STOCK OPTIONS ORDINARY INCOME IN DIVORCE? DC RECENT COURT OF APPEALS DECISION

The Court of Appeals in Crater v. Oliver decided on February 14, 2019, considered whether stock options would be an ordinary income for the purposes of dispensing alimony payments.

Generally the court considered the following factors in the award of alimony:

  1. Ability of the party seeking alimony to be wholly or partly self-supporting;
  2. Time necessary for the party seeking alimony to gain sufficient education or training to enable that party to secure suitable employment;
  3. Standard of living that the parties established during their marriage or domestic partnership, but giving consideration to the fact that there will be 2 households to maintain;
  4. Duration of the marriage or domestic partnership;
  5. Circumstances which contributed to the estrangement of the parties;
  6. Age of each party;
  7. Physical and mental condition of each party;
  8. Ability of the party from whom alimony is sought to meet his or her needs while meeting the needs of the other party; and
  9. Financial needs and financial resources of each party.

In this case however the issue was whether cashing of certain annual stock options would be considered an ordinary income for the purpose of making alimony payments as according to the divorce agreement reached and merged into the final decree of divorce, Crater was obliged to make monthly alimony payments at 11% of his gross income.

The Court began by recounting that there are no fixed rules in determining the amount for alimony however the trial court’s award had to be well supported by the facts and within reason given the above enumerated elements.

The main issue was however whether the cashing of stock options in 2016 should be treated as ordinary income.  The Court looked into the Child Support Guidelines’ definition of ordinary income as a reference whereby § 16-916.01 (d)(1)(P) includes capital gains from a real or personal property transaction as gross income in cases where the capital gains represent a regular source of income.

Moreover, the guidelines categorize gross income to include   from any source such as: severance pay, bonuses, lottery or gambling winnings that are received in a lump, or even settlement payments.

Thus Crater’s gains from the exercise of stock options were considered regular source of income particularly as Crater had exercised stock options in 2013 and 2014 as this was an integral portion of his employment contract.

Moreover, Crater’s employer had considered the stock options income and issued W-2 earnings statements reflecting that income.

The Court ruled that the trial Judge had properly included liquidation of stock options as ordinary income for the purpose of calculating the alimony payments pursuant to the divorce settlement agreement.

Refer to our DC Divorce Lawyer page for more information on this topic.

Categories: Family Law.