Perquisites, usually called perks, are benefits an employer gives to an executive or employee over and above salary or wages. Perks can be valuable and may significantly enhance the lifestyle of the executive and their family members.
Perks may be classified as marital property subject to equitable distribution upon divorce. They also may generate income that can be a resource the judge can consider available to pay alimony or child support. Connecticut courts have said that normally (but not always), a specific perk can only function in divorce as either marital property subject to distribution or an income source, but that it would be “double-dipping” to use one perk to serve as both.
Today, we look at perquisites in the context of identifiable property with ascertainable, divisible value in divorce.
Perquisite discovery and inventory
On a basic level, to fairly divide marital property, the judge must know about all of it. In Connecticut, the law and the courts take a broad view of marital property. In particular, the marital estate may contain certain classes of property that belong only to one spouse that most other states would call separate property and not divisible.
For the court to know about perks (and all other property), the litigants must comply with required income and asset disclosures, and they must keep those disclosures up to date during the proceedings. Additionally, each litigant has the right to conduct discovery in the divorce, meaning that each may request specific information from the other to uncover relevant evidence.
An experienced family lawyer will use discovery tactics to uncover undisclosed perks – those that the other party tried to hide, failed to disclose or misunderstood to have disclosable, divisible value.
Perks may be monetary or in-kind, including:
- Various types of insurance
- Vested or unvested stock options
- Restricted shares or deferred stock
- Profit sharing
- Relocation expenses
- Paid personal travel or vacation allowances
- Use of company vehicles or planes plus related expenses
- Personal vehicles and related expenses
- Concert, movie, sporting, theater and other kinds of tickets
- Access to company residences or vacation properties
- Mobile phones and service
- Company loans
- Memberships at country clubs or athletic facilities
- Payment of professional license fees or professional association memberships
- Dining allowances
- Retirement benefits like pensions and 401(k)s
- Deferred compensation plans
- Incentive plans
- Professional services, such as from financial advisors
- Housing and costs of living
- Commuting expenses
Unearthing perks in divorce can be challenging when the other litigant is a business owner or is an owner, director or executive in a closely held corporation, possibly with family members. Sometimes the lines between personal and business expenses can blur. Did a litigant buy a vehicle with company funds and call it equipment owned by the business, but only drive it for their personal needs? Is it really a perquisite?
In tightly held businesses, it can be easier to quietly distribute perks without declaring them so. A forensic accountant may be able to review company records to discover hidden perks.
When is a perquisite part of the distributable marital estate?
Our courts largely have the task of classifying property in divorce. As with other types of property, judges in divorce proceedings have discretion to analyze the nature of each perk.
We previously posted about unvested stock options in this context. Executive compensation may include perks like these, which are nontraditional and vary depending on the plan terms, the employment contract, corporate rules or applicable laws. Determination of whether stock options are properly part of the marital estate subject to division also must consider whether none, all or part of the options have vested in the recipient. When does the executive have ownership rights with ascertainable value subject to division?
In that blog, we also explained some of the concepts that the Connecticut Supreme Court has approved as relevant for judges evaluating complex, nontraditional, unconventional assets given as perks. To determine whether a perk is properly marital property and distributable, these questions may be helpful:
- Does the litigant have an ownership interest?
- Is the interest only a future expectancy? Or is it definite enough that the litigant has legal rights arising from it such as through an employment contract?
- If the asset is measured by the concept of vesting, has any part of it vested? If not, is the chance of future vesting “sufficiently concrete, reasonable and justifiable” anyway, so that they are distributable despite having not yet matured? Bender v. Bender, 258 Conn. 733 (2001).
- Is a reasonable valuation method available?
- Is the perk a potential future interest contingent on a future event? What is the degree of certainty that the event will happen or is it too speculative to fairly constitute marital property?
See Mickey v. Mickey, 292 Conn. 597 (2009).
Perks can be difficult to evaluate when they are rare, intangible, novel or complex. A litigant may be able to discover the other litigant’s perks, but it may be necessary to consult or retain a financial expert to place a value on a unique or complicated perk. The expert can help determine whether valuation is reasonably ascertainable or just too speculative to be divisible marital property.
The financial expert may use a variety of valuation methods. For example, the Security and Exchange Commission (SEC) for its purposes looks at the cost to the employer to provide the perquisite, reports Family Law Quarterly, and not at market value. The agency’s view is that a perk is not “integrally and directly related to the performance of the executive’s duties” and “confers a direct or indirect benefit that has a personal aspect” and is not available to all the other employees. 40 Fam. L.Q. 467.
Our Supreme Court, however, has approved the use of fair market value, but also recognized that sometimes a strict formula would be unworkable, such as in determining the value of the stock of a closely held corporation. Turgeon v. Turgeon, 190 Conn. 269 (1983).
Many valuation methods exist, but ultimately the judge will decide the approach to use depending on the specific asset’s nature. The court can consider expert opinions presented like those of appraisers, actuaries or financial planners as well as the judge’s own general knowledge.
Of course, the litigants always have the option to stipulate to the value of particular assets.