Case Title: Debra A. Borley v. Kevin D. Smith Divorce, division of assets

Citation: 

Docket Number: 35751

State: idaho

Court: Idaho Supreme Court (civil)

Date: 2010-05-11T00:00:00Z

Document:
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IN THE SUPREME COURT OF THE STATE OF IDAHO 
 
Docket No. 35751 
 
DEBRA A. BORLEY,                      
                                      
          Plaintiff-Respondent- 
Cross-Appellant,      
                                      
v.                                    
                                      
KEVIN D. SMITH,                       
                                      
          Defendant-Appellant- 
Cross-Respondent.       
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Boise, February 2010 Term 
 
2010 Opinion No. 52 
 
Filed:  May 11, 2010 
 
Stephen W. Kenyon, Clerk 
 
Appeal from the District Court of the Fourth Judicial District of the State of 
Idaho, Ada County.  The Honorable Cheri C. Copsey, District Judge; Honorable 
Terry R. McDaniel, Magistrate Judge.  
 
The district court‘s decision is affirmed in part, reversed in part, and the case is 
remanded for proceedings consistent with this opinion.   
 
Derek A. Pica, PLLC, Boise, for appellant. Derek A. Pica argued.  
 
Cosho Humphrey, LLP, Boise, for respondent. Matthew R. Bohn argued.  
________________________ 
 
J. JONES, Justice. 
 
Kevin D. Smith appeals the district court‘s decision concerning Debra A. Borley‘s 
motion to divide certain assets omitted from the distribution of the marital estate. We affirm in 
part, reverse in part, and remand the case for proceedings consistent with this opinion.    
I. 
Facts and Procedural History  
Smith and Borley were married on August 1, 1988. Smith started working as a United 
Airlines (United) pilot in 1990. In 1992, United filed for bankruptcy protection. As a result, 
United pilots lost their Defined Benefits Retirement Plan (A Plan), but were otherwise 
compensated by insurance payments through the Pension Benefit Guaranty Corporation (PBGC) 
and certain convertible notes as follows:  
 
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7. 
Convertible Notes. In the event that the A Plan is terminated pursuant to 
29 U.S.C. § 1341 or § 1342 following judicial approval of such termination, the 
Revised 2003 Pilot Agreement and the Plan of Reorganization shall provide for 
the issuance of $550 Million of UAL convertible notes . . . .   
 
In order for United pilots to receive the convertible notes, they had to be qualified members of 
the A Plan on December 30, 2004, and be employed by United on February 1, 2006. In 
determining a pilot‘s share of the convertible notes, United took into account each pilot‘s age, 
years left to retirement (reached at age sixty), and seniority. Because Smith was a qualified 
member of the A Plan on December 30, 2004, and was still employed with United on February 1, 
2006, he received $30,707.36 in convertible notes in February of 2006 and $25,229.84 in March 
of 2006. 
Additionally, pursuant to a Revised 2003 Pilot Agreement, United pilots were to receive 
stock allocations. These stock allocations attempted to compensate pilots for the work rules, 
compensation, and work benefits that each pilot lost as a result of restructuring their collective 
bargaining agreement, which was to run from May 1, 2003, through December 31, 2009. To be 
eligible for the stock allocations, United pilots had to be employed by United on May 1, 2003, 
and to receive the stock allocations, they had to be employed by United on February 1, 2006. 
Because Smith was employed by United on May 1, 2003, and again on February 1, 2006, he 
received upwards of 2,022 shares of United stock in February of 2006 valued at approximately 
$27 per share. 
 
Borley and Smith were divorced on September 22, 2005, pursuant to a Judgment and 
Decree of Divorce. The parties had entered into a Property Settlement Agreement, dated 
September 15, 2005, (Agreement) and a copy of the same was attached to the Decree. Neither 
the convertible notes nor the stock allocations were specifically provided for in the Agreement. 
However, the Agreement divided Smith‘s retirement benefits as follows:  
4.  
DIVISION OF RETIREMENT BENEFITS. Husband has been 
employed by United Airlines and has a pension, either with United Airlines, or 
now with Pension Benefit Guarantee Association. Wife shall receive fifty percent 
(50%) of the benefit accumulated by Husband during the marriage to be set over 
to her pursuant to a Qualified Domestic Relations Order.  
 
 
After the Decree was entered and the Agreement was approved by the magistrate court, 
Borley filed a ―Motion to Divide Omitted Asset‖ in which she asked the court to divide both the 
convertible notes and the stock allocations obtained by Smith in February and March of 2006. 
 
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Smith filed an answer and, after numerous procedural maneuvers, the court decided that it would 
treat the case as one having been submitted on cross-motions for summary judgment. The court 
required the parties to agree on a set of stipulated facts, and determined that it would consider the 
parties‘ simultaneous briefs, affidavits, excerpts from depositions, and documents received 
through discovery. In Smith‘s memorandum in support of summary judgment, he argued that: (1) 
the magistrate court did not have jurisdiction to divide the assets because the Agreement was not 
merged into the Decree; (2) Borley‘s claim was barred by res judicata; (3) the convertible notes 
and stock allocations were his sole and separate property; and (4) the convertible notes and stock 
allocations were not omitted assets because they were provided for in the Agreement. In 
response, Borley argued that: (1) the Agreement was merged into the Decree; (2) the magistrate 
court had equitable jurisdiction to hear the claim; (3) the convertible notes and stock allocations 
were owned by the community; and (4) the convertible notes and stock allocations were omitted 
assets. 
In its memorandum decision, the magistrate court held that: (1) it had jurisdiction over 
Borley‘s motion because the Agreement was merged into the Decree; (2) res judicata did not bar 
the action because the court had equitable jurisdiction; (3) the convertible notes were not omitted 
assets, but rather community property subject to division under Paragraph 4 of the Agreement to 
be calculated by the time rule method; and (4) the stock allocations were not omitted assets 
because they were known at the time of the execution of the Agreement and thus were Smith‘s 
sole and separate property. The magistrate court entered an order granting Borley‘s motion in 
part, denying it in part, and denying an award of attorney fees and costs. 
Smith appealed the magistrate‘s order to the district court, and Borley cross-appealed the 
magistrate‘s decision on attorney fees and costs. The district court affirmed the magistrate‘s 
findings that: (1) the Agreement was merged into the Decree, providing the court with 
jurisdiction: (2) the court had equitable jurisdiction to modify the Decree; and (3) a portion of the 
convertible notes were community property subject to division under Paragraph 4 of the 
Agreement. However, the district court ruled that the magistrate court erred in applying the time 
rule method to the convertible notes, holding that the notes must be divided under the accrued 
benefit method. Additionally, the district court reversed the magistrate court‘s determination that 
the stock allocations were Smith‘s separate property, finding instead that the stock allocations 
were omitted community assets not covered by the terms of the Agreement. Lastly, the district 
 
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court ruled that neither party prevailed for purposes of attorney fees and costs. Smith then 
appealed to this Court, and Borley cross-appealed on the issue of attorney fees and costs. 
II. 
Issues Presented on Appeal 
The following issues are presented on appeal: (1) whether the Agreement was merged 
into the Decree; (2) whether the magistrate court had jurisdiction to enforce the terms of the 
Agreement; (3) whether the community has an interest in the convertible notes or stock 
allocations; (4) whether any community interest in the convertible notes or stock allocations was 
divided under the Agreement; and (5) whether either party is entitled to attorney fees on appeal.  
III. 
A. 
Standard of Review 
On appeal of a decision rendered by a district court acting in its appellate capacity, we 
directly review the district court‘s decision to determine whether it correctly decided the issues 
presented to it on appeal. Idaho Dept. of Health and Welfare v. Doe, 148 Idaho 124, 126, 219 
P.3d 448, 450 (2009).  
 
When this Court reviews a grant of summary judgment, it does so under the same 
standards employed by the district court. Boise Tower Assocs. v. Hogland, 147 Idaho 774, 779, 
215 P.3d 494, 499 (2009). ―The fact that the parties have filed cross-motions for summary 
judgment does not change the applicable standard of review, and this Court must evaluate each 
party‘s motion on its own merits.‖ Intermountain Forest Mgmt., Inc. v. La. Pac. Corp., 136 
Idaho 233, 235, 31 P.3d 921, 923 (2001). Summary judgment is proper ―if the pleadings, 
depositions, and admissions on file, together with the affidavits, if any, show that there is no 
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter 
of law.‖ Idaho R. Civ. P. 56(c). Where the case will be tried without a jury, ―the trial court as the 
trier of fact is entitled to arrive at the most probable inferences based upon the undisputed 
evidence properly before it and grant the summary judgment despite the possibility of conflicting 
inferences.‖ P.O. Ventures, Inc. v. Loucks Family Irrev. Trust, 144 Idaho 233, 237, 159 P.3d 
870, 874 (2007). This Court freely reviews the entire record that was before the district court to 
determine whether either side was entitled to judgment as a matter of law and whether inferences 
drawn by the district court are reasonably supported by the record. Id. 
 
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B. 
Merger 
Smith first argues that the magistrate court did not have jurisdiction over Borley‘s motion 
to divide any omitted assets because the Agreement was not merged into the Decree. Smith 
argues that the language of the Decree unambiguously demonstrates the parties‘ intent that the 
Agreement was not to be merged, thus leaving the court without jurisdiction to modify the 
Agreement. Borley, on the other hand, argues that when the language of the Agreement is read 
together with the language of the Decree, the intent of the parties regarding merger is unclear, 
and a presumption arises that the agreement is merged into the Decree. Consequently, she 
argues, the court has jurisdiction to divide any omitted assets.    
A court has jurisdiction to modify the terms of a property settlement agreement only if 
the agreement is merged into the judgment and decree of divorce. Roesbery v. Roesbery, 88 
Idaho 514, 521, 401 P.2d 805, 809 (1965). We have previously held that the question of merger 
or non-merger is determined by ascertaining the intent of the parties at the time of the divorce. 
Compton v. Compton, 101 Idaho 328, 332, 612 P.2d 1175, 1179 (1980). We hold that the 
Agreement was not merged into the Decree. In reaching this result, we expressly disaffirm the 
proposition that the parties‘ intent with respect to merger is established by looking at the 
language of both the decree of divorce and the property settlement agreement without first 
finding that the language in the decree is ambiguous. The proper analysis is to look first only to 
the four corners of the divorce decree. If the language of the decree clearly and unambiguously 
holds the property settlement agreement is not merged, the inquiry is at an end. The court‘s 
inquiry will move beyond the four corners of the decree to the property settlement agreement 
only when the decree is ambiguous and reasonably susceptible to conflicting interpretations.   
 
An important principle drives this holding—private stipulations cannot circumvent court 
orders. Even when a contractual property settlement agreement is approved by a court, the court 
still retains the prerogative to accept or reject the merger of the property settlement agreement 
with the divorce decree. If the court‘s decree is unambiguous, but mistaken, with respect to 
merger, the parties have an inherent safeguard in the form of Idaho Rule of Civil Procedure 
 
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60(a), pursuant to which a party may request the court to correct a clerical mistake.1 Idaho R. 
Civ. P. 60(a). With this protection already in place, there is no reason for a court to consider the 
language of a property settlement agreement when there is an unambiguous decree stating that 
the agreement is not merged. Neither party moved to correct the Decree here, so we must assume 
no mistake was made. 
 
In this case, the Decree unambiguously states that the Agreement ―is not merged nor 
incorporated‖ into the Decree. Because the magistrate court‘s holding with respect to merger is 
clear and unambiguous, this Court will give effect to it. Therefore, there was no merger in this 
case, and the Agreement did not become an operative part of the Decree. Consequently, the court 
was without jurisdiction to modify the terms of the Agreement. 
C. 
Jurisdiction to Enforce the Agreement 
Smith contends that the magistrate court did not have jurisdiction to enforce the terms of 
the Agreement because (1) the Agreement was not merged into the Decree and (2) because the 
assets were divided pursuant to the terms of the Agreement. Smith is quite correct that once the 
Court determines the Agreement was not merged into the Decree, the court is without 
jurisdiction to modify the terms of the Agreement. In other words, ―[i]n the absence of an appeal 
from an original decree of divorce the property divisions portions of that decree are final, res 
judicata, and no jurisdiction exists to modify property provisions of a divorce decree.‖ McBride 
v. McBride, 112 Idaho 959, 961, 739 P.2d 258, 260 (1987)2. However, this is an entirely separate 
inquiry from whether the court has jurisdiction to enforce the terms of the Agreement.  
In this case, Borley originally entitled her action as a ―Motion to Divide Omitted Asset.‖ 
However, it quickly became apparent from Borley‘s arguments in front of the magistrate court 
that she was arguing either (1) that the assets were omitted from the Agreement or (2) that the 
assets should have been divided pursuant to Section 4 of the Agreement. Thus, despite the fact 
that the motion was presented solely as a motion to divide an omitted asset, as in any civil case, a 
mislabeled claim may be treated according to its substance. Carroll v. MBNA America Bank, 148 
                                                 
1 In should be noted that Borley was the party who drafted the Decree for the court to sign. Thus, it seems 
disingenuous for Borley to now claim that the very document she drafted is ambiguous and subject to an 
interpretation at odds with the language she wrote into the Decree. 
2 The McBride Court appears to indicate that a party to a property settlement agreement that is not merged may seek 
court enforcement where the other party has failed to carry out the terms of the agreement.  Id. at 962, 739 P.2d at 
261. 
 
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Idaho 261, 268, 220 P.3d 1080, 1087 (2009). Additionally, both the magistrate court and the 
district court, at least in part, analyzed the action as arising out of the contract between the 
parties. Neither Smith nor Borley objected to the magistrate‘s treatment of the case as arising out 
of the Agreement.  
In its Decree, the magistrate court specifically approved the Agreement. It certainly had 
the jurisdiction to do so under Idaho Code section 32-713, which provides that the court, in 
rendering a decree of divorce, must make an appropriate order for the disposition of the 
community property. The court has the power under Idaho Code sections 1-1603 and 1-1901, to 
enforce its orders. In this case, because we find that the assets in question―the convertible notes 
and stock allocations―were community property at the time of the divorce and divided pursuant 
to the Agreement, the magistrate court had jurisdiction to interpret and enforce the terms of the 
Agreement. This case, like Spencer, does not involve the situation where assets were not 
encompassed within the order dividing the community property, necessitating the institution of 
the separate contract action, 115 Idaho at 344, 766 P.2d at 1225. Here, the thrust of the inquiry 
below was primarily directed toward interpreting the court-approved Agreement to determine 
whether the assets in question were divided therein. We have found that to be the case so there is 
no need for the parties to seek relief in a separate contract action.  
D. 
Status of the Notes and Stock 
We next consider whether the parties had a community interest in the convertible notes 
and/or stock allocations and, if so, whether that community interest was divided under the terms 
of the Agreement. Smith argues that both the stock allocations and the convertible notes were 
awarded to him as his separate property under Paragraph 13 of the Agreement. Borley, on the 
other hand, argues that the convertible notes and stock allocations were community property to 
be shared equally between the parties under Paragraph 4 of the Agreement, or in the alternative, 
are omitted community assets that were unintentionally left undivided in the Agreement.  
When considering the parties‘ arguments as to the convertible notes, the magistrate court 
held that the notes were not ―an omitted asset, but rather [were] controlled by paragraph four [of 
the property settlement agreement] under the division of retirement benefit and specifically under 
amounts to be received from United Airlines.‖ Thus, the magistrate court recognized that Borley 
 
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held a community interest in the notes, but that her interest was previously divided under 
Paragraph 4 of the Agreement. The district court affirmed, holding: 
The settlement agreement unambiguously provides that those retirement benefits 
accumulated during marriage are to be divided equally between the parties. The 
question is when the benefit of the convertible notes accumulated. The magistrate 
court correctly concluded that the convertible notes constituted benefits 
accumulated during the marriage. 
 
With respect to the stock allocations, the magistrate court held: 
[I]t is clear to this court pursuant to the February 9, 2006 letter marked as Exhibit 
3 to Matthew Bohn‘s affidavit of April 16, 2007 the income received from the 
sale of United stock was paid to the pilots because they gave up significant 
compensation pursuant to work rules, work benefits, and regular compensation to 
allow for United airlines to go through and exit bankruptcy.  
 
[I]t is clear from [Borley‘s] deposition taken on February 9, 2007 that she was 
well aware of United Airlines offers to compensate the pilots during the 
bankruptcy in order to resolve the restructuring issues facing United Airlines.  
 
[Borley] specifically testified that she understood that some time in the future the 
pilots of United Airlines including [Smith] could possibly be compensated for 
them having their retirement taking away and agreeing to pay cuts during the 
restructuring.  
 
[Borley] also testified that she was specifically aware of this possibility when she 
and [Smith] entered into the settlement agreement that is the subject of this 
litigation.  
 
Therefore, based on the stipulated facts and the deposition of [Borley] and United 
Airlines documents reviewed by this court, it is clear that the stock allocation 
would fall under paragraph 13 of the property settlement agreement and would be 
[Smith‘s] sole and separate property. 
 
In reversing, the district court held: 
An examination of the stipulated facts reveals that the stock allocations were 
meant to compensate United Airlines‘ pilots for ―the work rules, compensation, 
and work benefits that they lost as a result of restructuring their collective 
bargaining agreement, which is to run from May 1, 2003 through December 31, 
2009.‖ Presumably, a portion of the stock allocations received by Smith 
represented the loss of work rules, compensation, and work benefits suffered 
between May 1, 2003 and the date of the divorce. This portion is clearly 
community property not covered by the terms of the settlement agreement. As 
such, it is an omitted asset and must be divided equally between the parties.  
 
 
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Furthermore, Idaho courts have rejected Smith‘s argument that since vesting of 
the stock allocations was contingent upon his continued employment through 
February 1, 2006, the allocations constituted separate property. Batra [v. Batra, 
135 Idaho at 388, 393, 17 P.3d 889, 894 (Ct. App. 2001)] (finding that stock 
options which vested after date of divorce were partially earned from the plaintiff-
appellant‘s labor during marriage and, thus, the community had a fractional 
interest in the stock options vesting in the months following the divorce). 
 
 
In order to determine the proper status of the convertible notes and stock allocations, we 
first consider whether a community interest existed in either or both at the time of the divorce. 
This inquiry is to be determined under established principles of Idaho community property law. 
If a community interest existed in either or both of those assets, we must then consider whether 
the Agreement divided that community interest between the parties. This inquiry is based on 
established principles of Idaho contract law. 
1. 
Community Interest 
Smith argues that, subject to Paragraph 13 of the Agreement, the only community 
property interest Borley could claim in the convertible notes or stock allocations is that which 
derives from any portion of the notes ―accumulated or acquired‖ by the time of the parties‘ 
divorce. Paragraph 13 of the Agreement provides in pertinent part: 
13. 
SEPARATE 
PROPERTY/IMCOME 
AFTER 
SIGNING 
OF 
AGREEMENT: The parties hereto stipulate and agree that from and after the 
date of the signing of this Agreement, any and all property or income acquired or 
earned by either party hereto shall be the separate property of the party who has 
acquired or earned it and the other party shall have no claim thereon.  
 
Smith contends that because he did not acquire his interest until after the divorce was final, both 
the convertible notes and the stock allocations were his separate property pursuant to Paragraph 
13.  
Smith received $30,707.36 in convertible notes in February of 2006, and received another 
$25,229.84 in convertible notes in March of 2006. United pilots received these convertible notes 
as compensation for the loss of their A Plan, which was terminated pursuant to United‘s 
bankruptcy. Following United‘s bankruptcy, an agreement was reached wherein the pilots‘ 
collective bargaining agreement was modified by eliminating the pilots‘ A Plan but 
compensating active pilots with the PBGC insurance payments and proceeds from the sale of 
$550 million in convertible notes. In return, the Airline Pilots Association (ALPA) agreed not to 
 
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oppose United‘s termination of the existing A Plan. After certain retired pilots objected to the 
restructured agreement, the pilots‘ A Plan was involuntarily terminated by the bankruptcy judge 
effective as of December 30, 2004. The United Master Executive Council (United MEC) of the 
ALPA was charged with the duty of determining which pilots were eligible to share in the sale of 
the convertible notes and how much they would receive. The United MEC chose to allocate the 
proceeds from the sale of the convertible notes to compensate the pilots for losses suffered by the 
termination of their A Plan, including losses of past accruals and future expectations of what the 
pilots would have received under the A Plan. In a broader sense, the proceeds from the 
convertible notes were meant to offset the totality of the pilots‘ concessions in the bankruptcy 
exit agreement, including compensation for wage concessions, work rule concessions, and 
changes in benefits. However, it is uncontroverted, and in fact stipulated by the parties, that the 
notes were meant to compensate the pilots, at least in part, for the loss of their pension. Thus, the 
convertible notes compensated the pilots for both past and future losses that span the entire 
balance of an individual pilot‘s career.  
Additionally, in February of 2006, Smith received upwards of 2,022 shares of United 
stock valued at approximately $27 per share. Following United‘s bankruptcy, the initial section 
1113 agreement (the bankruptcy exit agreement) became effective on May 1, 2003, and was to 
run through December 31, 2009. Immediately following the bankruptcy, United reserved 
approximately 110 million shares of new United stock for general unsecured creditors. The 
ALPA allocated the stock to the pilots on a seniority basis. The stock allocations were meant to 
compensate the pilots for the pain and suffering they would endure3 under the restructuring of 
their collective bargaining agreement that was to run from May 1, 2003, through December 31, 
2009. Thus, the stock allocations did not compensate pilots for anything prior to May 1, 2003, 
but instead were meant to compensate the pilots for the 80-month window between May 1, 2003, 
and December 31, 2009. However, if Smith‘s employment would have been terminated after 
May 1, 2003, but before February 1, 2006, he would have received a prorated allocation of the 
stock.  
Idaho law is clear that pension benefits and many other types of post-retirement payouts 
are a form of deferred compensation that an employee incrementally earns beginning at the first 
                                                 
3 This encompasses changes in work rules, pilot compensation, and work benefits.  
 
11 
day of his or her employment. See Shill v. Shill, 100 Idaho 433, 436, 599 P.2d 1004, 1007 
(1979). The right to acquire the benefits earned and accumulated day by day throughout the 
employment period may be contingent upon the completion of a predetermined number of 
employment years, and thus the rights earned and accumulated during the marriage vest at the 
moment the employer becomes obligated to pay those benefits. Id. An employee acquires a 
contingent property interest in the pension benefits from the moment he or she begins 
performance under the employment contract, and therefore, the benefits earned during marriage 
up to the date of divorce are a form of deferred compensation in which the nonemployee spouse 
has a community interest regardless of whether the pension is vested or nonvested. Id. 
The record in this case demonstrates that at the time of divorce, Borley had a contingent 
community property interest in both the convertible notes and the stock allocations. Smith asks 
this Court to adopt the view that, because the convertible notes and stock allocations only vested 
post-divorce, the whole of the benefits attributable both to his employment during the marriage 
and his employment post-marriage are his separate property. This contention is incorrect and 
represents a misunderstanding of Idaho community property law.  
With respect to the convertible notes, Smith began earning and accumulating his A Plan 
benefits on the first day of his employment on October 22, 1990. Because Smith and Borley were 
married at that time, the A Plan inured to the benefit of the community. Starting in 1990, both 
Borley and Smith received a contingent community property interest in the A Plan that continued 
to earn and accumulate during the marriage. While the A Plan would not vest until after the 
divorce, the benefits earned under the A Plan during the marriage up to the date of the divorce 
were a form of deferred compensation in which Borley had a community interest. When the 
convertible notes were issued to replace the A Plan, the community‘s interest in the A Plan was 
similarly replaced by the community‘s interest in the convertible notes. Smith is correct that the 
community‘s interest in the convertible notes was not to vest until February 1, 2006, five months 
after the divorce—however, Borley had a contingent community property interest in the 
convertible notes that began earning and accumulating on the first day of Smith‘s employment 
and continued to accumulate until the divorce was final.  
 
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Similarly with respect to the stock allocations,4 Smith began earning and accumulating 
interest in the stock on the first day of the restructured collective bargaining agreement on 
May 1, 2003. Because Smith and Borley were married at that time, the contingent property 
interest inured to the benefit of the community even though the interest would not vest until 
February 1, 2006. Thus, Borley held a contingent property interest in the stock allocations 
between May 1, 2003, and the date of the divorce on September 22, 2005. Consequently, we 
hold that Borley had a community interest in both the convertible notes and the stock allocations 
outside the scope of Paragraph 13 of the Agreement. 
2. 
The Property Settlement Agreement 
Because we find that Borley held a community interest in the convertible notes and stock 
allocations, we must next determine whether the Agreement divided those interests.  
a. 
Convertible Notes 
Both the magistrate court and the district court held that the convertible notes were 
governed by Paragraph 4 of the Agreement, but that the stock allocations were not. Paragraph 4 
reads: 
4.  
DIVISION OF RETIREMENT BENEFITS. Husband has been 
employed by United Airlines and has a pension, either with United Airlines, or 
now with Pension Benefit Guarantee Association (sic). Wife shall receive fifty 
percent (50%) of the benefit accumulated by Husband during the marriage to be 
set over to her pursuant to a Qualified Domestic Relations Order.  
 
The classification of the convertible notes is difficult and requires an extensive 
examination of the record. As noted previously, United entered into bankruptcy proceedings in 
2002. In those bankruptcy proceedings, United attempted to renegotiate the then-existing 
collective bargaining agreement between United and its pilots. The product of those negotiations 
was a bankruptcy exit agreement. Central to this case, in consideration for the ALPA‘s 
agreement not to oppose the bankruptcy exit agreement, United provided for $550 million worth 
                                                 
4 Smith argues that the district court‘s citation of Batra v. Batra, 135 Idaho 388, 17 P.3d 889 (Ct. App. 2001), which 
outlines the general community property principles for deferred compensation set forth above, was misplaced 
because Batra dealt with flights (separately vesting segments) of stock options, while the case at bar deals with stock 
allocations that are not subject to vesting rules. Smith cites no authority for the proposition that stock allocations are 
not subject to the same rules of community property that govern other types of deferred compensation. 
 
13 
of convertible subordinated notes to be issued to the ALPA not later than six months after United 
exited from the bankruptcy.  
One of the pilots‘ concessions within the bankruptcy exit agreement was the termination 
of their A Plan. However, the convertible notes were not the pilots‘ only compensation for the 
loss of the A Plan. When the A Plan was terminated, United took all its assets on hand on the 
date of the plan termination and allocated them to pay the benefits under the A Plan in 
accordance with a statutory priority structure for unsecured creditors in bankruptcy. The pilots 
were divided into six categories, with each pilot in the first category receiving full compensation 
before any pilot in the second category would receive any compensation. If United assets were 
insufficient to fund each category, the PBGC was required to step in and contribute to the total. 
The PBGC paid approximately $900 million to $1 billion in benefits following the United 
bankruptcy. Smith was assigned to category four, meaning that each pilot in category one, two, 
and three was fully compensated before he was entitled to any compensation. United‘s assets 
were sufficient to fund all of category one, all of category two, and approximately 80 percent of 
category three. Consequently, Smith did not receive any compensation from the sale of United 
assets, but was entirely dependent on the PBGC insurance system to recover any portion of his 
lost benefits. In other words, Smith‘s pension benefit was paid solely out of the PBGC insurance 
system. However, Smith was only entitled to the PBGC maximum estimated guarantee, which 
paid significantly less than the benefits he would have received had the A Plan remained in effect 
throughout the duration of his employment. Additionally, the pilots were compensated for the 
loss of their A Plan through the creation of the pilots‘ defined-contribution pension plan, 
otherwise known as the pilot-directed account plan (PDAP).  
 
As noted, the ALPA received the convertible notes from United as compensation for the 
totality of the pilots‘ concessions in the bankruptcy exit agreement. These concessions not only 
included the termination of the pilots‘ A Plan, but also included wage concessions and 
significant work rule changes. The ALPA had the responsibility to decide how to allocate the 
notes among the pilots. The ALPA then chose to allocate convertible notes in a way that took the 
termination of the pilots‘ A Plan into account. Accordingly, Smith received compensation from 
three different sources related to ALPA‘s agreement not to oppose the restructured bankruptcy 
exit agreement: (1) the PBGC insurance payments; (2) the creation of the PDAP pension from 
United; and (3) the convertible notes from the ALPA.    
 
14 
 
We hold that the convertible notes were contemplated by Paragraph 4 of the Agreement. 
As mentioned above, it is uncontroverted, and in fact stipulated by the parties, that the notes 
were meant to compensate the pilots, at least in part, for the loss of their pension. Specifically, 
stipulated fact number thirteen indicates that the parties agreed that ―the ‗convertible notes‘ 
received by [the] pilots represented consideration for the loss of their ‗A Plan.‘‖ Thus, the district 
court was correct to affirm the magistrate court‘s decision that the notes were not ―an omitted 
asset, but rather [were] controlled by paragraph four [of the property settlement agreement] 
under the division of retirement benefit and specifically under amounts to be received from 
United Airlines.‖ When community property is exchanged for another asset, that asset becomes 
community property. Consequently, we hold that the convertible notes were divided pursuant to 
Paragraph 4 of the Agreement.   
b. 
Stock Allocations  
 
The magistrate court held that the stock allocations were known at the time of the 
execution of the Agreement and thus were awarded to Smith as his sole and separate property 
under Paragraph 13 of the Agreement. Paragraph 13 reads: 
13. 
SEPARATE 
PROPERTY/IMCOME 
AFTER 
SIGNING 
OF 
AGREEMENT: The parties hereto stipulate and agree that from and after the 
date of the signing of this Agreement, any and all property or income acquired or 
earned by either party hereto shall be the separate property of the party who has 
acquired or earned it and the other party shall have no claim thereon.  
 
As noted previously, the magistrate court erroneously predicated its determination that the stock 
allocations were divided pursuant to Paragraph 13 upon the belief that Borley did not have a 
community interest in stock allocations. The district court disagreed, and held that the stock 
allocations were omitted assets undivided by the Agreement.  
 
We agree with the magistrate court, and hold that the stock allocations were divided 
pursuant to Paragraph 13 of the Agreement. Pursuant to Paragraph 13, the Wife explicitly agreed 
that from and after the date the Agreement was signed, any property acquired or earned by the 
other was to be the separate property of the party who acquired or earned it. It is undisputed that 
Smith held a contingent property interest in the stock allocations at the date of the divorce on 
September 22, 2005. Furthermore, Borley agreed pursuant to Paragraph 3 of the Agreement that 
any property under the control or in the possession of Smith at the time of the divorce, which, 
 
15 
like the stock allocations, was not specifically referenced in the Property and Debt Schedule of 
the Agreement, was Smith‘s separate property.  We agree with the magistrate court that Borley 
was aware of United‘s offer to compensate the pilots through the stock allocations. As the 
magistrate court found, 
[Borley] specifically testified that she understood that some time in the future the 
pilots of United Airlines including [Smith] could possibly be compensated for 
them having their retirement taken away and agreeing to pay cuts during the 
restructuring. 
 
[Borley] also testified that she was specifically aware of this possibility when she 
and [Smith] entered into the settlement agreement that is the subject of this 
litigation.   
 
We agree with the magistrate court that Borley was fully aware that she was entitled to some 
future compensation by means of the stock allocations at the time the Agreement was executed. 
With this knowledge, she signed the Agreement waiving her right to any and all property in 
Smith‘s possession or under Smith‘s control that was not specifically awarded in the Property 
and Debt Schedule. It does not matter that all the beneficial interests in the stock allocations were 
contingent at the time of the divorce, as those interests were still subject to a certain amount of 
control by Smith. Therefore, by the operative language of Paragraph 3 of the Agreement, Borley 
conveyed her interest in the stock allocations to Smith as his sole and separate property.  
E. 
Division of the Convertible Notes  
Because the magistrate court has jurisdiction to enforce the terms of the Agreement, the 
remaining question is the proper manner in which the court should have divided the convertible 
notes. Smith argues that pursuant to Paragraph 4 of the Agreement, the parties agreed to divide 
the notes pursuant to the ―accrued benefit‖ method. Borley, on the other hand, argues that the 
magistrate and district courts properly divided the assets pursuant to the ―time rule‖ formula.  
The method employed to divide community property is left to the sound discretion of the 
trial court and will not be disturbed unless the court abused that discretion. See Stewart v. 
Stewart, 143 Idaho 673, 677, 152 P.3d 544, 548 (2007). Review of the lower court‘s exercise of 
discretion requires a three-tiered inquiry: (1) whether the lower court rightly perceived the issue 
as one of discretion; (2) whether the court acted within the outer boundaries of such discretion 
and consistently with any legal standards applicable to specific choices; and (3) whether the 
 
16 
court reached its decision by an exercise of reason. Id. If the magistrate court properly exercised 
its discretion and the district court affirmed the magistrate court‘s decision, we will affirm the 
district court‘s decision as a matter of procedure. See id.   
In its memorandum decision, the magistrate court determined that if Paragraph 4 did not 
govern the convertible notes, Borley‘s interest in the convertible notes was to be calculated by 
―multiplying the amount of the distribution by the fraction of [Smith‘s] age at the date of divorce 
over 60 (the age for mandatory retirement). Thereafter, the resulting fractional share would then 
be divided by 50% to achieve the community distribution to [Borley].‖ On appeal, the district 
court held that the convertible notes were governed by Paragraph 4 of the Agreement and should 
be divided pursuant to the accrued benefit method.  
 
While, pursuant to Part III(D)(2)(a) of this opinion, we believe that Paragraph 4 governs 
the distribution of the convertible notes, we do not believe that Paragraph 4 indicates the method 
by which the court must divide the notes. While Paragraph 4 indicates that the ―Wife shall 
receive fifty percent (50%) of the benefit accumulated by Husband during the marriage,‖ this 
language does not indicate the method by which the court must determine the amount of 
Borley‘s fifty-percent interest. Thus, the magistrate court‘s division of the assets must be 
conducted pursuant to Idaho Code section 32-712(1), which provides: 
1.  The community property must be assigned by the court in such proportions as 
the court, from all the facts of the case and the condition of the parties, deems 
just, with due consideration of the following factors: 
 
(a) Unless there are compelling reasons otherwise, there shall be a substantially 
equal division in value, considering debts, between the spouses.  
 
(b) Factors which may bear upon whether a division shall be equal, or the 
manner of division, include, but are not limited to: 
 
  (1) Duration of the marriage; 
 
  (2) Any antenuptial agreement of the parties; provided, however, that the court 
shall have no authority to amend or rescind any such agreement;  
 
  (3) The age, health, occupation, amount and source of income, vocational 
skills, employability, and liabilities of each spouse; 
 
  (4) The needs of each spouse;  
 
  (5) Whether the apportionment is in lieu of or in addition to maintenance; 
 
17 
 
  (6) The present and potential earning capability of each party; and 
 
  (7) Retirement benefits, including, but not limited to, social security, civil 
service, military and railroad retirement benefits.  
 
I.C. § 32-712.  
This Court has determined that there are two possible methods for dividing a pension 
plan. The ―lump sum method‖ or ―net present value method‖ results in an imminent distribution 
to the non-employee spouse, whereby the court awards the employee spouse the pension and 
awards the non-employee spouse assets worth the net present value of the contingent benefits. 
Hunt v. Hunt, 137 Idaho 18, 20–21, 43 P.3d 777, 779–80 (2002). ―The other method of dividing 
the rights is to reserve jurisdiction until retirement and divide the actual monetary benefit when 
received, also known as the ‗as if, and when‘ or reserved jurisdiction method.‖ Id. at 21, 43 P.3d 
at 790 (quoting Shill v. Shill, 100 Idaho 433, 437, 599 P.2d 1004 (1979)). This Court has held 
that the lump sum method is the preferred method of division. Hunt, 137 Idaho at 21, 43 P.3d at 
790.  
 
Using either the lump sum method or the reserved jurisdiction method requires a court to 
devise a formula by which to apportion the pension benefits. This Court has determined that 
there are two different methods for apportioning the benefits: the accrued benefit method and the 
time rule method. Balderson v. Balderson, 127 Idaho 48, 52, 896 P.2d 956, 960 (1995). ―The 
accrued benefit method values the community interest as one-half of the difference between the 
value of the retirement account at the date of divorce and the value at the date of marriage.‖ Hunt 
v. Hunt, 137 Idaho 18, 21, 43 P.3d 777, 780 (2002). Conversely, ―[t]he time rule values the 
community interest in the retirement benefits as one-half of the fraction of the years of the 
community service under the plan, divided by the total years of service.‖ Id. 
 
In this case, the magistrate court, and then the district court, erred by failing to perceive 
the issue of valuation of the convertible notes and stock allocations as one of discretion. The 
decision between the lump sum method and the retained jurisdiction method is immaterial in this 
case, as Smith had received the benefits from the convertible notes at the time the magistrate 
court was conducting its analysis. However, because Paragraph 4 does not govern the method of 
valuing Borley‘s interest, the magistrate court had the option of valuing the assets under either 
the time rule method or the accrued benefit method. Neither the magistrate court nor the district 
 
18 
court correctly perceived the issue of valuation as one of discretion, and therefore, the district 
court abused its discretion. Instead, the lower court had the duty to utilize its discretion pursuant 
to Idaho Code section 32-712 in order to find the most equitable method of valuing the 
community‘s contribution to the convertible notes.   
To value Borley‘s interest in the convertible notes, the magistrate court must determine 
which portion of the notes were earned before September 22, 2005, and then grant both Borley 
and Smith a fifty-percent interest pursuant to Paragraph 4. However, it should be noted that the 
formula articulated previously by the magistrate court is patently wrong. As noted above, the 
magistrate court calculated Borley‘s interest in the convertible notes by ―multiplying the amount 
of the distribution by the fraction of [Smith‘s] age at the date of divorce over 60 (the age for 
mandatory retirement). Thereafter, the resulting fractional share would then be divided by 50% 
to achieve the community distribution to [Borley].‖ Under this erroneous formula, Borley started 
to obtain a community interest in the convertible notes at the moment of Smith‘s conception. If 
the magistrate court determines that the most equitable method of determining Borley‘s interest 
in the convertible notes is the time rule method, the proper formula is as follows. The time rule 
method includes a marital fraction, which determines the community interest in the pensions. 
The marital fraction consists of the numerator, which is the number of years (or months if more 
accurate) that the employee spouse has earned towards the pension during the marriage, over the 
denominator, which is the total number of years (or months) of total service towards the pension. 
The marital fraction is then multiplied times the total distribution of the pension (if known), and 
then divided in half.  
 
It should also be noted that there is a possibility that a substantial majority of the 
convertible note allocation may be attributable to post-marital time. When this is the case, there 
is some dispute as to whether the time rule method is appropriate, which would necessarily 
include certain post-divorce enhancements in the community value of the notes. However, this 
Court, in Hunt v. Hunt, approved the use of the time rule method when valuing retirement or 
pension benefits at the date of retirement. 137 Idaho at 22, 43 P.3d at 781. Thus, this Court has 
implicitly acknowledged, in both the Hunt decision and in authorizing trial courts to utilize the 
retained jurisdiction method, that a trial court does not abuse its discretion when it allocates post-
divorce enhancements in the value of the pension to the community. In other words, Idaho has 
implicitly recognized that ―[t]he employee spouse‘s ability to enhance the future benefit after the 
 
19 
marriage frequently builds on foundation work and efforts undertaken during the marriage.‖ In re 
Marriage of Hunt, 909 P.2d 525, 534 (Colo. 1995). This finding is in accord with many other 
jurisdictions. See, e.g., In re Marriage of Adams, 134 Cal. Rptr. 298, 302 (Cal. Ct. App. 1976) 
(holding that ―[t]wo of the factors causing the increase, namely ‗time on the job‘ and increased 
earnings, were directly enhanced by the many years credited to the marriage‖); Stoerkel v. 
Stoerkel, 711 S.W.2d 594, 597 (Mo. Ct. App. 1986) (holding that ―increased benefits arise in part 
from the service performed during the marriage and for that reason it is proper to make the award 
on the basis of the total amount which [the employee spouse] would receive at the time such 
benefits commence‖); Gemma v. Gemma, 778 P.2d 429, 431 (Nev. 1989) (noting that ―early 
working periods are the building blocks to upward mobility and hopefully an increased salary‖ 
and ―[w]hile no method is perfect, the advantages of the ‗time rule‘ clearly outweigh any other 
method of pension division‖ ); Bulicek v. Bulicek 800 P.2d 394, 399 (Wash. Ct. App. 1990) 
(holding that ―the prospective increase in retirement benefits due to increased pay after 
separation is founded on the [length of the marriage] years of community effort‖). Thus, the 
magistrate court will necessarily face the question of whether it would be more equitable for 
Borley to receive a fifty-percent benefit from Smith‘s convertible notes on the basis of the 
amount the community would have been entitled to on the date of the divorce or, alternatively, 
based on the amount the community would have been entitled to on the date the convertible 
notes were received.  
Additionally, it also should be noted that should the magistrate court decide that it is 
more equitable to divide the convertible notes by the accrued benefit method, the exact 
computation of Borley‘s interest may be difficult, as the lawyer for the ALPA testified: 
 
There certainly is a way to figure . . . out [what portion of the convertible notes 
would be post September 22, 2005]. It would necessitate involving an actuary. 
And if you were going to try and calculate this, here is what you would have to 
do. 
 
 
As of the date of plan termination, there would have been a loss probably based 
on the plan termination insurance provision which the two parties would 
effectively share 50/50, and that loss, whatever it was, is a part of the total loss 
that is included in the allocation process. Pretty small. And the balance of 
[Smith‘s] losses are measured by future events, starting from December 31, 2004. 
So including roughly a year of their marriage and extending out 16 years.  
 
 
20 
 
And, you know, when lawyers figure, they are likely to do it in a simplistic way. 
If you are going to do it accurately, what you have to do is replicate the projection 
of [Smith‘s] entitlement, which is something that probably exists somewhere. The 
ALPA actuaries may have it. And the reason I say that is because the way benefits 
accrue under the old A Plan is they accrue by a formula, years of service, times 
final average compensation, and final average compensation under the United 
plan, and subject to doing some checking, which I haven‘t done, the best 60 
consecutive months of pay out of the last 120.  
 
 
This is an ensnarled way of saying this, but I don‘t think you can treat the lost 
future accruals, which the note allocation mainly represents, as having occurred 
levelly over the last 16 years of [Smith‘s] career.  
 
 
I believe that what would happen is there would be some back-loading of the 
entitlement based on compensation that he‘s not going to be earning until he hits 
747 or 777 captaincy out in the last three or four years of his career, that that 
would drive the compensation, which will become his final average earnings.  
 
 
And how you guys in your divorce world would take that into account, I have not 
a clue, but what we were doing to focus on these lost future expectations is 
bearing in mind that the benefit formula was a percentage, 1.41 percent, times 
years of service, times compensation. Then you are accruing an additional 1.41 
percent of your final earnings each year, that is true, and maybe that‘s what you 
focus on, but the final average earnings itself is not determined until out at the end 
of the day, and the calculation that was involved was a calculation that attempted 
to predict approximately when [Smith] would be able to move from the airbus 
into a higher-paying piece of equipment and then follow his salary upward as it 
headed upward in that piece of equipment.  
 
 
You would come through that piece of equipment as a first officer, then move 
over to the left seat, the captain, and that would result in a bump in compensation. 
And all of that, the progression of that advance in compensation affects the flow 
of contributions. The C Plan contributions for the PDAP and the timing of the 
receipt of those contributions by the PDAP affects the projected value based on 
future investment earnings.  
 
 
And so you‘ve got this whole stream of projections that come into play, and some 
portion of the—well, I‘d leave it at that.  
 
As this testimony depicts, the magistrate court may need to conduct some extensive fact-finding 
in order to accurately compute Borley‘s community interest in the convertible notes.   
Accordingly, we remand the case for a determination of the most equitable method of 
valuing the community‘s interest in the convertible notes consistent with the above 
recommendations.  
 
21 
E. 
Attorney Fees 
Smith contends that he should be awarded his attorney fees and costs pursuant to Idaho 
Appellate Rules 40 and 41 and Paragraph 15.03 of the Agreement which states: 
15.03. If an action is instituted to enforce any of the terms of this Agreement, then the 
losing party agrees to pay to the prevailing party all costs and attorney fees incurred in 
that action.  
 
Borley similarly contends that she should be awarded her attorney fees and costs pursuant to 
Idaho Appellate Rules 35(a)(5), 40, and 41 and Paragraph 15.03. 
 
In order to be entitled to attorney fees on appeal, authority and argument establishing a 
right to fees must be presented in the first brief filed by a party with this Court. Idaho App. R. 
36(b)(5), 41; Goldman v. Graham, 139 Idaho 945, 947–48, 88 P.3d 764, 766–67 (2004). A 
citation to statutes and rules authorizing fees, without more, is insufficient. Goldman, 139 Idaho 
at 947–48, 88 P.3d at 766–67. Although both parties cite to the Idaho Appellate Rules, they 
submit no argument in their briefs as to why fees should be awarded under any statute or contract 
provision. Thus, we decline to award attorney fees to either party on appeal.  
IV. 
Conclusion 
For the above reasons, the district court‘s decision on review of the magistrate court‘s 
ruling is affirmed in part and reversed in part. We remand the case for proceedings consistent 
with this opinion. We decline to award attorney fees or costs on appeal.  
 
 
Chief Justice EISMANN, and Justices BURDICK, W. JONES, and HORTON 
CONCUR.