The Appeals Court Speaks on RSU’s in Child Support: This is Going to Be a Challenge Hoegen v. Hoegen
Wednesday, February 03, 2016
In this child support modification case, a Probate and Family Court judge declined to “count” the husband’s income derived from restricted stock units (RSU’s), granted in a corporate compensation package. He did so on the theory that, in the parties’ divorce agreement, the wife had waived all rights in the husband’s “stock plans”. The Massachusetts Appeals Court reversed this month in Hoegen v. Hoegen, ordering the trial court to re-calculate the increased child support with the husband’s RSU derived income included, because:
- The Child Support Guidelines (CSG) definition of income is all-encompassing;
- Prior case law (Wooters v. Wooters II), established that stock option generated income is countable towards child support
(an egregious misstatement of the Appeals Court’s own case, since Wooters was not a child support case at all, and it reviewed the construction of broad underlying alimony judgment that gave rise to a contempt controversy, not addressing the discretion of a court to order alimony from stock option derived income, per se);
- The husband “regularly” earned income from RSU’s;
- The wife’s waiver was not, under any circumstances, binding on the children (who are the beneficial targets of child support);
- The court did not make written findings to justify exclusion of this income, other than the wife’s improperly enforced waiver; and that
- The order did not comply with the policy of the CSG, and earlier case law, of enhancing child support to reflect the higher standard of living enjoyed by the financially stronger parent.
The appellate decision has a rational basis, but will be difficult to implement; and, as often is the case, it has implications well beyond the results for these parties. Here are a few that come to mind:
- Where the legislature determined that income for alimony purposes is defined by the CSG (as the trial court may change it from time-to-time) does every child support case necessarily require examination for alimony implications?
We think so.
- Where the Appeals Court mandated that RSU’s be counted towards CSG income, does this open the door to more self-adjusting litigated judgments (as distinct from incorporated agreements) in both child support and alimony matters?
It may have to, given the challenges of doing otherwise.
- If not, does this decision encourage speculative alimony and child support awards by requiring judges to project market action between grant date and vesting? Is past performance a reliable indicator of future value? Must a judge allow evidence that it may not be?
Yes, no and, we believe, very probably.
- If the market betrays the judge’s projection, high or low, is that a material change of circumstances?
Why would it not be?
- If the judge bets high, as measured against ultimate market value, and resulting income at vesting, would that make the judgment unenforceable by contempt?
Given In re: Birchall especially, one would expect so.
- If self-adjusting judgments are used, when would RSU income realized for support purposes?
The only reasonable inference would be at the time of vesting, as that is when income is realized. What right does this imply if employee terminates employment and RSU’s are lost?
- If self-adjusting judgments ensue, how does this square with Hassey v. Hassey’s prohibition in the alimony context?
It doesn’t, because the Appeals Court reversed Hassey’s 30% bonus order as related to §34 contributions, and not to traditional needs and ability to pay alimony criteria. The rules may just evolve differently for the two forms of support, despite the legislature’s deference to the trial court’s discretion to define income via CSG. Not ideal, certainly.