Opinion ID: 1159233
Heading Depth: 2
Heading Rank: 5

Heading: profit sharing plan

Text: The district court found that at the date of divorce the parties had a community interest in the profit sharing plan maintained by husband's law firm valued at 83/92 of .0445 or $121,880.40, $4,893.11. The district court then awarded wife one-half of that amount, $2,446.55. Husband argues that the district court erroneously overvalued both the profit sharing plan and his interest in the plan. We agree. In order to determine whether the district court erred in its valuation we must initially determine the value of the plan itself, and then determine the question of husband's vested interest in the plan. Husband claims that on the date of the divorce the value of the plan was $61,880.70 and that the district court's figure of $121,880.40 is simply without support in the record. The plan itself provides for a yearly valuation of the trust assets on June 30, the last day of the company's taxable year. At trial, the law firm's administrator testified that the value of the profit sharing plan, as of the date of the divorce, was $61,880.40 as determined on June 30, 1979, and would remain constant until June 30, 1980, when the trust would be revalued for the following year. The administrator further testified that the law firm's board of directors authorized $5,000.00 per month to be allocated for inclusion in the profit sharing plan. As a result, an additional $30,000.00 contribution to the plan accrued from the valuation date of June 30, 1979, to the date of the divorce on December 31, 1979. However, despite the accrual of this additional $30,000.00 contribution to the plan, no participant in the plan, including husband, had any interest in that amount before the next valuation date of June 30, 1980, because the plan specifically provided: [A]ll contributions to the Trust will be considered for Trust accounting purposes as having been made on the Valuation Date coincident with or next following the last day of the Company's taxable year for which the contribution is made, regardless of when actually made. Therefore, husband argues, even though this additional $30,000.00 had accrued, the community's interest in the profit sharing plan remained a proportional share of $61,880.40. Husband also claims that the district court failed to account for the fact that his interest in the profit sharing plan was only 75% vested. Husband claims that based on a valuation of $61,880.40, his total account balance was $2,177.13. His 75% vested interest in that account on the date of the divorce was $1,632.85. Therefore, he claims that wife's one-half interest in his profit sharing plan was $816.43, and not $2,446.55 as the district court found. Wife argues that the district court's valuation of the parties' interest in husband's profit sharing plan is amply supported by evidence. Wife claims that the district court took the $61,880.40 that was in the account on June 30, 1979, and then added $5,000.00 for each month in fiscal year 1979-80 as the firm's board of directors previously had directed, in order to arrive at its total of $121,880.40 as of June 30, 1980. Wife further argues that it would have been unfair to cut off the community interest in the plan on June 30, 1979, because the community had earned a portion of the next six months' profits of the law firm. Wife claims that the multiplier of 83/92 represents the ratio of months in the marriage to months in the plan and that the multiplier of .0445 represents husband's percentage of ownership in the law firm, which the district court then used to determine how much of the money in the plan belonged to the community. Therefore, wife claims that the district court started with the total amount of money in the plan, then took husband's share using the ratio of his ownership interest, and found the community interest by taking the percentage of this amount earned during the marriage. In Ridgway v. Ridgway, 94 N.M. 345, 610 P.2d 749 (1980), we held that in order to determine a community interest in a profit sharing plan, a district court may use an undiscounted, current actual value at the date of the divorce, if present value of the plan cannot be ascertained by substantial evidence. We feel that it is the district court's duty to try to determine a reasonable value of the community interest in a profit sharing plan. Moreover, although the district court is not necessarily bound to use the same manner of valuation that the directors of the plan may use, it was clearly an abuse of discretion to value the plan six months after the community was dissolved. The correct approach in this case is to value the community interest in the profit sharing plan as of the date of the divorce. The evidence is uncontradicted that the value of the law firm's profit sharing plan was $61,880.40 as of June 30, 1979, and that the directors of the law firm had authorized the inclusion of $5,000.00 per month in the plan. As a result, an additional $30,000.00 should be added to the profit sharing plan to calculate the parties' 3.518% interest in the plan. [1] The correct valuation in the plan is one-half of husband's (75%) vested interest of the percentage owned (3.1518%) of the reasonable value of the plan ($91,880.40) on the date of the divorce, December 31, 1979. Therefore, we find that the district court erred in its valuation of husband's interest in the law firm's profit sharing plan.