Otley v. Otley
| Decision Date | 01 November 2002 |
| Docket Number | No. 1266,1266 |
| Citation | 810 A.2d 1,147 Md. App. 540 |
| Parties | Theresa OTLEY, v. Christopher OTLEY. |
| Court | Court of Special Appeals of Maryland |
Alan S. Town, Rockville, for appellant.
Tobey Glee Brehm, Ellicott City, for appellee.
Argued before JAMES R. EYLER, SHARER, and THEODORE G. BLOOM, (Ret., specially assigned), JJ.
This case presents issues involving marital property and child support. The principal issue is whether corporate stock options that are unexercisable and have no market value at the time of divorce can constitute marital property subject to distribution, by court order, on an if, as, and when basis. We shall answer that question in the affirmative and discuss computation of the marital portion of such options. As a result of our answer to the question, we shall reverse the judgment of the circuit court. We perceive no other error.
On February 3, 2000, Theresa Otley, appellant, filed a complaint for absolute divorce and other relief in the Circuit Court for Montgomery County against Christopher Otley, appellee. Appellee filed a counterclaim for a limited divorce and other relief.
The parties were married on March 23, 1985, and separated on January 23, 2000. The parties have two children, ages 14 and 11.
Appellant has a bachelor's degree and a master's equivalency degree in early childhood special education. During the marriage, appellant was employed by the Montgomery County Public Schools as a special education teacher. In that capacity, appellant worked full time until the birth of the parties' first child in 1988, and thereafter, worked seven-tenths of a full schedule, or 5.6 hours per day.
During the marriage, appellee worked for various employers as a financial control officer. In 1999, appellee began working for Destiny Health, Inc. as financial controller. Pursuant to a written employment agreement, appellee received a salary, bonus eligibility, and stock options, the latter pursuant to a stock option agreement (Option Agreement).
The Option Agreement gave appellee the right to purchase 54,176 shares of stock issued by his employer at $1 per share. The grant of the option to purchase was subject to a vesting schedule. The Option Agreement provided that the right to exercise an option to purchase 10,000 shares (Founders' Stock Option) was "earned and vested immediately"1 upon execution of appellee's employment agreement and related documents. Appellee exercised that option in January or February, 2000. The right to exercise the remaining option to purchase 44,176 shares (First Option) was "earned and vested" as follows: twenty-five per cent (approximately 11,000 shares) on July 1, 2000; twenty five per cent on July 1, 2001; twenty five per cent on July 1, 2002; and twenty-five per cent on July 1, 2003. All vested portions of the First Option had to be exercised within thirty days following July 1, 2003, or they were forfeited. As of the time of trial in May 2000, the right to exercise the First Option with respect to the first twenty-five per cent of shares had vested, but appellee had not exercised it. Appellee testified that he had not exercised the right because the fair market value of the shares was approximately fifty cents per share, which was less than the option price.
The Option Agreement also provided that, if employment ceased for any reason, the unexercised but vested portions of the First Option could be exercised for a period of three months after termination, subject to certain specified conditions. In the event of appellee's disability or death, the vested portions of the First Option could be exercised for a period of twelve months following disability or death by appellee's legal representative. The First Option became exercisable in full in the event of a change in control of appellee's employer, as described in the Option Agreement. Finally, the Option Agreement recited that it was binding, and appellee's rights under it could not be assigned or transferred.
At the time of separation of the parties, appellant earned $39,000 per year, and appellee earned a base salary of $107,000 per year. At the time of trial, appellant earned $43,000 per year. Appellee earned a base salary of $113,480 and had recently received a $16,000 bonus.
When the parties separated, they agreed on a division of their then liquid funds. Appellee used $10,000 of those funds to exercise the Founder's Stock Option for 10,000 shares. At the time of separation or soon thereafter, the parties also agreed that they would have joint legal custody of the children and appellant would be the custodial parent, subject to an agreed visitation schedule. On February 1, 2000, appellee began paying appellant $1,346 per month child support, also by agreement.
On October 20, 2000, at the time of the hearing on appellant's claim for pendente lite relief, the court entered a consent order. Pursuant to that order, appellee began paying appellant $2,000 per month alimony and $952 per month child support. At that time or thereafter, the parties agreed that the $1,346 per month previously paid would be treated as alimony for income tax purposes.
On May 2, 2001, open and unsettled issues were tried on their merits, and on August 1, 2001, the court entered judgment. The court granted an absolute divorce, awarded alimony to appellant in the amount of $2,000 per month for 96 months, child support to appellant in the amount of $952 per month, and $3,500 to appellant for attorney's fees. Pursuant to the agreement of the parties prior to trial, the court ordered joint legal custody to the parties, physical custody to appellant, visitation rights to appellee, use and possession of the marital home and personal property therein to appellant for a period of three years, and equal division of marital property. The court stated that, in light of the parties' agreement to divide marital property equally, there was no need to address the question of whether there should be a monetary award.
With respect to the division of marital property, prior to the presentation of evidence, the parties submitted a joint statement of marital and non-marital property. The statement included agreed values for each item of property, except for appellant's defined benefit pension plan and an item identified as "Destiny Stock Options." Under a column headed "Fair Market Value," the entry for appellant's pension plan and the entry for the stock options was "if, as, when." Of particular significance to this appeal, the court held that "unexercised stock options in Destiny Health Care Inc. are not marital property because no value could be proven at the time of trial."
Appellant contends that the court erred (1) in holding that the unexercised portions of the First Option had to have value for the court to order distribution on an if, as, and when basis, even though the parties agreed that the option otherwise met the definition of marital property and further agreed to divide marital property on an equal basis; and (2) in not increasing the amount of child support and making it retroactive to the date of filing of the complaint.2 With respect to the first issue, appellant requests an order that appellant is to receive, on an if, as, and when basis, fifty per cent of any profit realized on shares of stock acquired by appellee pursuant to an exercise of the First Option. With respect to the second issue, arguing that the court did not make appropriate findings, appellant requests that this case be remanded to the circuit court to further address the issue. Appellee filed a cross appeal and contends that the court erred in not making findings with respect to two bank accounts that were first disclosed by appellant during her testimony.
(1)
Before further addressing the particular issues herein, we pause to set forth the relevant conceptual framework. When identifying and dividing marital property in a divorce proceeding, a court must follow a three-step process. Md.Code Ann. (1999 Repl.Vol., 2001 Supp.), Fam. Law §§ 8-203—8-205 (hereinafter FL §§ 8-203—8-205). In the first step, the court determines what property is marital. FL § 8-203. In the event of a dispute, the court makes the final determination. Id. In making this determination, the court must consider FL § 8-201(e), which classifies all property acquired during the marriage as marital unless it was given as a gift or inheritance to one spouse, excluded by a valid agreement, or is directly traceable to one of those sources or to property acquired prior to the marriage.
In the second step of this process, the court assesses the value of all marital property. FL § 8-204. Section 8-204(b)(1) of the Family Law article provides that a court "need not determine the value of a pension, retirement, profit sharing, or deferred compensation plan" unless a party has given notice, as required in subsection (2), that the party objects to a distribution on an if, as, and when basis.
Finally, in the third step, the court may transfer ownership of an interest in a pension, retirement, profit sharing, or deferred compensation plan, or grant a monetary award, or both, as an adjustment of the rights of the parties. FL § 8-205. In determining the amount and method of payment of an award or terms of transfer of ownership of an interest, the court shall consider the factors set forth in FL § 8-205(b).
In the case before us, the circuit court found that the unexercised portions of the First Option were not "deferred compensation" and did not fall within any of the other exceptions in section 8-204(b)(1). Consequently, the court concluded that it was required to value the option, and because there was no evidence that it had any value, the court could not order its distribution as marital property.
The portion of the court's order addressing the First Option applied to the unexercised right to acquire approximately 44,000...
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