New judicial direction on when a potential asset is a mere expectancy

On Behalf of | Mar 13, 2023 | Property Division

On Feb. 7, 2023, the Appellate Court of Connecticut released an opinion in D.S. v. D.S. that provides new guidance for judges, lawyers and spouses contemplating whether a divorce litigant’s prospective ownership interest in property is concrete enough to classify it as marital property subject to equitable distribution. This case, in which Parrino|Shattuck, PC, argued on behalf of the wife, is important in Connecticut divorce because only marital property is subject to division between divorcing litigants.

An unusual retirement plan under the microscope

A main issue in D.S. was how to classify the wife’s unique retirement plan as defined in her law firm’s partnership agreement. The trial judge held that any prospective interest in retirement benefits was too speculative to be marital property, so it was not subject to division in the divorce and was a “mere expectancy.” The Appellate Court agreed in D.S. v. D.S., 217 Conn.App. 530 (2023).

We will sidestep briefly to explain how our courts evaluate potential future interests in this context.

An expectancy is too speculative to be a marital asset

Basically, a possible future interest in property should not be so speculative or unlikely to vest in the potential owner that it would be unfair to include it in the marital property the divorcing parties will divide. Our state courts call this kind of amorphous future asset a “mere expectancy,” which several dictionaries define as a (mere) feeling that something good is going to happen. The classic example of a mere expectancy is a possible future inheritance.

What constitutes marital property is uniquely broad in Connecticut. In many other states, marital property eligible for division is anything that comes to either spouse or to them jointly during the marriage. Exceptions include inheritances and gifts as well as assets owned before marriage, which are separate property not subject to division in those states.

Connecticut does not carve out separate property in this way. Instead, in Connecticut, marital property is subject to distribution, but marital property is anything owned by either party singly whether received before or during marriage, and jointly owned property – a broader view that can sweep more assets into the divisible marital-property column.

So, the question in our state is not whether property is marital or separate, it is more about whether a litigant has a valid, clear and concrete property interest in any asset – if so, its marital. See CT Gen. Stat. 46b-81.

The D.S. court’s focus on speculation

In D.S., the husband argued unsuccessfully that the wife’s potential to receive retirement benefits was “not merely speculative,” and “sufficiently concrete, reasonable, and justifiable” to be marital property subject to equitable distribution, quoting Bender v. Bender, 258 Conn. 733 (2001).

Bender established a two-part analysis for marital property. A currently enforceable property right is marital and if not enforceable at present, the future asset is only marital if the litigant’s future right to it is not merely speculative.

The wife countered by asserting that because the retirement payments were “subject to many variables and uncertainties,” they were not “sufficiently concrete to remove [them] from the realm of speculation.”

The wife presented an expert witness, Mark Harrison, a certified public accountant (CPA) and lawyer. Her partnership agreement provided for retirement benefits after 10 years if the partner was at least 50 and then only when certain other contingencies were met. Harrison noted:

  • The firm did not fund the plan such as by setting aside money or assets for that purpose. Payments would have to come out of future profits.
  • The firm did not classify these payments as liabilities on its books, so no corresponding asset could exist from an accounting standpoint.
  • A majority of partners could terminate or decrease payments any time.
  • The compensation committee with agreement of a certain number of partners could adjust payments if they were unfair to other partners or to the firm or “otherwise inappropriate or inequitable to the former partner.”
  • If retirement payouts exceeded a certain percent of firm income, there are provisions for revising, deferring or cancelling retirement payments. Harrison noted that this makes the wife’s retirement contingent on the “continuing viability of the firm,” which was not certain.
  • The firm had changed its payout formula over the past two decades as the number of retirees rose.

Harrison observed that as compared to a qualified pension plan, the wife’s potential retirement benefits were “the epitome of a mere expectancy.” He had never seen a similar arrangement that gave power to a few at the firm to extinguish or reduce a retiree’s payouts. The witness concluded that he could not assign a present value to the retirement provisions because of their “variables and uncertainties,” and because it would require “speculative assumptions.” He concluded that “there is not enough certainty in the potential stream for it to rise to the level of property as defined by our Supreme Court.”

The trial court found Harrison credible and held the “potential future unvested stream of income” did not have present worth and was a mere expectancy that would not yield future income unless “all the stars line up.” The Appeals Court affirmed.

Key takeaways

This case illustrates the importance of going over with a fine-tooth comb legal documents related to a potential future asset to thoroughly ascertain whether it stands on concrete ground or is a mere expectancy. One sentence of a multipage document may cast enough doubt on a possible future interest to remove it from the realm of marital property. Just calling something a retirement plan or retirement benefit does not make it into a traditional retirement asset that would be obviously marital. A litigant’s attorney should conduct detailed discovery and employ appropriate experts to clarify whether a potential future income stream is sufficiently concrete to be marital.

FindLaw Network