Ex-husband's stock option earnings part of alimony - 20 Aug 2009

Ex-husband's stock option earnings part of alimony

Published: August 20, 2009

http://www.masslawyersweekly.com/index.cfm/archive/view/id/450659

Proceeds
that an ex-husband received by exercising stock options were part of
his gross annual income and had to be shared with his former wife as
part of her alimony, the Appeals Court has ruled in a case of first
impression.

The couple, Janet and Thomas Wooters, divorced in
1994. Their divorce judgment called for Thomas to pay Janet, as
alimony, one-third of his "gross annual employment income."

Thomas
received shares of nonqualified stock options as part of his salary
package as executive vice president and general counsel for LoJack
Corp. In 2006, he exercised some of his stock options and listed the
money received as part of his gross pay on his 2006 W-2 form. He did
not, however, pay any part of the proceeds to his ex-wife as part of
her alimony.

When Janet learned this, she filed suit in
District Court, claiming that her ex-husband was in contempt of the
divorce judgment's alimony provision.

Probate & Family
Court Judge Dorothy M. Gibson agreed, finding that the exercised stock
options fell within the definition of "gross annual employment income"
as provided in the divorce judgment and ruled the ex-husband in
contempt.

He then challenged the judge's ruling in the Appeals
Court, which concluded that exercised stock options are part of a
divorced man's annual income. It found no controlling case on point in
Massachusetts but did find decisions supporting its conclusion in
Arizona, Arkansas, California, Florida, Illinois, New Hampshire and
Ohio.

Writing for the court, Judge Gary S. Katzmann noted
that, "in addition to the supporting case law, common sense dictates
that income realized from the exercise of stock options should be
treated as gross employment income: It is commonly defined as part of
one's compensation package, and it is listed on W-2 forms and is
taxable along with the other income."

Katzmann said that the
court's determination regarding the exercise of stock options "accords
with policy consideration as well - if the exercised stock options were
not deemed income for alimony purposes, a person could potentially
avoid his or her obligations merely choosing to be compensated in stock
options instead of by a salary."

Having so ruled, however, the court went on to vacate the contempt finding against the ex-husband.

"In
our view," Katzmann wrote, "the husband's disagreement or
misunderstanding of the issue does not constitute clear and undoubted
disobedience to a clear and unequivocal command. To a reasonable
person, it may not be readily apparent that stock option proceeds
constitute one's gross annual income, especially if it is not defined
as such in the parties' divorce decree."

The judge added that
"prior to our decision here, the question had not been resolved by a
published Massachusetts opinion. In light of the totality of the
circumstances, we conclude that a finding of contempt was not
warranted."

  While reversing the contempt judgment, the court
did, however, order the husband to pay an alimony arrearage to the wife
based on the stock option proceeds.

The 9-page decision is Wooters v. Wooters, Lawyers Weekly No. 11-152-09. The full text of the ruling can be found by clicking here.

Alexander
Furey represented the ex-wife. Norman I. Jacobs and Mary M. Ferriter,
both of Esdaile, Barrett & Esdaile, were counsel for the former
husband.

- Paul Lamoureux