Employee Bonuses Received After Classification of Assets
National Legal Research Group, Inc.)
In many divorce cases, the employee receives a bonus shortly after the date of classification. The date of classification is the date upon which the time period "during the marriage" ends for equitable distribution purposes. The precise date varies by state; the most common options are the date of divorce, the date of filing, and the date of final separation. Brett R. Turner, Equitable Distribution of Property 5.12 (2d ed. 1994 & Supp. 2002).
Salary received after the date of classification is separate property. But as noted above, bonuses are not earned at the exact moment of receipt. Instead, they are compensation for a period of past service, extending back for as long as a year or more after the date of actual receipt.
If a bonus is consideration for services rendered entirely before the marriage, it is entirely marital property. For example, assume that the parties were married before 2002, and that the date of classification is January 15, 2003. On February 1, 2003, one spouse receives a bonus based upon performance during calendar year 2002. Since the bonus was earned entirely before the date of classification, it is entirely marital property. See Wilson v. Wilson, 294 Ark. 194, 741 S.W.2d 640 (1987) (error to treat bonus awarded five days after divorce decree as separate property; bonus was consideration for marital efforts); Schumacher v. Schumacher, 66 Ark. App. 9, 986 S.W.2d 883 (1999) (bonus for work done during the marriage was marital, even though received at a later date); In re Marriage of Huston, 967 P.2d 181 (Colo. Ct. App. 1998) (bonus earned during the marriage was marital property, even though not received until later); Brock v. Brock, 690 So. 2d 737 (Fla. 5th Dist. Ct. App. 1997) (error to classify fee received after separation for work done during the marriage as separate property); Warner v. Warner, 692 So. 2d 266 (Fla. 5th Dist. Ct. App. 1997) (bonus for past creative efforts received during separation was marital property); Burns v. Burns, 687 So. 2d 933 (Fla. 2d Dist. Ct. App. 1997) (bonus for past efforts received after date of classification was marital property); Reiss v. Reiss, 654 So. 2d 268 ( Fla. 1st Dist. Ct. App. 1995) (employment bonus received after separation was compensation for marital efforts, and thus marital property); Byington v. Byington, 224 Mich. App. 103, 568 N.W.2d 141 (1997) (compensation package earned during marriage was marital property, even though not received until after separation); In re Steffan, 423 N.W.2d 729 (Minn. Ct. App. 1988) (expected future bonus was marital property to the extent earned before the date of classification); Whitworth v. Whitworth, 878 S.W.2d 479, 482 n.1 (Mo. Ct. App. 1994) (stock bonus received during the marriage was marital property); Hartog v. Hartog, 85 N.Y.2d 36, 647 N.E.2d 749, 623 N.Y.S.2d 537 (1995) (bonus received after marriage was earned during marriage, and was therefore marital property); Lineberger v. Lineberger, 303 S.C. 248, 399 S.E.2d 786 (Ct. App. 1990) (error to hold that bonus received after separation was separate property, where bonus was based on performance during the marriage).
If a bonus is consideration for services rendered partly during the marriage, it is part marital and part separate property. For example, assume that the parties were married before 2002, and that the date of classification is July 1, 2002. On February 1, 2003, one spouse receives a bonus based upon performance during calendar year 2002. The bonus was based upon six months of employment before the date of classification and six months of employment after the date of classification. It is therefore 50% marital property and 50% separate property. See Lewis v. Lewis, 785 P.2d 550 (Alaska 1990) (stock to be given to employee spouse after employer had 18 consecutive profitable months; marital to the extent that the profitable months occurred before the date of classification); Pittman v. Pittman, 791 So. 2d 857 (Miss. Ct. App. 2001) (husband received 5% interest in business for working in business without pay during year in which date of classification occurred; interest was marital property to extent that work was performed before date of classification); Hughes v. Hughes, 311 N.J. Super. 15, 709 A.2d 261 (App. Div. 1998) (husband received interest in shopping center after date of classification; interest was marital property if it was consideration for prior marital services); Joynes v. Payne, 36 Va. App. 401, 551 S.E.2d 10 (2001) (bonus for work done in year of separation was partly marital); In re Marriage of Griswold, 112 Wash. App. 333, 48 P.3d 1018 (2002) (bonus received after separation was partly marital property).
A bonus earned during the marriage is marital property even if it is not received until after the marriage is over, so long as an enforceable (if contingent) legal right to receive the bonus existed on the date of separation. See In re Marriage of Peters, 326 Ill. App. 3d 364, 760 N.E.2d 586 (2d Dist. 2001) (husband had right to receive stock bonus after 10 years of employment with the company, if certain goals were met; divorce occurred during the 10-year period; bonus would be marital to the extent earned with marital efforts; reserving jurisdiction to determine marital interest if and when bonus was received).
Of course, a bonus earned entirely after the date of classification is separate property. See In re Marriage of O’Rourke, 547 N.W.2d 864 (Iowa Ct. App. 1996) (where parties separated in 1992, husband’s 1994 bonus was not marital property).
Likewise, a bonus both earned and received during the marriage is obviously marital. See Jagusch v. Jagusch, 2003 WL 149697 (Ohio Ct. App. 2003).
Burden of Proof. Note that bonuses, like all other assets, are presumed to be marital unless proven separate. The burden of proof is therefore on the owning spouse to prove the extent of the separate interest. If this burden is not met, the entire bonus is marital. For example, assume that one spouse receives an employment bonus six months after the date of classification. That spouse introduces no evidence as to the precise period of service on which the bonus is based. While the bonus may well be compensation for some period of postclassification service, there is no basis for determining the extent of the separate interest. The court has no option but to treat the entire bonus as marital. See Joynes v. Payne, 36 Va. App. 401, 551 S.E.2d 10 (2001).
Note also that the nonowning spouse bears the burden of proving that a bonus will actually be received. See Jagusch v. Jagusch, 2003 WL 149697 (Ohio Ct. App. 2003) (wife’s testimony that she "expected" husband to receive a bonus was not sufficient to prove that bonus actually existed); Clements v. Clements, 10 Va. App. 580, 397 S.E.2d 257 (1990) (where wife introduced no evidence to support her claim that alleged bonus existed, trial court properly failed to divide it).
Unvested Bonuses. Many bonus programs provide that the employee must be working for the company on the day when the bonus is payable in order to receive it. Where such a requirement exists, and the bonus is not yet payable on the date of classification, then the bonus is unvested. But unvested retirement benefits and unvested stock options are almost universally subject to division if earned during the marriage. For exactly the same set of reasons, the cases hold that unvested bonuses are marital property to the extent that they are compensation for services rendered before the date of classification. See Joynes v. Payne, 36 Va. App. 401, 551 S.E.2d 10 (2001); In re Steffan, 423 N.W.2d 729 (Minn. Ct. App. 1988) (bonus due to vest one month after trial court decision was marital property); In re Marriage of Griswold, 112 Wash. App. 333, 48 P.3d 1018 (2002).
The same reasoning applies to bonuses which are unvested for other reasons. See Lewis v. Lewis, 785 P.2d 550 (Alaska 1990) (where bonus was unvested because of dispute between employer and employee over terms of bonus plan, bonus was still marital property).
Bonus vs. Reimbursement. As used in this article, a bonus is any payment in compensation for services rendered, over and above the employee’s normal salary. When a payment is not compensation for services performed but, rather, reimbursement for expenses incurred, it is not subject to the rules set forth here. See Davis v. Davis, 2003 WL 1704580 (Mo. Ct. App. 2003).
While Davis did not address the issue, the logical rule is that reimbursement payments assume the same character as the funds originally used to pay the expenses being reimbursed. Thus, if the original expenses were paid with marital funds, the reimbursement payments are marital; otherwise, the payments are separate. This is the rule which most states apply to one common form of reimbursement: personal injury proceeds given as compensation for already paid medical expenses. See Brett R. Turner, Personal Injury Proceeds: Applying the Analytical Approach, 19 Equitable Distribution Journal 97 (2002).
Information provided by:
National Legal Research Group, Inc.