Are Bonuses, Sick Days, and Stock Options Considered Marital Property in Illinois?

Brad is a financial manager with Big Business USA. He earns an annual salary, and doesn’t have an employment contract. However, his employer does give him the opportunity to receive an annual bonus, based on the company’s performance in general, and Brad’s performance in particular. Whether or not Big Business USA actually pays Brad a bonus is a matter within the company’s sole discretion. If they do decide to pay him a bonus, his award for this calendar year will be paid next year, in February.

 

Brad is married to Angie. Except for one year in which he received no bonus at all, Brad has earned a large bonus every year that he’s been with Big Business USA. Eventually, the couple starts having marital trouble, and Angie files for divorce. They can’t agree on anything, and the case is set for trial in September. Brad has been working hard and the company has been making enormous profits, and both Brad and Angie expect Brad to get a big bonus next February. Because the divorce will be finalized in September, Angie argues that 9/12 of the bonus would have been earned during the marriage, and therefore considered “marital property.” Her argument is based upon the Illinois Marriage and Dissolution of Marriage Act, which creates a legal presumption that all property acquired by either spouse during the marriage is marital property, unless it was acquired in a way that makes it non-marital. 750 ILCS 5/503(a). A few examples of non-marital property would be property which was acquired by gift or inheritance, or property subject to a prenuptial agreement. Marital property is divided equitably among the parties in a divorce. Non-marital property is not.

 

Brad argues that when the bonus check arrives in February, he and Angie will already be divorced. Therefore, he claims, it is not property “acquired during the marriage,” and should not be considered marital.

 

Unfortunately, the statute says nothing about a situation such as the one that arose in Brad and Angie’s. Specifically, there is no mention as to how a court should classify a non-vested, discretionary bonus issued after the divorce but attributed to one party’s employment during the marriage. In 2013, the Illinois First District Appellate Court decided the issue in the case of In re Marriage of Wendt. In that case, the court ruled that because the husband’s receipt of a bonus was uncertain and not guaranteed by any employment contract, it was only an “expectancy interest” and not actual “property” acquired during the marriage. Therefore, the court decided that the bonus was not marital property, and the wife was not entitled to any of it.

In supporting its position, the court noted that the husband did not have a right to receive any bonus at all. It was not automatic. Instead, it was the employer’s right to decide whether or not to pay a bonus, and that decision depended in part on factors totally unrelated to the husband’s work. The employer also had the right to change the terms under which it would pay a bonus. In the Wendt case, the employer actually did change the incentive program after the divorce was finalized.

 

There are other forms of non-vested compensation that Illinois courts will consider to be non-marital property as well. For example, vacation and sick days accrued during the marriage are considered non-marital property, because their value is speculative and uncertain until the party actually collects compensation for those days at retirement or termination of employment. As with the bonus in Wendt, a company could change its policy about an employee’s right to receive or collect these benefits at a later date. See, e.g., In re the Marriage of Abrell.

 

Unlike bonuses and sick days, however, there are other unvested benefits accrued during the marriage which courts may treat differently. Specifically, if an employee has contractual right to a pension or profit sharing interest, it will be considered “property” regardless of whether an interest is vested or non-vested. For example, in the case of In re Marriage of Hunt, the court decided that pension benefits represent a form of deferred compensation for services rendered. Because the employee’s right to such benefits is based upon a written contract, it is a form of property, and not merely an expectancy interest.

 

Similarly, Illinois courts will typically treat non-vested stock options acquired during the marriage to be marital property when exercised. For example, in the case of In re Marriage of Peters, the court held that the portion of stock bonuses earned during the marriage should be considered marital property, because it is considered a contractual right that person was working toward during the marriage. Therefore, it was more than an expectancy.

 

For more information, contact us.