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Partitioning Bonuses in Texas

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In a recent Texas Supreme Court case, the Court considered a mediated settlement agreement related to a discretionary employee bonus. The issue was whether the agreement partitioned a discretionary employee bonus that the husband got nine months after the divorce was granted. The husband argued that it was future income and earnings that the agreement partitioned to him, but the wife argued it was earned during the marriage and should be considered undivided community property.

The couple in question married in 1980. The husband worked at an energy and commodity trading company starting in 1992. As part of his employment, he was eligible for an annual discretionary bonus. This wasn’t guaranteed but would be awarded based on performance. While married, he got a bonus every year.

The wife sued for divorce in 2008, and the couple agreed to divide $10 million of community assets with $5 million to each spouse. However, since they couldn’t resolve other differences, they entered into mediation from which they developed a mediated settlement agreement. This agreement partitioned other property, including retirement plans and jewelry. The husband claimed that the bonus he’d gotten in 2010 before the finalizing of the mediation settlement agreement went into an account awarded to his wife.

Future income was partitioned to the person to whom the property was awarded, and future earnings were partitioned to whichever person provided services that gave rise to the earnings. The agreement also included details about the couple’s income tax liabilities and required the parties to go to binding arbitration about any issues about their intent as reflected in the agreement.

After the couple executed this agreement, the court rendered judgment on it under Texas Family Code § 6.602(c). The parties did go to arbitration about various disagreements shortly afterward. They disagreed about how to partition future income and how future income or earnings should be defined in terms of dates of earning. The husband argued this wouldn’t comply with the mediated settlement agreement. The arbitrator determined that the future income was partitioned as of June 2010, but for tax purposes, the partition was January 2010.

The wife tried to have it set aside, since the couple hadn’t agreed about the bonus that would be paid in 2011, half of which had to do with services through June 2010. The trial court denied this motion, but the wife didn’t appeal.

The husband got a $4.5 million bonus. The wife filed a post-divorce petition to divide the marital interest in the bonus as it related to services performed between January and June 2010. The husband asked for partial summary judgment, claiming that none of the bonus was community property, and to the extent it was subject to division, it had already been awarded to the husband because it was future earnings. The trial court granted the motion.

The appellate court reversed and sent it back, concluding that the bonus wasn’t partitioned in the divorce decree and that she’d raised a factual issue about how the bonus should be characterized. The Court agreed to review.

The husband argued that the 2011 bonus didn’t count as community property and that the bonus was discretionary until the board voted to award it in 2011, while the wife argued it was community property because it compensated him for services he’d performed while married. The Court reasoned that the agreement partitioned the bonus and that it didn’t matter whether it was community property or not. It found that general principles of contract interpretation governed the settlement agreement under Texas Civ. Prac. & Rem. Code section § 154.071(a). It reversed the appellate court’s judgment and rendered judgment for the husband.

If your divorce involves matters related to property distribution, contact the Texas attorneys at the McClure Law Group at 214.692.8200.

More Blog Posts:

Johnny Depp, Amber Heard, and a Discussion on Family Violence Protective Orders and Temporary Restraining Orders in Texas, June 9, 2016

Divorce and Taxes – What to do if your ex-spouse botched your joint tax return, May 31, 2016

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