In re Marriage of Balanson

• Decision Date: 22 July 1999
• Docket Number: No. 98CA0982.,98CA0982.
• Citation: 996 P.2d 213
• Parties: In re the MARRIAGE OF Bonnie BALANSON, Appellant, and Richard Balanson, Appellee.
• Court: Colorado Court of Appeals

996 P.2d 213

In re the MARRIAGE OF Bonnie BALANSON, Appellant, and

Richard Balanson, Appellee.

No. 98CA0982.

Colorado Court of Appeals, Div. V.

July 22, 1999.

Rehearing Denied September 23, 1999.

Certiorari Granted April 17, 2000.

Litvak Litvak Mehrtens & Epstein, P.C., Ronald D. Litvak, W. Troy Romero, Denver, Colorado, for Appellant.

Stevens, Littman & Biddison, LLC, Craig A. Weinberg, Andrew C. Littman, Boulder, Colorado, for Appellee.

Opinion by Judge TAUBMAN.

Bonnie Balanson (wife) appeals from the final orders entered as part of the dissolution of the marriage between her and Richard Balanson (husband). We affirm in part, reverse in part, and remand with directions.

During the course of their 26-year marriage, husband and wife had acquired substantial wealth comprised primarily of an accumulation of husband's earnings and of stock options that husband had received from various employers. Moreover, wife was a beneficiary of a family trust created by her parents.

In its order dividing the marital property, the trial court distributed 60 percent to wife and 40 percent to husband. It concluded that 79 percent of the stock options were not marital property and thus awarded such stock options to husband. Because the remaining 21 percent of the stock options had minimal or no value, the trial court awarded them to husband as well. The trial court also concluded that the trust was separate property and that any increase in its value was marital property. It concluded, in the alternative, that if the wife did not have a property interest in the trust, her interest was, nevertheless, an economic circumstance which it considered in establishing an equitable distribution of marital property.

I. Stock Options

Wife first contends that the trial court erred in determining that husband's stock options were not marital property. We agree in part.

The trial court found that on October 28, 1996, and April 17, 1997, husband was granted options to acquire a total of 300,000 shares of 3D Systems Corporation stock, which were exercisable incrementally on various dates. The court found that only husband could exercise the options and that he could not sell, transfer, assign, or otherwise dispose of them.

Under the terms of one agreement, husband could exercise the option to purchase 62,500 shares on October 28, 1997, which was approximately one week after the permanent orders hearing, and could exercise options to an additional 37,500 shares on the second anniversary of the grant. Under the terms of the other two agreements, one of which was entered into one year before the decree and the other approximately six months before the decree, husband could exercise options on certain shares or percentages of stock on the first through fourth anniversaries. All rights to exercise the option terminate upon termination of husband's employment or ten years, whichever occurs first. Installments were cumulative and, therefore, could be exercised as to any and all shares covered by an installment at any time after the installment became exercisable and prior to the expiration or termination of the option.

The court found that all of the options had been granted in consideration for future services by husband and as an incentive for his continued employment. The court concluded that the options would not become marital property until husband had performed the future services and earned the compensation for such services. However, since husband had performed all but eleven days of the service required to exercise the option to purchase 62,500 shares of stock, or 21 percent of the stock, the court concluded that such options constituted marital property.

The court further found, however, that the price required to exercise the 62,500 option shares exceeded the then current value of the stock. The court further found that to the extent the options might have value at a later date, such value would be attributable to services performed by husband in the future. Thus, the court also concluded that the options had minimal or no value and awarded all of them to husband.

A.

We review wife's contention in light of the holdings in In re Marriage of Huston, 967 P.2d 181 (Colo.App.1998) and In re Marriage of Miller, 915 P.2d 1314 (Colo.1996).

The court in Miller held that an employee's stock option granted in consideration of past services constitutes marital property when granted because the employee has earned the compensation represented by that portion of the option and may enforce the option agreement to that extent. On the other hand, the Miller court held that a stock option granted in consideration of future services does not constitute marital property until the employee has performed those future services.

In Huston, supra, a division of this court concluded that only a vested stock option is "property" subject to classification in a dissolution of marriage proceeding. Following Miller, supra, it held that vesting occurs when the employee has completed the minimum term of employment necessary for him or her to receive the benefit, whether or not the benefit has a readily ascertainable value or is subject to a substantial risk of forfeiture. The court held that the options there became vested as of the date of dissolution to the extent that wife had completed the minimum term of employment that would entitle her to receive such options following the execution of each option agreement.

B.

Relying upon cases from other jurisdictions, wife urges us to determine that the stock options, even if non-vested, constitute marital property. We reject this assertion, since we are bound by the rule established in Miller that only the vested portions of stock options are marital property. Nevertheless, upon applying Miller here, we conclude that the trial court erred in determining that only 21 percent of the options here were marital property.

In Miller, the case was remanded to the trial court to determine the extent to which each option represented consideration for past or future services. The supreme court instructed that, upon making such determination, the trial court should then determine an appropriate means of evaluating those portions of the stock options, which constituted marital property, that reflect compensation for future services. Thus, the Miller court acknowledged that portions of stock options may be marital property to the extent that services contributing to entitlement to the stock options were performed during the marriage. In addition, it left open the possibility of applying the "time-rule" formula to distribute the marital portion of the stock options. See In re Marriage of Hunt, 909 P.2d 525 (Colo.1995)

(time rule formula includes marital fraction which determines marital interest in pensions).

Here, the trial court found that all of the stock options were granted to husband in consideration of future services and as an incentive for his continued employment as president and chief operating officer. Neither party contests this finding. Accordingly, it is binding on review. See In re Marriage of Dwyer, 825 P.2d 1018 (Colo.App.1991)

.

However, by the time the decree was entered, husband had already performed part of the "future" services that would entitle him to exercise, at certain future dates, options of certain shares over and above the options on 62,500 shares for which he had already performed services. The trial court classified the entirety of those options as separate property because they could not be exercised until after the decree. The trial court erred in so concluding. Under the Miller analysis, the court should have concluded that the additional options were vested and were marital property to the extent that the services entitling husband to exercise certain options at a later date had been performed prior to the entry of the decree. On remand, the trial court must devise a method to distribute the marital portion of the options. We agree with wife that the trial court may apply the "time-rule" formula to do so. In Huston, the division held that a trial court has discretion to determine the appropriate method for distribution of stock options, once they have been classified as marital property. The Huston court approved the use of the reserve jurisdiction method of dividing stock options. Although both Miller and Huston suggest that a trial court has discretion to apply the "time rule" formula to the division of stock options, no Colorado appellate decision has yet approved this distribution method explicitly. We do so now.

The "time-rule" formula has been adopted in this state to divide pension benefits in dissolution of marriage actions. See In re Marriage of Hunt, supra.

The "time-rule" formula has also been adopted in a number of other jurisdictions to divide stock options when the rights under the option agreement were acquired during the marriage. See In re Marriage of Hug, 154 Cal.App.3d 780, 201 Cal.Rptr. 676 (1984)

; Green v. Green, 64 Md.App. 122, 494 A.2d 721 (1985); Smith v. Smith, 682 S.W.2d 834 (Mo.App.1984); Garcia v. Mayer, 122 N.M. 57, 920 P.2d 522 (1996) (observing that the majority of jurisdictions treat unvested stock options as marital property); In re Marriage of Powell, 147 Or.App. 17, 934 P.2d 612 (1997); Stachofsky v. Stachofsky, 90 Wash.App. 135, 951 P.2d 346 (1998); but see Hann v. Hann, 655 N.E.2d 566 (Ind.App.1995).

Under this approach, the risk that husband may lose the right to exercise the options will be shared by the parties. See In re Marriage of Smith, supra. Alternatively, the trial court has discretion to reserve jurisdiction to distribute the stock options if and when they are exercised. In re Marriage of Huston, supra.

Therefore, this matter must be remanded to the trial court to determine the marital portion of the additional stock options granted to husband and to apply either the time-rule formula or to reserve jurisdiction to divide all...