DeJesus v. DeJesus

• Decision Date: 30 October 1997
• Citation: 90 N.Y.2d 643,687 N.E.2d 1319,665 N.Y.S.2d 36
• Parties: , 687 N.E.2d 1319, 1997 N.Y. Slip Op. 9070 Nancy DeJESUS, Respondent, v. Wilfred DeJESUS, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 36

665 N.Y.S.2d 36

90 N.Y.2d 643, 687 N.E.2d 1319, 1997

N.Y. Slip Op. 9070

Nancy DeJESUS, Respondent, v. Wilfred DeJESUS, Appellant.

Court of Appeals of New York.

Oct. 30, 1997.

Ochoa & Sebag, Long Island City (Enrique A. Ochoa, of counsel), for appellant.

Eric Ole Thorsen and Ilene K. Graff, New City, for respondent.

OPINION OF THE COURT

CIPARICK, Judge.

The issue on this appeal is whether and to what extent an interest in restricted stock and stock option benefit plans provided by a spouse's employer constitutes marital property for the purposes of equitable distribution, where the plans come into being during the marriage but are contingent on the spouse's continued employment with the company after the divorce. Because we conclude that the record was insufficient to allow the Trial Judge to make that determination, we reverse and remit to Supreme Court for further proceedings.

The parties were married on October 14, 1979, seven months after the husband had begun his employment with Astoria Financial Corporation. Two children were born of the marriage, in October 1986, and in April 1991. Over the course of the marriage, the husband was steadily promoted at Astoria, attaining the position of First Assistant Vice-President in December 1993. The wife worked until October 1986, but thereafter devoted her efforts primarily to maintaining the marital household and raising their children.

On November 18, 1993, Astoria granted the husband two restricted stock benefit plans, the Incentive Stock Option Plan (ISOP) and the Recognition and Retention Plan (RRP). The ISOP provided for the husband to receive an option to purchase a total of 3,053 shares of Astoria stock at $25 per share, exercisable in three equal annual installments on January 10, 1997, 1998 and 1999. Similarly, the RRP provided for the husband to receive outright a total of 2,036 shares of Astoria stock, in three equal annual installments, beginning on January 10, 1997. Both were contingent on the husband's continued employment with Astoria and both were described as "incentive" for corporate officers. ¹ The husband acknowledges that both stock option plans are qualified deferred compensation plans enjoying favorable tax treatment afforded by the Internal Revenue Code.

The wife commenced this divorce action on July 30, 1994. In Supreme Court, the parties stipulated to maintenance, child support and the equitable distribution of all assets, save the stock plans. The parties agreed to divide all marital property equally but requested the court to settle the question of how much of the stock plans constituted marital property subject to the stipulated 50/50 distribution. This last issue was resolved upon the submission of trial memoranda from both sides. On these facts, the trial court found that while the husband's rights to the stock plans "do not mature immediately and may never mature, depending on whether defendant continues in employment, they are tangible benefits which were bestowed on defendant during the marriage" (De Jesus v. De Jesus, 163 Misc.2d 267, 270, 620 N.Y.S.2d 704). Consequently, the trial court deemed all of the stock plans marital property, to be divided equally, with the husband to serve as constructive trustee of the wife's shares as they vest.

The husband appealed, arguing that, since his interest in the stock plans would not vest until several years after the commencement of the matrimonial action, it was error for the trial court to determine that the whole of both plans was marital property. Rather, he argued, the marital portion of the stock plans should have been determined using a time rule, similar conceptually to that enunciated by this Court in the context of pension rights in Majauskas v. Majauskas, 61 N.Y.2d 481, 474 N.Y.S.2d 699, 463 N.E.2d 15, with the portion of the stock plans comprising marital property being proportional to the ratio of (1) the time from Astoria's grant of the stock plans until the commencement of the divorce action over (2) the time from the grant until the husband's interest in the stocks vests. The Appellate Division affirmed, holding that "[c]onsidering the characteristics of the employee benefit plans * * * both plans constituted deferred compensation for employment during the term of the marriage and are entirely marital property" (DeJesus v. DeJesus, 227 A.D.2d 583, 643 N.Y.S.2d 387). We granted leave to appeal.

Analysis

At the outset, we note that, while the method of equitable distribution of marital property is properly a matter within the trial court's discretion, the initial determination of whether a particular asset is marital or separate property is a question of law, subject to plenary review on appeal.

The Domestic Relations Law defines marital property as "all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action" (Domestic Relations Law § 236[B][1][c] ). The statute is sweeping and "recognizes that spouses have an equitable claim to things of value arising out of the marital relationship" (O'Brien v. O'Brien, 66 N.Y.2d 576, 583, 498 N.Y.S.2d 743, 489 N.E.2d 712 [emphasis added] ). Consequently, this Court has held "marital property" to include a wide range of intangible interests which in other contexts might not be recognized as divisible property at all.

In Olivo v. Olivo, 82 N.Y.2d 202, 604 N.Y.S.2d 23, 624 N.E.2d 151, for example, we held that the wife was entitled to share pro rata in the husband's early retirement pension acceleration, even though it had been awarded to him after their divorce, because the husband's right to the pension had largely been earned during the marriage. The wife was not entitled to share, however, in Social Security bridge payments and a separation payment awarded to the husband contemporaneously with the accelerated pension, because the husband's right to these payments had arisen entirely after the marriage.

Similarly, in Burns v. Burns, 84 N.Y.2d 369, 618 N.Y.S.2d 761, 643 N.E.2d 80, where the question was whether and to what extent the husband's nonvested pension rights constituted marital property, we held that the nonvested pension's "value cannot reasonably be deemed to accrue only at the particular point in time when vesting occurs. Rather, the view that the nonvested pension has been earned gradually over a period of time that encompasses the marriage and should be distributed accordingly more appropriately reflects the economic realities" (id., at 376, 618 N.Y.S.2d 761, 643 N.E.2d 80). This Court applied the presumption in favor of marital property, premised on the contemporary view of marriage as an economic partnership, crediting each party's contributions, whether monetary or not, to the growth and value of the marriage.

Stock Plans Generally

Stock plans can vary widely and may possess many of the same characteristics as nonvested pension plans. They can be deferred compensation for past services or incentives for future services. They can be outright gifts or subject to purchase. This is the first time we are called upon to determine the manner in which stock plans are to be distributed in a matrimonial action, and we deem it instructive to review the approaches to distribution of nonvested stock plans of other States. Although we recognize that some of the referenced cases were decided in community property jurisdictions, the underlying considerations common to stock plan valuation and equitable distribution disputes are quite similar. ²

Significant among these cases is the decision of the California Court of Appeals in In re Marriage of Hug, 154 Cal.App.3d 780, 201 Cal.Rptr. 676, supra. The parties in Hug were married in April 1956, and separated in June 1976. Mr. Hug began employment with Amdahl in November 1972. The trial court found that Amdahl's stock option plan had been adopted " 'for the purpose of attracting and retaining the services of selected directors, executives and other key employees and for the purpose of providing an incentive to encourage and stimulate increased efforts by them' " (154 Cal.App.3d at 783, 201 Cal.Rptr., at 678). As in this case, the options at issue had been granted during the marriage, but were exercisable after the parties' separation.

The Hug court noted that stock options can be characterized as compensation for past, present or future services, depending on the circumstances involved in the grant of the particular option. It then held that, under the facts of that case, it was within the trial court's "broad discretion" to allocate the parties' community and separate property interests in certain stock options by applying a time rule. The number of options which were deemed community property would be the product of a fraction whose numerator was "the period in months between the commencement of the spouse's employment by the employer and the date of separation of the parties," and whose denominator was "the period in months between commencement of employment and the date when each option is first exercisable" (154 Cal.App.3d, at 782, 201 Cal.Rptr., at 678).

Hug provides a useful examination of the competing considerations of law and equity, predictability and flexibility, past versus future services, and accrual outside of and within the marriage which a court must attempt to balance in developing a rule for the equitable distribution of stock plans (see also, In re Marriage of Walker, 216 Cal.App.3d 644, 265 Cal.Rptr. 32; In re Marriage of Harrison, 179 Cal.App.3d 1216, 225 Cal.Rptr. 234; In re Marriage of Nelson, 177 Cal.App.3d 150, 222 Cal.Rptr. 790).

By contrast, the Supreme Court of Colorado in In re Marriage of Miller, 915 P.2d 1314 (Colo), supra, adopted a multitiered method of analysis to determine how much of the stock plan was marital property. The parties in Miller were married in June 1983 and divorced in November 1992. Mr. Miller received...