193 Conn.App. 224
Conn. App. Ct.2019Background
- Parties divorced in 2010; separation agreement (incorporated into judgment) defined gross income for alimony as "base pay and any performance based bonuses" and expressly excluded "stock which may be awarded to either party." Parties must exchange tax returns annually to adjust alimony based on prior calendar year income.
- Defendant hired by Hughes (later acquired by Verizon) and became a Verizon employee under a retention package including short-term incentives (STI, cash), long-term incentives (LTI: RSUs payable in shares; PSUs payable in cash), and a severance program.
- Defendant was terminated in August 2015, received $159,250 in severance, was briefly unemployed, then obtained higher-paying work and adjusted alimony payments upward thereafter.
- Plaintiff filed a 2014 contempt motion alleging defendant failed to include reported LTI/severance in alimony recalculations; three trial-court rulings followed (Ayres I and II and the final decision), culminating in an order to include all past and future LTIs and the severance in gross income and to recalculate past alimony.
- On appeal the defendant challenged inclusion of RSUs, PSUs, and severance in the alimony computation; the appellate court reversed in part.
Issues
| Issue | Ayres (Plaintiff) Argument | Ayres (Defendant) Argument | Held |
|---|---|---|---|
| Whether RSU distributions must be included in gross income for alimony | RSU-related value is part of LTI and should be treated as performance-based income included in gross income | RSU distributions consisted of actual shares of Verizon common stock and therefore fall under the contract exclusion for "stock" and are excluded from gross income | RSUs: excluded — defendant received actual shares; stock exclusion applies, so RSU payouts are not included in gross income |
| Whether PSUs are "stock" or otherwise excluded from gross income | PSUs are stock-equivalent and their character as stock should exclude them; or, if not stock, they are not retention-only and should be included | PSUs are paid in cash and are performance-based long-term incentives (bonuses), so they fall within gross income | PSUs: included — PSUs were payable in cash, had no shareholder rights, and are performance-based bonuses included in gross income |
| Whether severance payment is part of gross income under the agreement | Severance should be included because its calculation used base pay and STI components (STI already treated as income) | Severance is termination/ severance pay distinct from base pay or performance-based bonuses and was conditioned on execution of a release, so it is not covered by the contract definition of gross income | Severance: excluded — although calculated from base pay/target STI, severance is distinct termination pay (subject to release) and not base pay or a performance-based bonus |
Key Cases Cited
- Steller v. Steller, 181 Conn. App. 581 (Conn. App. 2018) (agreement incorporated in dissolution is a contract; clear contractual language is construed de novo)
- Dejana v. Dejana, 176 Conn. App. 104 (Conn. App. 2017) (plenary review applies where separation agreement language is unambiguous)
- Nadel v. Luttinger, 168 Conn. App. 689 (Conn. App. 2016) (characterization of incentive awards evaluated under factual record; treatment of award language for contract classification)
- McKeon v. Lennon, 321 Conn. 323 (Conn. 2016) (discussion of deferred or incentive-based compensation and child-support gross income analysis)
- Wyszomierski v. Siracusa, 290 Conn. 225 (Conn. 2009) (trier of fact may accept or reject expert testimony)
- Denley v. Denley, 38 Conn. App. 349 (Conn. App. 1995) (conversion of awarded property into cash does not automatically make it income)
- Whitt v. Sherman Int'l Corp., 147 F.3d 1325 (11th Cir. 1998) (explaining "phantom stock" or stock-unit plans that pay cash and are not actual stock)