Ludwig v. Lamee-Ludwig

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15-P-1177 Appeals Court
WEST LUDWIG vs. CHERYL LAMEE-LUDWIG.1
No. 15-P-1177.
Norfolk. October 17, 2016. - February 7, 2017.
Present: Wolohojian, Carhart, & Shin, JJ.
Divorce and Separation, Alimony.
Complaint for divorce filed in the Norfolk Division of the
Probate and Family Court Department on June 20, 2012.
The case was heard by John D. Casey, J.
Elaine M. Epstein for the husband.
Paul M. Kane (Joan E. Kolligian also present) for the wife.
SHIN, J. We address in this case whether the calculation
of an employee spouse's alimony obligation may include income
received from unvested employee stock options2 that were not
1
The wife resumed her maiden name, Cheryl Lamee, after the
filing of the complaint in this case.
2
Technically, the instruments in question in this case are
"performance options," but the parties agree that they function
like stock options, and we will refer to them as such.
2
subject to equitable division after application of the "time
rule" set out in Baccanti v. Morton, 434 Mass. 787 (2001). The
trial judge concluded that it would not constitute double
counting if such income were included in determining the
husband's alimony obligation to the wife, and the husband
appeals. He also appeals the judge's determination of the date
on which the unvested options should be valued under the time
rule. Discerning no error in the judge's resolution of either
question, we affirm.
Background. After twenty years of marriage, the parties
separated and began living apart in April of 2012. The husband
filed a complaint for divorce later that year. When attempts at
reconciliation failed, the wife filed a counterclaim for divorce
in July of 2013.
On August 19, 2014, the parties entered into a separation
agreement, which resolved all issues in the case except the two
identified above. The same day, the trial judge entered a
judgment of divorce nisi approving and incorporating the
separation agreement.3 As to the two contested issues, the
parties filed a stipulation agreeing to submit them to the judge
for determination solely "on representation of counsel."
3
Neither party appeals from the original judgment of
divorce.
3
The judge held a nonevidentiary hearing on the contested
issues later that day. He then entered a supplemental judgment
of divorce nisi dated October 1, 2014, concluding that the
alimony provisions of the separation agreement should be applied
to income the husband realizes from unvested stock options that
were not subject to the equitable division of marital assets,4
and that the unvested options should be valued on a date closest
in time to entry of the original divorce judgment. This appeal
followed.
Discussion. 1. Inclusion of income from unvested stock
options in determining the husband's alimony obligation. The
first disputed issue concerns the treatment of income from
unvested stock options awarded to the husband by his then-
employer, Fidelity Investments. Under the separation agreement,
the wife's beneficial ownership interest in the unvested options
was calculated in accordance with the time rule set forth in
Baccanti, 434 Mass. at 801 & n.10. The time rule is a formula
used to determine what portion of an employee spouse's unvested
stock options may be equitably divided (because they were
awarded for services rendered before or during the marriage) and
what portion should be assigned exclusively to the employee
4
The alimony provisions of the separation agreement require
the husband to pay a percentage of his annual base salary, plus
"additional alimony" calculated by applying a sliding-scale
percentage to "bonuses and other forms of compensation."
4
spouse (because they were awarded for services to be performed
after dissolution of the marriage).5 Id. at 799–801.6 In this
case the husband retained an expert who applied the time rule
and determined the number of unvested shares attributable to the
marital partnership and available for equitable division.7 As to
those shares, pursuant to the parties' agreement, the wife
received a fifty percent beneficial ownership interest.
The issue that the parties submitted to the trial judge
concerned the shares that were not equitably divided, i.e.,
those that were not treated as divisible marital property after
application of the time rule. Specifically, the parties
disagreed on whether any income the husband later realizes from
the contested shares should be included in determining his
alimony obligation to the wife. The judge resolved this dispute
5
There are exceptions to this general principle, which are
not pertinent here. For example, options awarded for services
to be performed after dissolution of the marriage can still be
equitably divided if the marital partnership played a role in
creating the conditions that warranted the award. See Baccanti,
434 Mass. at 799 nn.6, 7; 800 n.9; 801 n.11.
6
Under the time rule, the number of unvested options
available for equitable division is calculated by multiplying
the total number of unvested options by "a fraction whose
numerator represents the length of time that the employee owned
the options prior to dissolution of the marriage . . . and whose
denominator represents the time between the date the options
were issued and the date on which they are scheduled to vest."
Baccanti, 434 Mass. at 801.
7
The wife agreed that the expert's calculations were
accurate.
5
in the wife's favor, rejecting the husband's arguments that
including the income would constitute "double dipping," and
violate the Alimony Reform Act, G. L. c. 208, § 53(c)(1). We
discern no abuse of discretion in this ruling. See Heins v.
Ledis, 422 Mass. 477, 480–481 (1996) ("A judge has broad
discretion when awarding alimony and dividing marital assets").
This case does not present a situation of "double dipping."
"Double dipping" refers to "the seeming injustice that occurs
when property is awarded to one spouse in an equitable
distribution of marital assets and is then also considered as a
source of income for purposes of imposing support obligations."
Champion v. Champion, 54 Mass. App. Ct. 215, 219 (2002). Here,
there is no such injustice because the contested shares were not
part of the equitable distribution of assets; by operation of
the time rule, they were assigned to and retained by the husband
outright. See Baccanti, 434 Mass. at 799–801.
The husband concedes, as he must, that the contested shares
"were not subject to equitable division." Still, he argues that
the trial judge should not have considered them in determining
his alimony obligation because Baccanti deems unvested options
not divided under the time rule to "belong solely to the
employee spouse." Id. at 801 n.10. Baccanti addressed only
property division, however, not alimony. Certainly, for
purposes of property division, the husband retained sole
6
ownership of the shares that were not attributed to the
divisible marital estate by application of the time rule. But
that is precisely why there is no "double dipping": as the
judge properly concluded, because those shares were not part of
the division of marital assets, they could be considered a
source of income for purposes of alimony.8 This result is
consistent with our decision in Wooters v. Wooters, 74 Mass.
App. Ct. 839, 842–843 (2009), in which we held that income from
employee stock options awarded after entry of the divorce
judgment counted as "gross employment income" within the meaning
of the judgment's alimony provisions. We see no reason why the
same treatment cannot apply to stock options that are retained
solely by the employee spouse under the time rule because they
"were given for future services to be performed after
dissolution of the marriage." Baccanti, 434 Mass. at 800.
Moreover, even assuming for argument's sake that this case
implicates double counting, the judge's determination still
would not constitute an abuse of discretion. While disfavored,
double counting is not prohibited as a matter of law. See
Champion, 54 Mass. App. Ct. at 222. The trial judge must look
to the equities of each situation, and we will not "disturb [a
8
In contrast, it would be "double dipping" for the
calculation of the husband's alimony obligation to include his
income from the shares as to which the wife already received a
fifty percent beneficial ownership interest. The parties
agreed, however, that any such income would be excluded.
7
judge's determination] for inequitable 'double dipping' where it
is possible to 'identify separate portions of a given asset of a
divorcing spouse as the separate bases of the property
assignment and any alimony or support obligations.'" Adams v.
Adams, 459 Mass. 361, 394 (2011), quoting from Dalessio v.
Dalessio, 409 Mass. 821, 828 (1991). Here, the source of the
property assignment (the options given for efforts attributable
to the marital partnership) is distinct from the source of the
alimony obligation (the options given for postmarital efforts).
It was thus within the judge's discretion to consider this
latter category of options as a source of income in the alimony
calculation. See Adams, 459 Mass. at 394 (affirming decision to
assign present value of husband's partnership interest to
marital estate, and to then include expected future incentive
compensation in determining child support obligation); Champion,
54 Mass. App. Ct. at 221–222 (affirming decision treating
husband's business as marital asset, and then including expected
future stream of business income in determining husband's
alimony and child support obligations).
The husband also contends that the judge's decision
violates the Alimony Reform Act, which provides that "[w]hen
issuing an order for alimony, the court shall exclude from its
income calculation . . . capital gains income and dividend and
interest income which derive from assets equitably divided
8
between the parties under [G. L. c. 208, §] 34." G. L. c. 208,
§ 53(c)(1), inserted by St. 2011, c. 124, § 3. This argument
fails because the contested shares are not "assets equitably
divided between the parties" for the reasons stated above.
Furthermore, any money realized from the shares would not be
"capital gains income" or "dividend and interest income."
Rather, as the husband represented to the judge, the money would
"almost entirely come through as W-2 income." See Wooters, 74
Mass. App. Ct. at 843 ("[I]ncome realized from the exercise of
stock options . . . 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"). Accord Hoegen v. Hoegen,
89 Mass. App. Ct. 6, 9–10 (2016). We therefore agree with the
judge's conclusion that "there is nothing in the Alimony Reform
Act that prevents the Court from [including] Husband's unvested
shares not previously divided in[] the definition of his
income."
2. Date of valuation. The second disputed issue concerns
the appropriate date for valuing the unvested stock options
under the time rule. The later the date, the greater the
numerator in the formula and, in turn, the number of shares
available for equitable division. See Baccanti, 434 Mass. at
801. The expert applied the time rule using three different
dates: December 31, 2013; March 31, 2014; and June 30, 2014.
9
After hearing arguments, but no testimony per the parties'
stipulation, the judge ruled that the options should be valued
and divided as of June 30, 2014, i.e., the date closest to when
the original divorce judgment entered and the hearing on the
contested issues occurred. The judge found the June 30
valuation date appropriate because both parties had been
"diligent" and had not "intentionally prolonged the litigation."
The husband now argues that the judge abused his discretion
by not selecting the valuation date of December 31, 2013, which
is the date closest to when the parties separated in April of
2012. The sole reason he gives is that the judge did not make
factual findings under G. L. c. 208, § 34, regarding the wife's
"contribution to the maintenance of the unvested options" after
the parties' separation.9 But even putting aside the fact that
contribution was "a discretionary, not a mandatory, factor" for
the judge to consider, Baccanti, 434 Mass. at 792, citing G. L.
c. 208, § 34, the husband can hardly fault the judge for not
making findings when the parties, by stipulation, did not
present any testimony or other evidence that would have enabled
9
General Laws c. 208, § 34, as appearing in St. 1977, c.
467, provides, in pertinent part:
"The court may . . . consider the contribution of each of
the parties in the acquisition, preservation or
appreciation in value of their respective estates and the
contribution of each of the parties as a homemaker to the
family unit."
10
him to do so. In any event, contrary to the husband's
suggestion, the judge was not limited to considering "which
party made the greater financial contribution to the acquisition
of the assets." deCastro v. deCastro, 415 Mass. 787, 794
(1993). "The marriage-as-partnership concept, embodied in G. L.
c. 208, § 34, recognizes that one party often concentrates on
the financial side of the family while the other concentrates on
homemaking and child care." Ibid. In this case the wife
continued to contribute to the marriage after the parties
separated, as it is undisputed that she remained the primary
caretaker of their younger son while he finished high school.
The husband has pointed to nothing in the record to support his
claim that the judge abused his discretion in this respect.
Supplemental judgment of
divorce nisi affirmed.