Elliott v. Elliott
| Decision Date | 08 April 2004 |
| Docket Number | No. M2003-00492-COA-R3-CV.,M2003-00492-COA-R3-CV. |
| Parties | Steven D. ELLIOTT v. Ginger W. ELLIOTT (Ecton). |
| Court | Tennessee Court of Appeals |
Markley Runyon Gill, Erin, Tennessee, for the appellant, Steven D. Elliott.
Jeffrey L. Levy, Nashville, Tennessee, for the appellee, Ginger W. Ecton.
This appeal involves a post-divorce dispute regarding stock options that were part of the marital estate. The Circuit Court for Davidson County approved a marital dissolution agreement in which the husband agreed to transfer one-half of his employee stock options to the wife as part of the division of the marital estate. After the husband's employer and the employer's brokerage firm declined to transfer the stock options to the wife, she orally requested the husband to exercise the options on her behalf. The value of the employer's stock fell after the husband did not exercise the options. The wife sought to hold the husband in contempt or to modify the divorce decree. The trial court declined to hold the husband in contempt but found that he had impermissibly impeded the division of the marital estate. Accordingly, the court awarded the wife $59,759.25, the stock options' before-tax value had they been exercised on the day the divorce decree was entered. In addition, the court ordered the husband to immediately sell the options originally awarded to the wife and to pay her the proceeds as a credit against the judgment. The court also ordered the husband to pay the wife's attorney's fees, as well as prejudgment interest. The husband has appealed. We have determined that the trial court properly concluded that the husband unreasonably impeded the wife's acquisition of the value of the stock options. However, we have determined that the trial court erred by valuing the stock options as of the time of the divorce rather than the time the wife and the husband orally agreed to exercise the options and that the court erred by requiring the husband to exercise his options to pay the judgment. We have also determined that the court erred by awarding the wife prejudgment interest but properly awarded the wife her attorney's fees.
On April 10, 2001, Steven D. Elliott and Ginger W. Elliott, now Ecton, executed a marital dissolution agreement ("MDA") as part of their divorce proceeding pending in Circuit Court for Davidson County. Under the terms of this MDA, Mr. Elliott, then a manager at The Home Depot ("Home Depot"), agreed to transfer one-half of the stock options he had earned during the marriage to Ms. Ecton. The MDA specified the division as follows:
1997 Options $11.33 per share 1050 to Wife 1050 to Husband
1998 Options $21.29 per share 675 to Wife 675 to Husband
1999 Options $37.92 per share 300 to Wife 300 to Husband
2000 Options $53.00 per share 100 to Wife 100 to Husband
The trial court approved the MDA and incorporated it into the final divorce decree that was entered on April 27, 2001. Had Ms. Ecton exercised these options on the day the divorce decree was entered, they would have generated $59,759.25 before taxes.
The MDA did not specify how Mr. Elliott would transfer the options to Ms. Ecton, although it did require both parties to undertake all further acts necessary to carry out the purposes and intent of the MDA. At the time of the divorce, both Ms. Ecton and Mr. Elliott thought that he could simply place the options in Ms. Ecton's name or that Ms. Ecton could simply call Mr. Elliott to exercise the options whenever she was ready. The MDA did not allocate the tax burden for the exercise of the options, but the parties' understanding was that they would bear the tax consequences for the exercise of their own options.1
The parties later discovered that Home Depot's employee stock option plan would not permit Mr. Elliott to transfer any of his stock options to Ms. Ecton. Accordingly, Ms. Ecton's lawyer prepared a qualified domestic relations order or "QDRO" under the Retirement Equity Act of 1984, Pub.L. 98-397, 98 Stat. 1426 ("REA"). The REA permits the assignment of pension plan benefits to non-plan participants if done pursuant to a QDRO. The QDRO reiterated the division of the stock options contained in the MDA and specifically provided that Ms. Ecton rather than Mr. Elliott would be liable for the taxes arising from the exercise of her half of the options.
The trial court signed and entered the QDRO on January 14, 2002, but both Home Depot and its broker of record, Smith Barney, refused to honor it. Because Mr. Elliott's stock options were not part of a retirement plan, Home Depot and Smith Barney concluded that they could not be transferred under a QDRO. Moreover, under Home Depot's employee stock option plan, Mr. Elliott could not transfer his options to any non-employee, including Ms. Ecton.2 Thus, Home Depot and Smith Barney advised Ms. Ecton that the only way she could receive the benefit of the options Mr. Elliott agreed to transfer to her in the MDA was for Mr. Elliott to exercise the options himself and transfer the proceeds to her.3
Shortly thereafter, Ms. Ecton met with a financial advisor to discuss her finances. The financial advisor told Ms. Ecton that the market price for Home Depot stock was relatively high and recommended that she exercise the options Mr. Elliott agreed to transfer to her in the MDA. At the time, Ms. Ecton had not spoken with Mr. Elliott since the parties' divorce. Nevertheless, the following day, February 13, 2002, Ms. Ecton telephoned Mr. Elliott.
During this telephone conversation, Ms. Ecton told Mr. Elliott what her financial advisor had said and that Home Depot and Smith Barney had refused to honor the QDRO. She also told him that Home Depot and Smith Barney had informed her that the only way she could realize the value of the options was for Mr. Elliott to exercise them and transfer the proceeds to her. Ms. Ecton instructed Mr. Elliott to exercise the options and agreed to pay the resulting tax liability. Ms. Ecton said her tax advisor estimated the tax liability to be 23% and told Mr. Elliott that he could deduct that amount from the proceeds and give her the remainder.
Mr. Elliott agreed to exercise the options and transfer the proceeds to Ms. Ecton. Mr. Elliott said he believed the tax liability would be closer to 30% and that he wanted to check with his own financial advisor to determine the amount he needed to withhold to cover the tax liability. Mr. Elliott also agreed to exercise and give Ms. Ecton the proceeds from 100 of his own 1997 options, and in return he was going to keep Ms. Ecton's 100 2000 options which could not be exercised then because the market price was currently higher than the option price. Had Mr. Elliott done what he agreed to do, Ms. Ecton would have realized $68,113.25 before taxes from the exercise of the stock options.
There is no evidence in the record that Mr. Elliott did, in fact, speak with a financial advisor regarding the tax liability he would incur from the exercise of Ms. Ecton's options. Instead, Mr. Elliott apparently contacted his attorney who told him that he was free to renege on his agreement. At that point, Mr. Elliott decided that he was not going to exercise Ms. Ecton's options as agreed. He did not, however, inform Ms. Ecton of his decision. Instead, on February 27, 2002, two weeks after his conversation with Ms. Ecton, Mr. Elliott exercised 1,225 of his own Home Depot stock options but none of the 2,125 options he had agreed to exercise for Ms. Ecton. Mr. Elliott realized a profit of $37,572.26 before taxes.
Mr. Elliott did not tell Ms. Ecton that he had decided to renege on their agreement until four to six weeks later when Ms. Ecton called to inquire about the exercise of the options. Further attempts by Ms. Ecton and her attorney to obtain the cooperation of Mr. Elliott and his attorney to exercise Ms. Ecton's options proved futile. Thus, on July 17, 2002, Ms. Ecton filed a petition to have Mr. Elliott held in contempt or in the alternative to modify the divorce decree.
The trial court held a hearing on Ms. Ecton's petition on January 9, 2003. Both Mr. Elliott and Ms. Ecton testified, and several exhibits were admitted into evidence. On February 10, 2003, the trial court entered a written order declining to hold Mr. Elliott in contempt. The trial court did, however, grant the petition to modify the original divorce decree. The trial court found that February 13, 2002 was "the date in which the Respondent [Mr. Elliott] first agreed to exercise the options and turn over the money to the Petitioner [Ms. Ecton]." The trial court explained that Mr. Elliott "then changed his mind and failed to exercise the options resulting in this lawsuit to enforce the provisions of the Final Decree of Divorce." The trial court concluded that Mr. Elliott had impermissibly impeded the transfer of the cash value of the stock options to Ms. Ecton by not exercising the Home Depot options in a timely manner and that Mr. Elliott had been an impediment to the division of the marital assets. The trial court entered a judgment in favor of Ms. Ecton for $59,759.25, the sum the options would have generated had they been exercised the day the original divorce decree was entered. The trial court ordered Mr. Elliott to pay Ms. Ecton's attorneys' fees in the amount of $1,776.07 and held that the judgment would accrue interest at the rate of 10% running from the date Mr. Elliott orally agreed to exercise the options. Mr. Elliott appealed.4
The standards this court uses to review the results of bench trials are well settled. With regard to a trial court's findings of fact, we will review the record de novo and will presume that the findings of fact are...
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