In re Valence

• Citation: 798 A.2d 35,147 N.H. 663
• Decision Date: 07 May 2002
• Docket Number: No. 2000–395.,2000–395.
• Court: Supreme Court of New Hampshire
• Parties: In the Matter of Lisalynn M. VALENCE and David P. Valence.

147 N.H. 663

798 A.2d 35

In the Matter of Lisalynn M. VALENCE and David P. Valence.

No. 2000–395.

Supreme Court of New Hampshire.

Argued Jan. 17, 2002.

May 7, 2002.

John A. Macoul, of Salem, by brief and orally, for the petitioner.

Honey Hastings, of Amherst, by brief and orally, for the respondent.

DUGGAN, J.

The respondent, David P. Valence, appeals an order issued by the Trial Court (Taube , J.) following a final hearing on the divorce petition filed by the petitioner, Lisalynn M. Valence. On appeal, the respondent contends the trial court erred in: (1) applying the same property distribution formula to vested and unvested stock options without first determining what part of the unvested stock options were attributable to his employment during the marriage; (2) disregarding tax and other financial consequences of exercising stock options when it ordered immediate transfer of the property to the petitioner; (3) making insufficient findings to justify the property distribution; (4) failing to allocate a margin account; and (5) awarding a fixed amount of child support to the petitioner to continue until the youngest child reaches eighteen. We affirm in part, reverse in part and remand.

The parties married in 1986. In 1999, the petitioner filed a libel for divorce. Following three days of hearing, the court awarded the petitioner "a divorce on the grounds of adultery that caused the breakdown of the marriage." The trial court awarded the parties joint legal custody of their three children, granted primary physical custody of the children to the petitioner and ordered the respondent to pay child support. The trial court also concluded that a number of factors, including the respondent's fault in causing the breakdown of the marriage, warranted an unequal distribution of the marital estate, and the court awarded the petitioner approximately sixty-five percent of the marital assets. On appeal, we will affirm the findings and rulings of the trial court unless they are unsupported by the evidence or legally erroneous. In the Matter of Preston and Presto n, 147 N.H. 48, 49 (2001).

We first address whether the trial court erred when it applied the same property distribution formula to vested and unvested stock options, without first determining what part of the unvested stock options were attributable to his employment during the marriage. During the marriage, the respondent's employer, on several occasions, granted him incentive stock options. These stock options allow the respondent to purchase his employer's publicly traded stock at a later date. The purchase price of the stock is determined by the market price at the time the options are granted. Each grant of stock options permits the respondent to purchase up to a specified number of shares, and expires in ten years if the respondent does not exercise the options by purchasing the stock. At the time of the grant, however, the respondent may not purchase all the shares granted; rather, the right to purchase shares vests over time. For example, a grant may vest over a period of four years; in the first year the respondent may purchase up to twenty-five percent of the shares granted, and in each of the three succeeding years, the respondent may purchase twenty-five percent more until the grant is completely vested. The vesting of these options, however, is contingent upon the respondent's continued employment with the company.

By the time the divorce proceedings began, the respondent owned both vested and unvested stock options. The respondent agrees that the vested stock options should be considered marital property to be divided between the parties. See RSA 458:16–a, I (Supp.2001). He argues that the court erred, however, when it distributed all of the unvested stock options as marital property without considering that the unvested stock options will vest only upon his continued employment with the company.

In a divorce case, the trial court must follow the dictates of RSA 458:16–a when ruling on a property settlement. RSA 458:16–a, I, states: "Property shall include all tangible and intangible property and assets, real or personal, belonging to either or both parties, whether title to the property is held in the name of either or both parties." Accordingly, the trial court must first determine what property belongs to the parties and therefore is properly considered marital property. See Holliday v. Holliday, 139 N.H. 213, 215, 651 A.2d 12 (1994) ("marital property includes any property acquired up to the date of a decree of legal separation or divorce"). After the trial court determines what property is marital property, RSA 458:16–a, II then directs the court to "order an equitable division of property between the parties." Although an equal division is presumed under the statute to be equitable, the court may determine that an equal division would not be appropriate or equitable. Id. Thus, the trial court has broad discretion in distributing property in the marital estate. Hoffman v. Hoffman, 143 N.H. 514, 517, 727 A.2d 1003 (1999). Absent an unsustainable exercise of discretion, we will not overturn the trial court's decision on property distribution. Id .; see also State v. Lambert, 147 N.H. 295, ––––, 787 A.2d 175, 177 (2001) (explaining unsustainable exercise of discretion standard).

We first address the respondent's argument that the trial court erred in deciding what portion of the stock options was acquired prior to the dissolution of the marriage. The trial court ruled that all the vested and unvested stock options were marital property under RSA 458:16–a, I. In its order, using its equitable authority, the court awarded approximately sixty-five percent of the marital assets to the petitioner. The court similarly awarded her sixty-five percent of the vested stock options and "sixty-five percent (65%) of the unvested options that will vest in the years 2000, 2001, 2002, 2003 and 2004." The respondent contends that before awarding the petitioner her share of the unvested stock options, the trial court should have first determined what portion of the unvested stock options represented compensation attributable to employment prior to the dissolution of the marriage and then equitably distributed that portion only.

We recently held that the gain recognized upon exercising stock options should be considered in determining income for child support purposes. See In the Matter of Dolan and Dolan , 147 N.H. 218, ––––, 786 A.2d 820, 823 (2001). In so holding, we acknowledged that the vested stock options, as well as the stock purchased upon exercising the stock options, are properly viewed as assets, while the gain recognized upon exercising the stock options is properly viewed as income. See id. As income, we held the gain recognized upon exercising the stock options is properly included when calculating a parent's child support obligation under RSA 458–C:2, IV (Supp.2001). See id. We have not, however, previously determined whether and to what extent unvested stock options are properly considered marital property to be divided under RSA 458:16–a.

Under RSA 458:16–a, I, property is defined to specifically include all intangible property belonging to a party. As the owner of unvested stock options, the respondent owns a contractual right to purchase stock, under certain conditions within a prescribed period of time at a predetermined price. This contractual right to purchase stock is intangible property. Cf. Scripture v. Francestown Soapstone Co., 50 N.H. 571, 585 (1871). But determining that unvested stock options are property is not the end of the inquiry under RSA 458:16–a, I; the court must also determine what part of the unvested stock options belonged to the respondent at the time of the dissolution of the marriage. See RSA 458:16–a, I.

When determining what part of a pension belongs to a party upon dissolution of the marriage, we have previously held that the trial court should apply a mathematical formula to determine what portion of the pension is attributable to employment during the marriage and thus subject to distribution. See Hodgins v. Hodgins, 126 N.H. 711, 497 A.2d 1187 (1985). Similarly, when determining what part of unvested stock options belong to a party upon dissolution of the marriage, many jurisdictions have used a fact-based inquiry to determine the appropriate mathematical formula for differentiating unvested stock options that were earned prior to the dissolution of the marriage from those earned after the dissolution of the marriage. See Baccanti v. Morton, 434 Mass. 787, 752 N.E.2d 718, 727–32 (2001). In these jurisdictions, stock options intended to compensate an employee for services rendered prior to the dissolution of the marriage are considered marital property, while those intended only as an incentive for future services to be rendered after the marriage are not considered marital property. See id. at 729. Compensation for services to be rendered after the marriage is future income, which cannot be considered property belonging to a party at the time of the dissolution of the marriage. See Stalb v. Stalb, 168 Vt. 235, 719 A.2d 421, 427 (1998) ; 24 Am.Jur.2d. Divorce and Separation § 518 (1998). In this case, the respondent's stock incentive plan states that "[t]he purpose of the Plan is to advance the interests of [the employer] and its stockholders by attracting and retaining associates and directors and providing such persons with incentives and rewards for superior performance." Thus, the stock options granted in this case may have been a reward for past services, an incentive for future services, or a combination of both.

The respondent requested that the court distribute the unvested stock options by applying a time-based rule to reflect the amount of time each group of stock options was held during the marriage as compared with the total period of employment required before the options would vest. Under this rule, for...