Ludwig v. Lamee-Ludwig

• Court: Massachusetts Appeals Court
• Decided: February 7, 2017
• Docket: AC 15-P-1177
• Status: Published

Opinion

NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557- 1030; SJCReporter@sjc.state.ma.us

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.