Batra v. Batra

• Decision Date: 16 January 2001
• Docket Number: No. 26026.,26026.
• Citation: 17 P.3d 889,135 Idaho 388
• Parties: Shubneesh BATRA, Plaintiff-Appellant-Cross Respondent, v. Monica BATRA, Defendant-Respondent-Cross Appellant.
• Court: Idaho Court of Appeals

17 P.3d 889

135 Idaho 388

Shubneesh BATRA, Plaintiff-Appellant-Cross Respondent, v. Monica BATRA, Defendant-Respondent-Cross Appellant.

No. 26026.

Court of Appeals of Idaho.

January 16, 2001.

Cosho, Humphrey, Greener Welsh, Boise, for appellant. Stanley W. Welsh argued.

Bevis, Cameron Johnson, Boise, for respondent. James A. Bevis argued.

SCHWARTZMAN, Chief Judge.

Shubneesh Batra appeals from the order of the district court affirming the magistrate's decision with respect to division of property and child support in his divorce from Monica Batra. Shubneesh challenges: (1) the characterization of stock options received from his employer; (2) the tracing of assets used to purchase stock and exercise stock options; and (3) the findings supporting the trial court's order that Shubneesh reimburse Monica for her interest in a gold coin and for four sets of gold jewelry given to her by her parents at her wedding. Monica cross-appeals, challenging the method of valuing stock options. We affirm in part and vacate in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

Prior to his marriage to Monica, Shubneesh, an engineer at Micron Technology, Inc. (Micron), began to receive the right to stock options beginning on September 27, 1993. The September 27 grant, as well as subsequent grants, stated that the options were to vest at a rate of 20 percent per year and expire on the anniversary date six years after the initial grant.¹ Shubneesh and Monica Batra entered into an arranged marriage on July 14, 1995, in New Delhi, India. During the course of the marriage Shubneesh received additional grants of stock options. On September 10, 1996, the Batras' only child, Millan, was born. Shortly thereafter the couple separated and Shubneesh filed for divorce.

A court trial was held, at which Shubneesh and Monica testified about their assets, liabilities, and ability to care for their infant son. Shubneesh presented evidence of Micron stocks and stock options granted prior to and during his marriage to Monica. Monica testified about four sets of gold jewelry, which she personally valued at $10,000, given to her as separate property gifts at her wedding and a gold coin she purchased during her marriage to Shubneesh. Thereafter, the magistrate entered findings of fact, conclusions of law and an order. A divorce decree was issued on November 20, 1997.

Shubneesh appealed to the district court, arguing that the magistrate had erred in dividing Micron stocks and stock options; in ruling that Shubneesh had failed to adequately trace purchases of Micron stock to separate property sources; and in ordering Shubneesh to pay the value of or return to Monica the four sets of jewelry and $203, representing her share of the value of the gold coin. Monica filed a timely notice of cross-appeal. The magistrate stayed execution of the judgment. The district court affirmed the magistrate's decision in pertinent part and reversed and remanded the case for calculation of tax consequences. Shubneesh appeals and Monica cross-appeals.²

II. STANDARD OF REVIEW

Our review of a magistrate's decision is made independently from, but with due regard for, the decision of a district court sitting in an appellate capacity. Worzala v. Worzala, 128 Idaho 408, 411, 913 P.2d 1178, 1181 (1996); Smith v. Smith, 124 Idaho 431, 436, 860 P.2d 634, 639 (1993); McAffee v. McAffee, 132 Idaho 281, 284, 971 P.2d 734, 737 (Ct.App.1999). The magistrate's findings of fact will be upheld if they are supported by substantial and competent evidence. Worzala, 128 Idaho at 411, 913 P.2d at 1181; Smith, 124 Idaho at 436, 860 P.2d at 639; McAffee, 132 Idaho at 284, 971 P.2d at 737.

The manner and method of acquisition of property, as well as the parties' treatment of that property, are questions of fact. We defer to the magistrate's findings on these issues when they are supported by substantial evidence. Krebs v. Krebs, 114 Idaho 571, 573-74, 759 P.2d 77, 79-80, (Ct. App.1988). However, characterization of an asset as separate or community, in light of the facts found, is a question of law over which we exercise free review. Id. With these principles in mind we now analyze, in turn, the character of the stock options, the assets used to exercise those stock options or to buy stock outright, and the resulting stock.

III. CHOICE OF LAW APPLICABLE TO THE CHARACTERIZATION OF THE STOCK OPTIONS

A. The Time-Rule Of Hug And Short

Each party argues for the application of a competing time-rule. Monica argues for application of the time-rule set forth in Marriage of Hug, 154 Cal.App.3d 780, 201 Cal. Rptr. 676 (Cal.App.1984), under which she would be entitled to a share of every flight of the options in the grant. Shubneesh argues for application of a time-rule similar to that applied in Marriage of Short, 125 Wash.2d 865, 890 P.2d 12 (1995), under which Monica would only be entitled to a share of those flights of options in which the year of vesting coincides with a period of the marriage. The question of which time-rule to apply is a matter of first impression for the Idaho appellate courts.

The parties have assumed that the choice of time-rule is a matter within the discretion of the magistrate. We reject that assumption for a number of reasons. Foremost among them is the compelling need for a rule that is both easy to apply and produces a fair and predictable result given the prominence of stock options as a method of attracting, compensating and providing incentives to key employees in today's highly competitive and technological economy. We recognize that stock options may be intended as a reward for past work or as an incentive for future service or any combination thereof. An award of yet to be vested stock options, such as those at issue here, which requires the employee spouse to continue as an employee throughout the vesting period, can as easily be characterized as incentive options. Thus, it makes little sense to invite the trial court to divine the intent behind the options. For these reasons, we adopt a single time-rule to be applied to the characterization of such stock options.

Under the Hug time-rule urged by Monica, the community's interest in the stock options is a fraction; the number of months on the job from start date to date of separation over the number of months on the job from start date to the date when the options could first be exercised, multiplied by the number of shares that could be purchased on the date of exercise. Id. at 783-4, 201 Cal.Rptr. at 678-79. In Idaho, the date of divorce would be substituted for the date of separation. Desfosses v. Desfosses, 120 Idaho 354, 360, 815 P.2d 1094, 1100 (Ct.App.1991) (citing Suter v. Suter, 97 Idaho 461, 546 P.2d 1169 (1976)). The Hug rule treats the options as continually maturing, or vesting, from the date of the grant, thus giving the community a fractional interest in every flight of the remaining unvested options. The community's full interest in the options might not vest for several years after the date of divorce. As such, the Hug approach may result in the parties' respective property interests being tied together for a potentially long period after divorce. In particularly acrimonious divorce cases, as the one at hand, this approach increases the opportunities for mischief, misunderstanding, and subsequent litigation. The Hug time-rule also runs counter to Idaho's policy of separating the parties' interests in the property as quickly as possible, giving each immediate control over their share of the community property as that interest vests, while avoiding the inequitable distribution of the assets. See Balderson v. Balderson, 127 Idaho 48, 53, 896 P.2d 956, 961 (1995). Thus, we are disinclined to accept Hug's rationale.

The magistrate here applied a modified Short time-rule adopted in prior cases by Ada County Magistrate Michael Dennard, a respected jurist in the area of family law. Under this modified Short time-rule, the community's interest is calculated on a per flight basis, typically a year-by-year basis. The community's interest is a fraction; the number of days of the marriage during the year of vesting of the flight of the stock option in question over the number of days in a year. The fraction is then converted into a percentage—the community's interest in the stock options in that particular flight. The modified Short time-rule is attractive, in part, because the denominator is always the same, providing ease of application.³ This approach also has the added attraction of a bright-line rule. The community's interest in vesting flights of stock options is limited to those vesting in whole or in part during the years of the marriage, eliminating whole years of vesting outside of the marriage and thereby hastening separation of the parties' interests consistent with Idaho law.

Having considered the costs and benefits of these two approaches, which typify those applied across the country, we adopt the modified Short time-rule as the appropriate rule where unvested stock options are granted to the employee spouse and vesting occurs in whole or in part during marriage. Accordingly, we conclude that the magistrate applied the correct substantive law in characterizing and valuing the unvested stock options at issue in this case.

B. Shubneesh's Challenges To The Magistrate's Application Of The Modified Short Time-Rule

In his first claim of error, Shubneesh argues that the magistrate erred in finding that yet-to-vest stock options were community property in proportion to the amount of the year during which the parties were married. Specifically, Shubneesh challenges the magistrate's characterization of flights of options with anniversary dates ending within 365 days after November 20, 1997, the date of divorce.⁴ He argues that vesting of these options was contingent upon his continued employment beyond the date of divorce, and that had he chosen to quit working for Micron after November 20,...