Maryland Court of Special Appeals Analyzes Signing Bonuses with Strings Attached and Indefinite Alimony
The Circuit Court for Anne Arundel County (the circuit court) did not abuse its discretion in awarding Wife indefinite alimony, Md. Code Ann., Fam. Law 11-106(c)(2), based on the employment of Wife, the lifestyle she and Husband enjoyed, Husband’s ability to pay alimony, disparity in parties income, Wife’s responsibility for the children, inability of Wife to save for retirement, and Husband’s incentive payments from employer. Loan payments by Husband’s employer, despite their vesting requirements, were more akin to a signing bonus, and therefore were considered income.
In 2010, Husband accepted a job with UBS as a financial advisor. Husband’s income was structured in the form of a $1,305,000 loan. Under the unconventional payment structure, Husband would receive a series of payments pursuant to the loan, and UBS would forgive Husband’s debt over a nine year period as long as he maintained satisfactory employment with the global financial firm.
In 2012, after nearly twenty years of marriage, Wife filed for divorce. At trial, Husband argued that the lump sum payments derived from his UBS employment were long-term loans. Wife however, contended that the payments were retention bonuses that were structured for tax purposes to function as a loan. Wife further asserted that Husband had initially taken her view, originally referring to the initial payment as a signing bonus, only to shift his description of the payments to that of a loan after the divorce proceeding was underway.
At the time of trial, Wife worked approximately 24 hours a week at a rate of $125 per hour, but received no benefits. She testified that the maximum full-time salary she had been able to find was about $110,000 a year, approximately $15,000 more than she was making.
Prior to divorce the parties lifestyle was replete with lavish cars, a $900,000 house with room for a swimming pool, permanent seat licenses for Ravens games worth $20,000, and expensive summer and winter vacations. After separation, Husband began spending extensively. He purchased a house for his daughter from a prior marriage. He bought a car for a friend, and paid the insurance on it. He bought a boat for his son. At trial, Wife testified that Husband began to cash in his retirement account once divorce proceedings were underway. He gave $180,000 of these savings to his daughter and son-in-law to buy a house. Furthermore, the court found that Husband spent over $2,500 a month dining out and on alcohol, as well as $90,000 on what could only be accounted for as living expenses.
Among other determinations made by the circuit court, it found that Husband had failed to disclose that he had dissipated assets. Wife was awarded $78,000 to account for Husband’s decision to purchase a home for his daughter, as well as $132,000 as an adjustment of the equities between the parties. In addition to child support for the last remaining child living at the marital home (of which she was awarded possession), Wife was awarded indefinite alimony of $4,500 per month as well as attorney’s fees. In categorizing the couple’s marital property and determining the amount of Wife’s indefinite alimony, the court determined that Husband’s UBS payments were income/marital assets and not loans/debt.
Question on Appeal:
Husband raised, pertinent to this discussion, the following question on appeal:
Did the court err when it failed to consider the significant debt of more than $1.2 million dollars that husband had at the time of trial and instead declared this debt was income/marital assets despite the uncontradicted evidence at trial that this debt existed and was analogous to unvested assets?
The Court of Special Appeals (COSA) began its analysis by emphasizing that Maryland’s statutory scheme continues to favor alimony that is fixed in time and rehabilitative in nature. See Blaine v. Blaine, 336 Md. 49 (1994). COSA recognized, however, that the instant case represented one of the two times that indefinite alimony will be considered: where, even after the party seeking alimony will have made as much progress toward becoming self-supporting as can reasonably be expected, the respective standards of living of the parties will be unconscionably disparate. FL 11-106(c)(2). COSA pointed out that, within this context, a circuit court must first look to a number of marriage-related factors (including the financial resources of each party) to determine whether alimony would be appropriate. If the circuit court determines that alimony is appropriate, but that even after such an award the living standards of the parties would be unconscionably disparate, then the circuit court may make an award of indefinite alimony.
Husband contended that the circuit court, in determining the financial resources of each party, erred in categorizing his approximately $1.3 million payments from UBS as income/marital property, arguing that these payments constituted loans and therefore were not marital property. He maintained that UBS characterized the payments as loans, and that portions of the loan would only be forgiven if he continued to work at UBS. Husband asserted that because 77 percent of the loan balance remained outstanding ($1,286,720), he had not actually acquired ownership of those funds.
COSA held that the circuit court did not err when it found the UBS payments to be income. COSA pointed out that under the terms of the Promissory Note, the actual amount of money owed by Husband was offset by payments he received under the terms of the Transition Agreement between he and UBS. In other words, Husband was compensated by UBS in an amount which covered the principle on the loan, and all he actually paid were the taxes on the year the transition payment had been received. Although an expert testifying on behalf of the Husband stated that UBS payments were debts incurred, the circuit court clearly discounted the testimony, which is its prerogative.
To further bolster his position, Husband cited to McCleary v. McCleary, 150 Md. App. 448 (2002), in which COSA held the circuit court failed to account for the husband’s negative net worth ($1 million debt) when making its marital property award. COSA distinguished McCleary from the instant case, noting that in McCleary the circuit court had in fact failed to consider the husband’s $4.6 million liability to his former company as well as a $1 million tax liability. According to COSA, Husband oversimplified the distinguishing factors between these two cases. In McCleary, the husband had introduced specific examples of his indebtedness. The UBS Letter of Agreement specifically contemplated the loan forgiveness as Husband continued his employment, and there was no suggestion that he would leave his job with the large financial firm.
Be vigilant when accepting large signing bonuses which are characterized as long term loans. These types of structures have become common in the financial industry, and the courts have now figured out how to deal with them in the context of Family Law proceedings. Your long term livelihood may be better served by tucking the proceeds in a retirement account, but regardless, they are income in the eyes of the State of Maryland, and will be accounted as such in an analysis of the Alimony factors. b2bYellowpages.com – Free listing allows buyers and sellers to quickly locate or advertise products and services to and from other businesses.