartful, to put it kindly, or down right bad drafting that causes future problems.

If a party can convince a court that the terms of the agreement represent a mutual mistake, perhaps there is some relief and the agreement can be re-formed.  That said, more often then not, one of the parties gets really hurt by virtue of the poor drafting. 

This appears to be what happened in the case of Rozier v. Byrd, an unreported (non-precedential) opinion released by the Appellate Division on October 26, 2012.  In this case, either someone was trying to be cute and the law of unintended consequences jumped up to bite him, or he was the apparent victim of a poorly drafted agreement.


Continue Reading Sloppy Drafting of Marital Settlement Agreements Can Cause Great Harm – Usually to only one of the parties

It seems to make sense that when parties who are business together get divorced, one party has to go.  The theory of "this town isn’t big enough for the both of us" comes to mind.  In fact, as far back as 1978, the courts of New Jersey recognized this seemingly common sense fact in a case called Borodinsky.  In that case, the Court held:

It seems almost doctrinal that the elimination of the source of strife and friction is to be sought by the judge in devising the scheme of distribution, and the financial affairs of the parties should be separated as far as possible. If the parties cannot get along as husband and wife, it is not likely they will get along as business partners …

There is no restriction on the court with regard to ordering distribution in kind of the eligible assets or awarding a monetary equivalent thereof. But, nonetheless, the judge should consider the former relationship of the parties and the fact that post-divorce peace is more conducive to the welfare of the parties.

But what if you agree to stay in business with your former spouse after the divorce?  What happens when things go bad?  Can you simply force a dissolution or buy out?

This was the issue in the case of Moriello v. Moriello, an unreported (non-precedential) case decided by the Appellate Division on July 17, 2012.


Continue Reading So You Thought It Was a Good Idea To Stay in Business with Your Ex-Spouse

As part of the give-and-take negotiation process involved with Marital Settlement Agreements, oftentimes one party will waive his or her right to the proceeds of the other party’s retirement plan assets.  What happens, however, when the spouse retaining those assets dies before changing the former spouse as the retirement plan’s designated beneficiary?

While one might think that the assets then pass to the Estate of the deceased spouse, the answer is actually more complicated.  In 2009, the Supreme Court of the United States in a case known as Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009), definitively held that the retirement plan administrator must, in accordance with the detailed statutory provisions of the Employee Retirement Income Security Act (“ERISA”) pay the asset proceeds to the designated beneficiary – in accordance with the plan documents.  Thus, even if the former spouse waived her rights to the retirement assets as part of the divorce decree, she could still stand to receive those benefits should she remain the designated beneficiary in the plan documents.  The Supreme Court even characterized the plan administrator as having done “its statutory ERISA duty by paying the benefits to [the ex-wife] in conformity with the plan documents.”

In such a situation what is the estate to do?  Is it without remedy, no matter how unfair the outcome may seem?  Actually, the Supreme Court left the question open as to an Estate’s avenue of remedy and, thankfully, the Third Circuit Court of Appeals recently addressed this issue of first impression in the precedential decision of Estate of William E. Kensinger, Jr. v. URL Pharma, Inc.; Adele Kensinger


Continue Reading Estate Can Attempt To Recover Funds Against Designated Beneficiary Due To Waiver In Divorce

The Simkin v. Blank case in New York has been a frequent topic on this blog.  It was game over for Mr. Simkin today when the NY Court of Appeals ruled that this Madoff victim could not revise his divorce deal.

 We first wrote when the case was filed.  In this case, in June 2006, the parties agreed to evenly split the $5.4 million in an account they had with Madoff Securities. As a result, the husband gave the wife $2.7 million in cash, and retained the account. As a result of the alleged Madoff Ponzi scheme that has essentially rendered the account worthless, the husband filed suit seeking the $2.7 million that he paid the wife. The husband alleges that because the account turned out to be valueless, the spirit of the agreement was broken.

We next wrote when the trial court first ruled, dismissing the matter.   I even participated in a podcast about this ruling. Acting New York State Supreme Court acting Justice Saralee Evans decided that the husband is stuck with his decision to keep the account instead of withdrawing his money before the December 2008 collapse of Bernard L. Madoff Investment Securities LLC. The Justice noted that while the husband claimed the Madoff account held no assets, he did not allege it had no value. Key to the decision was that in 2006 and "the several years after that plaintiff maintained this investment," the account "could have been redeemed for cash, presumably significantly in excess of its 2004 value." In addition, the Justice held that "An investor’s ability to redeem an account for value, was the assumption on which the parties relied in dividing their property and in doing so they made no mistake."

The next installment was about the Appellate Division’s decision which reversed the trial court decision and reinstated the Complaint.  The Appellate Court found that dismissal was improper and the husband had the right to try to pursue both the issues of mutual mistake (i.e. there never really was an account) and that the wife was unjustly enriched. In coming to its decision, the majority of the court held:

The dissent states: “[a]t the time of the agreement, Steven had an account in his name with [Madoff].” Untrue. Steven never had an account in his name with Madoff; on Madoff’s own admission there were no accounts within which trades were made on behalf of investors.

The dissent then states, “Steven liquidated part of the account to fund his payments to Laura.” Untrue. In Madoff’s Ponzi scheme what appeared to Steven and Laura to be a partial liquidation of an account was simply a payment to Steven that came from funds deposited by a more recent “investor” in what the “investor” believed was his own account.

The dissent further observes, “[Steven] did not liquidate the rest of the Madoff account … and he continued to invest in it.” Untrue. There was no account which could be liquidated, as became apparent when Madoff received $7 billion worth of “liquidation” calls from investors in 2008. Nor was Steven “investing” in an account; his further contributions went directly to pay other “investors” in the scheme.


Continue Reading Madoff Mess Hits the Divorce Court – The End

You work hard in high school, graduate top of your class in college, go on to graduate medical school, spend the longs hours and dedication needed to finish your residency, and finally after thousands of hours of studying, hundreds of tests and years of hard work – you are a doctor.  You start your own practice. You made it professionally. Personally, things are a bit different. You are facing a divorce. What does that mean for the medical practice you’ve worked so hard to establish?

Doctors may face unique issues during a divorce. Long term marriages may have seen years of what is considered relatively ‘average’ income (medical school and residency), followed by a dramatic or steady increase in salary (or a combination of both). It is no secret that self-employed doctors are usually not a typical W-2 employee. So what does this mean in the context of a divorce? What happens to the medical practice when the couple divorces?

Equitable distribution in New Jersey does not automatically mean half or 50% of a marital asset. Equitable distribution is not a simple mechanical division of assets accumulated and/or created during a marriage. The word ‘equitable’ itself implies the weighing of many considerations and circumstances that are presented in and unique to each case.  A judge would not be fulfilling his/her judicial obligation if he/she routinely or mechanically divided assets from a marriage equally.

Continue Reading What Does Equitable Distribution Mean for a Medical Practice?

Going through a divorce can be overwhelming – equitable distribution, visitation, alimony, child support, division of retirement accounts, where to live, re-entering the workforce.  All of these are important, long-lasting decisions.  But there is one thing that many people fail to consider during a divorce………..divorcing your credit reports.

Today, your credit report can have a significant impact on all aspects of your life – obtaining a credit card, getting qualified for a mortgage, car loans, a job, the interest rates you pay, car insurance, life insurance.  Not having good credit can cost you thousands of dollars.  That is why it is important to address your credit report, and the lines of credit that your spouse can access as early in the divorce process as possible.

The key to divorcing credit reports is understanding the difference in the way a court views debt versus the way credit companies view debt.  A court views debts as either marital debt or non-marital debt, and will divide it according to a variety of NJ statutory factors, which can be found here.  Credit companies view debt as either being joint or individual.  With joint debt, both spouses signed for the credit and both spouses are responsible for the debt. With individual debt, only one spouse signed for the debt, hence only one spouse is responsible for it.


Continue Reading Divorcing Your Credit Reports