Let’s assume you work for a large company like Goldman Sachs. As part of your compensation package, you not only receive annual cash bonuses but also stock options in the company. Even if the stock ownership is restricted and you are not profiting immediately, can you shield that stock ownership from being part of an alimony or child support determination? As an experienced divorce attorney, I am quite familiar with the lead case here in New Jersey. To wit, in the case of Miller v. Miller, the Supreme Court of New Jersey addressed the issue of imputing income from investments for the purpose of determining a party’s ability to pay alimony. Let’s explore.
In Miller, the parties married in 1967 and divorced in 1988. Mr. Miller filed the complaint for divorce while he was the manager of municipal markets at Merrill Lynch. His annual salary at the time was around $150,000. Additionally, Mr. Miller received benefits from his job, such as a yearly bonus based on his performance on the job and the overall profitability of the company. For instance, in 1987 Miller’s bonus was $1,100,000. Furthermore, Mr. Miller received an expectancy in an unknown amount of restricted Merrill Lynch stock. Throughout the parties’ twenty-one year marriage, Mrs. Miller was a housewife.
In 1988, the parties entered into a property settlement agreement. Pursuant to the agreement, Mr. Miller would pay alimony to Mrs. Miller, which would amount to half of his monthly take-home salary plus half of the first $300,000 of his annual bonus. Moreover, the settlement agreement stated that the alimony wouldn’t go beyond $200,000 yearly. Additionally in the agreement, Mrs. Miller waived her right to a share of the 10,000 shares of restricted Merrill Lynch stock that Mr. Miller had received through his bonus in 1987. She also waived the right to a portion of any other shares of stock Mr. Miller would obtain as part of his future compensation package. Whatever other marital assets remained between the parties were divided and equitably distributed, amounting to $1,000,000 per party.
From 1988 to 1992, Mrs. Miller received pretty close to the highest amount of alimony she was entitled to. In 1991 Mr. Miller discovered he had a serious heart condition. Not only was he placed in a different, lower paying position at Merrill Lynch to start, but also eventually was fired in January of 1995. In 1993, Mr. Miller started to fall behind in his alimony payments. As a result, Mrs. Miller sought to force Mr. Miller to pay the arrearages and have the property settlement agreement modified to reflect his new income.
The trial court conducted a hearing to determine whether changed circumstances existed for Mr. Miller. It found that he had involuntarily lost his job, which constituted a change in circumstances. Additionally, the trial court concluded that the property settlement agreement was not unconscionable because Mrs. Miller had competent legal counsel present throughout the negotiations. Furthermore, the court concluded that Mr. Miller did not conspire with Merrill Lynch to receive the restricted stock instead of cash bonuses as a method of reducing Mrs. Miller’s alimony. Ultimately, the trial court found that given the situation and changed circumstances, Mr. Miller was entitled to a reduction in his alimony payments. The court lowered the alimony payments to $48,000 per year—one half of Mr. Miller’s imputed yearly net salary had he still be working at Merrill Lynch.
Following the decision of the trial court, Mrs. Miller appealed. While the Appellate Division affirmed the findings of the lower court, the Supreme Court granted Mrs. Miller’s petition for certification. The Supreme Court held that while the initial property settlement agreement was not unconscionable, income should be imputed from Mr. Miller’s investments based upon the average five-year historical rate of return on A- grade long-term corporate bonds. The court stated that as the supporting spouse, Mr. Miller could not shield his restricted stock options in Merrill Lynch from the alimony calculus by investing them in a non-income producing manner.
If you own interests in a company that you work for and are about to start the divorce process, do not hesitate to contact my New Jersey divorce and family law firm today for a consultation to discuss what your options are and how it will potentially impact alimony payments down the road. Thank you.