Opinion ID: 3160531
Heading Depth: 2
Heading Rank: 1

Heading: The January 2013 Payment

Text: Husband and Wife separated in September 2012. Husband received a $2.7 million payment from his new law firm in January 2013. He argues that the payment falls outside the marital estate because the law firm made the payment in 2013 after the couple separated, and Husband and his law firm treated the payment as 2013 income for tax purposes. Wife claims in response that the payment was partially marital property because it was compensation Husband partially “earned” during the marriage according to the terms of his employment agreement. The 4 Roberts v. Roberts, 19 A.3d 277, 280 (Del. 2011). 5 Id. 6 Id. 5 Family Court determined that part of the payment was marital property because Husband earned the payment in 2012, and the tax treatment of the payment was irrelevant for purposes of the marital property determination. Under 13 Del. C. § 1513(b), “marital property” means “all property acquired by either party subsequent to the marriage” unless it falls under one of the four statutory exceptions, none of which apply here.7 There is a presumption that all property acquired during the marriage is marital property, and therefore subject to division upon divorce. 8 Accounting and tax designations are not controlling when making marital property determinations.9 Instead, the Family Court must consider when a spouse’s income was actually earned, rather than when it was received, for marital property purposes.10 7 13 Del. C. § 1513(b). “Subsequent to the marriage” means after the date of marriage, not after the divorce. 8 Id. § 1513(c). 9 Lynam v. Gallagher, 526 A.2d 878, 881 (Del. 1987) (“[Though certain distinctions may be meaningful from a corporate accounting perspective,] they should not be determinative as between the parties to a marital property dispute . . . .”). 10 Forrester v. Forrester, 953 A.2d 175, 186 (Del. 2008) (property interest acquired during marriage even if not realized as cash until after marriage is marital property); Gregg v. Gregg, 510 A.2d 474, 480 (Del. 1986) (“Property interests not yet reduced to possession can be acquired during marriage within the meaning of § 1513, and if such an interest still exists at the time of a divorce, the interest is to be regarded as marital property.”); Sayer v. Sayer, 492 A.2d 238, 241 n.4 (Del. 1985) (“[A]lthough [pension amounts] are not presently possessed they are presently earned [and] pension amounts attributable to the periods prior to or subsequent to the marriage are separate property while those rights earned during a marriage are proportionally distributable to the parties.”); N.P. v. J.L.P., 2008 WL 1952968, at -5 (Del. Fam. Mar. 11, 2008) (pro rata portion of retention bonus received after marriage was marital property because interest was acquired during marriage); Dowd v. Dowd, 1992 WL 69317, at  (Del. Fam. Feb. 25, 1992) (year-end bonus paid in January of following year is marital property because based on work performed in the prior year). 6 Husband’s employment agreement states: “We do not pay monthly draws in January of each year, but during January . . . you will receive the balance of your prior year’s base compensation . . . in excess of previously received draws.” 11 This payment scheme is consistent with the firm’s partnership agreement, which also provides that the January payment is “earned” the preceding year. 12 Where the terms of a contract are clear on their face, there is no need to resort to extrinsic evidence to aid in interpretation. 13 Both the employment agreement and the partnership agreement plainly state that the January payment represents the balance of Husband’s base compensation from the preceding year and is earned in the preceding year. 11 App. to Opening Br. at 255 (Emp’t Agreement) (emphasis added); see also id. (“The final distribution for each year is on or about January 13 of the following year and includes a distribution of all remaining net income not previously distributed . . . .”). 12 Id. at 267 (P’ship Agreement) (“After the close of each fiscal year, any excess of each Partner’s share of the Net Income for such fiscal year over his or her Draws and other charges to his or her capital account during or in respect to such fiscal year . . . shall be paid to such Partners as soon as practicable after the end of such fiscal year . . . .”); see also App. to Answering Br. at 88 (Husband’s 2012 Fin. Info. Memo) (“The aggregate of your 2012 gross distributions is $[x], which is comprised of[, among other sums,] today’s gross distribution of $[y].”). . Husband points to the third party beneficiary disclaimer in the Partnership Agreement, and argues that the Partnership Agreement should not be considered when interpreting the Employment Agreement. His argument, however, ignores the Partnership Agreement language where the two documents were intended to be read together. See id. at 254 (Emp’t Agreement) (“Compensation: In accordance with and subject to our Partnership Agreement . . . .) (emphasis added). Further, a third party beneficiary is “an individual who is not a party to a contract [but] can nevertheless enforce it under certain circumstances.” 13 WILLISTON ON CONTRACTS § 37:1 (4th ed.). Wife is not seeking to enforce the Partnership Agreement. Instead she is using the agreement as an interpretive aid, as contemplated by the language in the agreement. 13 Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006). 7 Husband argues that this interpretation ignores other language in the employment agreement, where Husband and his new law firm agreed as follows for the January 2012 payment: As a result of your admission to the Firm in 2011, a significant portion of the revenue from clients generated by you and/or your work during the balance of 2011 will necessarily fall into 2012, and accordingly, all of the amount paid to you in 2012 constituting the balance of your 2011 base compensation and/or constituting a bonus (if any) payable respecting your 2011 performance, will be treated by the Firm and you as 2012 income for all financial and tax reporting purposes. 14 According to Husband, even though the foregoing language addressed the January 2012 payment, it supports his interpretation that the January 2013 payment was in anticipation of revenues the firm would receive in 2013, and therefore when his income is matched with the tax year, the $2.7 million January 2013 payment is not marital property. 15 This argument fails for several reasons. As Husband admitted at trial, if he left the firm on February 1, 2013 after receiving his January payment, the January payment would have been “earned” and owed to him regardless of his 14 App. to Opening Br. at 256 (Emp. Agreement). 15 Husband relies on the principle of contract construction that “[s]pecific language . . . controls over general language, and where specific and general provisions conflict, the specific provision ordinarily qualifies the meaning of the general one.” DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005). According to Husband, applying this principle demands that the provision treating the January payment as income for the year it is received “for all financial and tax reporting purposes” be interpreted to negate the prior language in the employment agreement making clear the January payment is for the previous year’s compensation. But these provisions are not in conflict. The first explains what the January payment is—the balance of last year’s compensation—and the second explains how it will be treated for accounting purposes—this year’s income. The provisions address different issues and are not in conflict. 8 departure. 16 Further, although Husband concentrates on the tax treatment of the payment, the employment agreement language relied on by Husband reinforces Wife’s position that the payment was “earned” the year before. For Husband’s January 2012 payment, the provision relied on by Husband states that “all of the amount paid to you in 2012 constituting the balance of your 2011 base compensation and/or constituting a bonus (if any) payable respecting your 2011 performance . . . .” 17 This language is consistent with Wife’s position, where the January payment is “earned” in the year preceding the payment. Husband’s argument is at odds with the express language of his employment agreement and the partnership agreement. Husband’s position merely reflects the special tax treatment of the January payment agreed to by Husband and his law firm, rather than controlling when the payment was earned for marital property purposes. The Family Court correctly decided that Husband’s January 2013 payment was earned in 2012 and therefore partially includable in the marital estate.