Opinion ID: 2229930
Heading Depth: 1
Heading Rank: 2

Heading: Stock Plans Generally

Text: Stock plans can vary widely and may possess many of the same characteristics as nonvested pension plans. They can be deferred compensation for past services or incentives for future services. They can be outright gifts or subject to purchase. This is the first time we are called upon to determine the manner in which stock plans are to be distributed in a matrimonial action, and we deem it instructive to review the approaches to distribution of nonvested stock plans of other States. Although we recognize that some of the referenced cases were decided in community property jurisdictions, the underlying considerations common to stock plan valuation and equitable distribution disputes are quite similar. [2] Significant among these cases is the decision of the California Court of Appeals in In re Marriage of Hug (154 Cal App 3d 780, 201 Cal Rptr 676, supra ). The parties in Hug were married in April 1956, and separated in June 1976. Mr. Hug began employment with Amdahl in November 1972. The trial court found that Amdahl's stock option plan had been adopted `for the purpose of attracting and retaining the services of selected directors, executives and other key employees and for the purpose of providing an incentive to encourage and stimulate increased efforts by them' (154 Cal App 3d, at 783, 201 Cal Rptr, at 678). As in this case, the options at issue had been granted during the marriage, but were exercisable after the parties' separation. The Hug court noted that stock options can be characterized as compensation for past, present or future services, depending on the circumstances involved in the grant of the particular option. It then held that, under the facts of that case, it was within the trial court's broad discretion to allocate the parties' community and separate property interests in certain stock options by applying a time rule. The number of options which were deemed community property would be the product of a fraction whose numerator was the period in months between the commencement of the spouse's employment by the employer and the date of separation of the parties, and whose denominator was the period in months between commencement of employment and the date when each option is first exercisable (154 Cal App 3d, at 782, 201 Cal Rptr, at 678). Hug provides a useful examination of the competing considerations of law and equity, predictability and flexibility, past versus future services, and accrual outside of and within the marriage which a court must attempt to balance in developing a rule for the equitable distribution of stock plans ( see also , In re Marriage of Walker , 216 Cal App 3d 644, 265 Cal Rptr 32; In re Marriage of Harrison , 179 Cal App 3d 1216, 225 Cal Rptr 234; In re Marriage of Nelson , 177 Cal App 3d 150, 222 Cal Rptr 790). By contrast, the Supreme Court of Colorado in In re Marriage of Miller (915 P2d 1314 [Colo], supra ) adopted a multi-tiered method of analysis to determine how much of the stock plan was marital property. The parties in Miller were married in June 1983 and divorced in November 1992. Mr. Miller received stock option grants in 1988, 1990 and 1991, much of which would not vest until 1993 and later, after the dissolution of the marriage. The record on appeal in Miller does not indicate when Mr. Miller began his employment with Hewlett-Packard, the issuer of the stock plans in question. The Miller court held that, to the extent that a stock plan is granted for past services, it is wholly marital property. Conversely, an employee stock option granted in consideration of future services does not constitute marital property until the employee has performed those future services. (915 P2d, at 1319.) The Miller court thus recognized that a stock plan may have elements which are compensatory for past services and elements which are incentive for future services. To the extent that a stock plan is compensation for past services rendered by the employee during the marriage and up until the time of the grant, it is marital property, and to the extent that a stock plan is granted as incentive for future services, it is not earned until those services are performed. Even then, however, the incentive stock plan can still be marital property if the marriage is in existence between the time of the grant and the time that the stock plan vests. Taking all of these considerations into account, the Miller court thus held that the marital portion of stock plans is a function of four separate calculations: (1) the relative shares traceable to past and future services must be determined; (2) any portions of the stock plans which are intended as compensation for past services are deemed marital property to the extent that the marriage coincides with the period of the titled spouse's employment, up until the time of the grant; (3) of that portion intended as incentive for future services, the marital portion is determined by a time rule like that employed by the California Court of Appeals in In re Marriage of Nelson (177 Cal App 3d 150, 222 Cal Rptr 790, supra ); [3] and (4) all portions found to be marital property may be divided between the spouses. We are persuaded that a Miller -type analysis best accommodates the twin tensions between portions of stock plans acquired during the marriage versus those acquired outside of the marriage, and stock plans which are designed to compensate for past services versus those designed to compensate for future services.