Recent Posts in Earnings During Marriage Category

Stock options that are earned during the marriage, but vest afterwards, generally belong to the community. They are treated as deferred compensation, like certain types of pensions. Usually an employee is granted the right to buy stock, now or in the future, at a fixed price. They may be forced to sell that stock back to the company if they leave. What controls whether the options are characterized as community or separate is when they are granted and when they vest. If they do not vest at all, as where a minimum number of years of service by the employee are required which is not met (even where the employee-spouse quits after separation and so blows them up), they are neither separate or community property - instead, they are not viewed as a property interest at all.  In those cases they were a "mere expectancy" that never matured.

In cases where an employee must work for the company for a fixed number of years to be eligible, but the spouses or RDP's separate before those years have been served, the options have both community and SP attributes. To the extent that they result from post-separation efforts too, they must be apportioned between CP and SP. As with how interests in pensions are commonly evaluated, courts tend to follow a "time-rule". The time rule looks like this:

DOG to DOS
__________  X  # of Shares Exercisable = C/P shares
DOG to DOV
    
        DOG = Date of Grant
        DOS = Date of Separation 
        DOV = Date of Vesting

Stock options that are granted after the DOS are usually treated as the separate property of the recipient, even where some of the employee's contributions occurred before. This is because of the importance of what the employer intended to the analysis.

This Blog is intended just to give you some sense of the law over these potentially complex questions. As with everything, different facts can lead to different outcomes and stock options are complicated financial devices. 

Also, stock option disputes sometimes involve claims of fraud - as where a small closely held company or family business tries to funnel or manipulate how when the options are granted or vest in an effort to favor one spouse over another. 

Perhaps the only practical way that a former spouse or partner may learn that stock options exist or when they vest or are exercised is by the self-disclosure of the employee. The law is clear that spouses and domestic partners are required by their fiduciary obligations to make these disclosures. Refusals to disclose can have severe consequences under Family Code section 1101.

T. W. Arnold III
http://www.MindfulDivorces.com

• If some or all of the funds on deposit you contend are your separate property can be traced from separate property (i.e., the inheritance) they will be confirmed to you unless your wife can establish you made a written agreement that expressed a clear intent that those sums would become community property (a transmutation)

• If the two of you made a written agreement, separate from the deposit agreement itself, that expressly provided that the deposited sums that are claimed not to be community property were in fact not to be community property then you will not be reimbursed.

Hence, you need the paper trail for the receipt of the inheritance monies into this joint account in order to establish they still belong to you as separate property.  As long as you do trace these funds, your wife's argument that you gifted the monies to her or the both of you by verbal agreement or by your conduct will not succeed. 

However, when monies are commingled over time this tracing becomes more difficult. Particularly in checking accounts, money comes in from other sources (like community earnings) and goes out (often to pay community expenses).  The question becomes which money is applied to what outflows?  
  
The law presumes that money that goes out of a commingled account is spent first on the community needs and expenses, meaning that what remains is more likely to be considered separate.  The law expects the community to pay community expenses, not that you first use your separate property - as long as their are sufficient community funds on hand.  If these community funds become exhausted then withdrawals of what is your separate remaining monies may be lost to the community.

In your situation you have a reimbursement claim for what she took and you should receive a credit on the marital balance sheet.  She may owe you 100% of the inheritance and 50% of the balance.  Your worst case is that she owes you half of what she took. Immediately begin to collect the needed bank and inheritance records to prove your claims.

Maintaining records during and after marriage is the most important thing you can do to preserve and protect your interests.  Unfortunately, few people realize this until after the horse has left the barn.

Q.     Are my earnings liable for my spouse's debts incurred before marriage?