Parry v. Parry, 2D04-2109.

• Decision Date: 28 April 2006
• Docket Number: No. 2D04-2109.,2D04-2109.
• Citation: 933 So.2d 9
• Parties: Ingrid PARRY, Appellant, v. Timothy PARRY, Appellee.
• Court: Florida District Court of Appeals

933 So.2d 9

Ingrid PARRY, Appellant, v. Timothy PARRY, Appellee.

No. 2D04-2109.

District Court of Appeal of Florida, Second District.

April 28, 2006.

Rehearing Denied June 6, 2006.

COPYRIGHT MATERIAL OMITTED

Victoria M. Ho and Reuben A. Doupé of Asbell & Ho, P.A., Naples, for Appellant.

Cynthia B. Hall and Mark V. Silverio of Silverio & Hall, P.A., Naples, for Appellee.

NORTHCUTT, Judge.

The dissolution of Ingrid and Timothy Parry's twenty-two-year marriage presented a number of complicated financial issues which, all-in-all, were ably sorted out by the trial judge. We disagree with the final judgment on several points, however, and therefore we reverse it in part.

Most of the issues on appeal concern aspects of the compensation package Tim receives in his employment. After practicing law for a number of years, in 1996 Tim began working for Health Management Associates, Inc. HMA is a publicly traded, Fortune 500 company that maintains its corporate headquarters in Naples. HMA and its subsidiaries own and operate approximately fifty-two hospitals in sixteen states. At the time of the Parrys' divorce Tim was the company's executive vice president and general counsel.

According to HMA's 1996 Executive Incentive Compensation Plan, the company has fashioned a compensation program aimed at "attracting, retaining, and rewarding high-quality executives . . . and providing such persons with annual and long term performance incentives to expend their maximum efforts in the creation of shareholder value." The plan is administered by a committee that is authorized to make various awards, including awards of restricted company stock and stock options, with sundry terms and conditions relating to time and method for exercise, transferability, and forfeiture.

The trial court had the benefit of deposition testimony from William Schoen, HMA's chairman of the board. Schoen was also chairman of the executive committee, an ex officio member of the compensation committee, and the architect of the compensation plan. He explained that the HMA compensation plan has short-term and long-term components. The short-term compensation includes a base salary and a discretionary cash bonus program. In 2003 and 2004, for example, Tim received a yearly base salary of $250,000 gross. In addition, he had received cash bonuses every year since joining HMA. His 2003 bonus was $242,500 gross. There were also fringe benefits not at issue here.

The long-term compensation scheme comprises awards of company stock options and of shares of restricted company stock. The stock options vest a quarter at a time each year over a four-year cycle. They lapse at the earlier of ten years or the day the recipient ceases to be employed by the company. Tim had been awarded stock options in every year since he began working at HMA. The first grant vested in three years. Each subsequent grant vested according to the schedule described above.

Under HMA's compensation program, an award of restricted stock vests in its entirety on its fourth anniversary, provided the recipient has been continuously employed by the company during the vesting period. If employment is terminated before the fourth anniversary, the stock award is forfeited. Tim was granted stock under these terms in December of every year since he joined HMA. Schoen testified that HMA recently adopted a requirement that its executives hold a certain amount of HMA stock, in Tim's case four times his salary and bonus.

Finally, HMA has a Supplemental Executive Retirement Plan (SERP) that provides key executives with a monthly retirement benefit beginning when the executive reaches the normal retirement date, defined as the later of the executive's attaining the age of 62 or the fifth anniversary of his or her participation in the SERP. The SERP includes a proviso that the executive may not engage in competitive activities during the payment of retirement benefits. If the executive's employment is terminated prior to the normal retirement date, no benefits are paid under the SERP unless HMA's board, in its sole discretion, decides otherwise.

High among Ingrid's complaints on appeal is the trial court's determination that the stock and stock options awarded to Tim as part of his long-term compensation were primarily intended as incentives for his future service to HMA rather than as deferred compensation for past service. But, as we pointed out in Ruberg v. Ruberg, 858 So.2d 1147 (Fla. 2d DCA 2003), determining the primary purpose of an executive compensation plan presents a question of fact. Here, the court was persuaded by such testimony as board chairman Schoen's, which described the long-term compensation plan as "golden handcuffs," chaining the employee to the corporation in the future in order for the employee to realize the financial benefit of the awards, and motivating the employee to enhance shareholder value by giving him a personal stake in the company's future success. The trial court's resolution of this issue was supported by the evidence, and we find no fault in it.

Still, the trial court was mistaken in its determination that Tim's partially earned but unvested HMA stock and stock options were his nonmarital assets. At the time the divorce proceeding was filed, Tim had been awarded 28,756 shares of stock that remained unvested. During the marriage and up to the date of filing, he had been granted options to purchase 384,375 shares. Of these, options to purchase 204,375 shares had vested. During the divorce proceeding Tim exercised an option to purchase 14,200 shares and sold the stock to pay a joint tax obligation and to advance funds to Ingrid, leaving vested options to purchase 190,175 shares.

The trial court properly treated the vested stock and stock options as marital assets and included them in its equitable distribution scheme. But it declared that the stock and options that had been awarded but had not vested during the marriage were Tim's nonmarital property. Thus, even though Tim performed marital labor during the vesting periods of the stock and option grants, Ingrid was not permitted to share in this aspect of the compensation Tim would eventually receive for that labor. This was error.

This court's Ruberg decision examined the distinction between stock and option grants that are given as deferred compensation for past service and those that are awarded as incentive for future service to the employer. It is important to note that this difference in the character of such an award is not the ultimate determinant of whether it is to be classified as marital or nonmarital. Rather, the purpose of determining the character of the award is to assess how much of the asset, if any, is the product of marital labor. See § 61.075(5)(a), Fla. Stat. (2002) (defining "marital assets" to include assets acquired during the marriage). The difference, as a practical matter, is that an award that is in the nature of deferred compensation and that is granted during the marriage is usually a marital asset because it is compensation for past marital labor. On the other hand, an award given as an incentive for future service would be marital only to the extent that the service is thereafter performed before the end of the marriage. In either case, the trial court is charged with identifying and valuing the portion of the award that constitutes a marital asset. See § 61.075(3)(b).

In Ruberg this court determined that the restricted stock and stock options at issue there were given to the husband as incentives for future service. In that case, the awards vested in monthly increments. Consequently, all of the husband's marital labor was reflected in the awards that had vested as of the end of the marriage, and none of the unvested portions of the awards were marital. Because of this, we observed that "[i]t has therefore not been necessary for us to address the appropriate methodology for allocating options that were earned before the applicable cutoff date but remained unvested." Ruberg, 858 So.2d at 1155 n. 2. We noted examples of the "time rule" allocation method employed by courts in California. Id.

Unlike the situation in Ruberg, at the time of the cutoff date in this case there were several outstanding awards to which Tim had devoted marital labor that was yet to be compensated under the vesting schedules. Therefore, it was incumbent on the trial court to allocate and value the marital portions of those awards. While we have found no Florida cases applying a "time rule," the method is essentially the same as the so-called "coverture fraction" applied by Florida courts to value future pension benefits. See Trant v. Trant, 545 So.2d 428, 429 (Fla. 2d DCA 1989). To these unvested assets, the trial court should have applied a formula, whether called a coverture fraction or time rule, to determine the portion earned by marital effort. Accordingly, we reverse the determination that all of the unvested HMA stock and stock options were Tim's nonmarital property.

In Trant, which addressed a husband's pension benefit in a dissolution of marriage proceeding, we explained that the fraction consists of a numerator "that is the amount of time the employee was married while participating in the plan, and the denominator is the total time the employee has in the plan." 545 So.2d at 429. The fraction was to be multiplied by the present value of the pension, the result representing the marital portion to be equitably distributed. Id. But the formula varies depending on the facts of each case. See Diffenderfer v. Diffenderfer, 491 So.2d 265 (Fla.1986). In this case, the numerator should represent the number of months in which marital labor was devoted to earning the award. Here, the numerator would be the number of months between the grant date and the petition filing date. This number will vary because the awards were granted on different dates. (Consistent with our affirmance of the trial court's...