Classification of a Signing
Laura W. Morgan
How should a court classify a signing bonus?
That is, should a bonus that is received during the marriage
upon the acceptance of an employment agreement, but actually
earned after the marriage, be marital or separate property?
Ostensibly, since the funds are received during the marriage,
the funds are marital property. This first blush analysis,
however, overlooks the important fact that property received
in return for services performed is acquired when
the services are actually performed. For example, a bonus
received at the end of an employment period is acquired throughout
the employment period. Thus, if a husband received a bonus
after the date of classification for work performed during
the marriage, the bonus is marital property. In re Marriage
of Peters, 326 Ill. App.3d 364, 760 N.E.2d 586 (2d Dist.
2001); The converse is necessarily true as well: a bonus received
during the marriage for work performed after the marriage
is separate property. ONeal v. ONeal,
55 Ark. App. 57, 929 S.W.2d 725 (1996) (husband received $35,000
forgivable loan on eve of divorce, with 25% of balance to
be forgiven after each of next four years of service; loan
was compensation for post-marital services, and thus separate
property); In re LaLone, 469 N.W.2d 695 (Iowa 1991)
(advance compensation for work to be performed after the marriage).
Reiss v. Reiss, 654 So.2d 268 (Fla. 1st
DCA 1995) concerned a signing bonus in particular.
In that case, a month after the husband filed the petition
for dissolution (some sixteen months after the parties separated),
he started working for a different investment firm. As an
inducement to make the change, his new employer paid him $122,784.00
on December 18, 1992. The wife argued that the signing
bonus was given to the husband in compensation for the
large investment portfolio and deferred compensation benefits
he acquired during the marriage. The argued that the bonus
was given for the portfolio the husband would bring with him
to Prudential and the deferred compensation benefits he abandoned
by leaving Shearson. The trial court ruled, and the appellate
court agreed, that the signing bonus was given in consideration
for work efforts performed during the marriage at Shearson
and for the retention of certain existing clients the husband
would bring with him to Prudential. Further, the signing bonus
was not to replace post-marital earnings or commissions lost
by the husband. In essence, the trial court ruled that the
signing bonus was payment for goodwill: the husband retaining
clients and bringing them with him from Shearson to Prudential.
The dissent sharply disagreed:
The evidence does not support the trial courts
implausible finding that Prudential paid the former husband
for his work efforts performed at . . . Shearson.
Nor was there evidence to support the finding that Prudential
did not pay the former husband partly to tide him over by
replacing post-marital earnings or commissions lost,
i.e., forgone, by virtue of his departure from Shearson.
Mr. Grippis testimony was clear about the
two reasons for the signing bonus: to compensate
appellant for down time he would experience in
transferring from one firm to another and to give appellant
an incentive to change firms.
Thus, if the proof is clear that the bonus
is for post-marital efforts, and not in any way compensation
for marital efforts or payment of marketable goodwill, then
the bonus should be considered separate property. As
income he earned after the designated date for classifying
marital assets, the former husbands transitional income
was his separate property. The trial court erred in holding
that the signing bonus was a marital asset subject to equitable
distribution, and its order should be reversed in this respect,
654 So. 2d at 272.
Contracts for services follow the same rule: payments received
under a contract as consideration for services are acquired
when the services are provided, not when the contract is signed.
For example, in In re Anderson, 811 P.2d 419 (Colo.
Ct. App. 1990), the husband signed a contract as a professional
basketball player during the marriage. The millions of dollars
due under the contract, however, and any money received under
the contract during the marriage were separate property because
the husband played the games and earned the salary after the
marriage. Accord In re Sewell, 817 P.2d
594 (Colo. Ct. App. 1991) (professional football player);
Chambers v. Chambers, 840 P.2d 841 (Utah Ct. App.
1992) (professional basketball player).
A signing bonus signed in connection with the
sale of a business may also be considered a covenant not to
compete, because it is a contract to keep the seller of the
business working for the same business and not start a competing
business. Consideration for a covenant not to compete is compensation
for post-marital efforts, and thus separate property. Ellerbe
v. Ellerbe, 323 S.C. 283, 473 S.E.2d 881 (Ct. App. 1996).
A caveat is in order, however. When a covenant not to compete
or a contract for future services is made in connection with
the sale of a business, the court is not bound by the figures
stated in the contract. In Hoeft v. Hoeft, 74 Ohio
App. 3d 809, 600 N.E.2d 746 (1991), the husband sold his marital
property dental practice for $60,000. At the same time, he
accepted $250,000 in return for a covenant not to compete.
The husband argued that the entire $250,000 was consideration
for future services, and the trial court agreed. On appeal,
the trial court was reversed. The practice had earned $120,000
in the previous year, and the husbands expert admitted
that $60,000 was a low value for the practice. In light of
these facts, the court found that the reasonable value of
the covenant not to compete was $60,000.