April 2, 2008
CRAIG A. MERDIAN, PLAINTIFF-APPELLANT,
ELIZABETH H. MERDIAN, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Essex County, Docket No. FM-07-1860-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 19, 2007
Before Judges Wefing and Parker.
Plaintiff Craig A. Merdian appeals from three orders entered on January 3, 2007 addressing the parties' post-judgment applications on equitable distribution of plaintiff's several different retirement benefits accrued during his employment with Prudential Financial, Inc. (Prudential).
The facts relevant to this appeal are as follows. The parties were married on June 16, 1984. They entered a Property Settlement Agreement (Agreement) in which they agreed that the end-date for the marital estate was March 29, 2002. The complaint for divorce was filed on March 5, 2004 and the judgment was entered on June 25, 2004, incorporating the Agreement.
The initial appeal, filed on September 22, 2006, was temporarily remanded pursuant to an order entered on November 6, 2006 by Judge Naomi Eichen (Retired on Recall) "for the limited purpose of enabling plaintiff and defendant to file and serve a motion for relief from [the orders under appeal]." The remand hearing was held on December 13, 2006, after which the January 3, 2007 orders were entered.
The post-remand orders were amended to the extent that they included certain language that plaintiff requested. Plaintiff nevertheless appeals and argues that (1) stock options granted on June 19, 2002 are exempt from equitable distribution; (2) the trial court erred in applying the Marx*fn1 coverture fraction to plaintiff's Cash Balance Pension Plan; and (3) the trial court erred in rejecting a constructive trust to divide plaintiff's non-qualified plans.
Plaintiff claims that the stock options are forward looking because the stock option plan is intended to (1) motivate "superior employee performance;" (2) encourage "acquisition of an ownership interest in the Company by the Company's . . . employees;" and (3) "enabl[e] the Company to attract and retain the services of outstanding employees."
The trial court found that the options were "granted for efforts expended directly or indirectly during the marriage, notwithstanding that they were granted or awarded after the marriage had terminated" and ordered that the options applying to the period up to the end-date of the marital estate were subject to equitable distribution. Relying on Pascale v. Pascale, 140 N.J. 583 (1995), the trial court rejected plaintiff's argument that the stock options were 100% forward looking. We agree.
When an asset accrues after the end-date of the marital estate, the trial court must evaluate whether the asset should be included in equitable distribution. Brandenburg v. Brandenburg, 83 N.J. 198, 210 (1980). In the evaluation process, the trial court must decide "whether the nature of the asset is one that is the result of efforts put forth 'during the marriage' by the spouses jointly, making it subject to equitable distribution." Pascale, supra, 140 N.J. at 609. "'[A]ssets acquired after that enterprise or partnership no longer exists should not be so included' in the marital estate." Robertson v. Robertson, 381 N.J. Super. 199, 204 (App. Div. 2005) (quoting Portner v. Portner, 93 N.J. 215, 219 (1983)). The party challenging the inclusion of an asset in the marital estate bears "'the burden of establishing such immunity [from equitable distribution] as to any particular asset.'" Pascale, supra, 140 N.J. at 609 (quoting Landwehr v. Landwehr, 111 N.J. 491, 504 (1988)).
Here, the parties agreed that the end-date for the marital estate was March 29, 2002. The stock options were granted on June 19, 2002. The purpose of the stock option plan stated in Article I of the plan document:
The purpose of the "Prudential Financial, Inc. Stock Option Plan" (the "Plan") is to foster and promote the long-term financial success of Prudential Financial, Inc. (the "Company") and materially increase shareholder value by (a) motivating superior employee performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by the Company's and its Subsidiaries' (as hereinafter defined) employees and agents, and (c) enabling the Company to attract and retain the services of outstanding employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent.
The trial court found that "[p]laintiff was an outstanding employee, and the purpose [of the Stock Option Plan] is clearly stated as to retain his services in the future and, partly for [p]laintiff's past performance." The court noted that plaintiff was an "eligible participant" by reason of his past employment and enrollment in the employer's Welfare Benefits Plan prior to December 18, 2001, the effective date of the Company's demutualization. The trial court further noted that plaintiff's "legal and beneficial rights to participate in the distribution of stock options were all acquired during the marriage and for efforts expended during the marriage" thereby entitling defendant to a fifty percent share of those options awarded through March 29, 2002, the end-date of the marital estate.
In support of his argument, plaintiff relies on Robertson, wherein we held that stock options received by the husband three days before the complaint was filed were immune from the equitable distribution. 381 N.J. Super. at 205-06. His reliance on Robertson is misplaced, however, because there the husband became employed by the company offering the stock options after the end-date of the marital estate. We affirm the trial court's determination that the stock options are subject to equitable distribution substantially for the reasons stated by Judge Claude M. Coleman in his written decision dated August 18, 2006.
Plaintiff argues that the trial court erred in applying the Marx coverture fraction to the distribution of plaintiff's Cash Balance Pension Plan (Pension Plan) because the parties agreed to a 50-50 distribution of the Pension Plan in their Agreement. Apparently, plaintiff misapprehends the coverture fraction. The purpose of the Marx formula is to establish the portion of the pension in which the non-employee spouse has an interest. For example, if the employee spouse worked for the company for thirty years, twenty years of which he was married, the non-employee spouse is only entitled to a twenty-year share of the pension. 265 N.J. Super. at 427.
The record is unclear as to when plaintiff began his employment with Prudential. That date, however, is significant in determining defendant's share of the Pension Plan if plaintiff was employed by Prudential for only part of the time he was married to defendant.
The trial court correctly found that "[p]laintiff's Cash Balance Plan is a 'Defined Benefit Plan.'" The court noted that
[p]laintiff's argument regarding the language of the [Property Settlement Agreement] and the value of [d]efendant's share seems to assume that the use of the "Coverture Fraction" as used in Marx . . . will give [d]efendant a greater share of his pension than she is entitled to receive under the [Property Settlement Agreement] which specifies that the value of the Plan ". . . shall be as valued as of March 29, 2002 . . ." (the date of the Complaint).
However, it is the "Coverture Fraction" that adjusts the actual pension benefit to the marital share. Use of the "Coverture Fraction, does not increase [d]efendant's share or give [d]efendant a disproportionate share. See, Panetta v. Panetta, 370 N.J. Super. 486 (App. Div. 2004).
In Panetta, we specifically noted that the application of the Marx formula does not give the non-employee spouse a greater share than she is entitled to receive. Rather, "[i]t is the application of the coverture fraction that adjusts the actual pension benefit to the marital share." 370 N.J. Super. at 497. Judge Coleman correctly applied the Marx coverture fraction to the distribution of the Pension Plan. We note, however, that at oral argument before us, the parties advised that plaintiff had left his employment with Prudential and was now employed by another company. The Pension Plan is apparently ripe for distribution in accordance with the coverture fraction. The parties shall submit an appropriate form of order to the trial court to effect the distribution.
In addition to the Plan, plaintiff was a participant in a number of non-qualified plans during his employment with Prudential. At oral argument before us and in correspondence thereafter, the parties indicated that the non-qualified plans are now subject to being "cashed out" as a result of plaintiff's change in employment, and the parties are disputing the tax consequences resulting from the "cash out" of the non-qualified plans. This issue has never been addressed by the trial court and the parties have not presented any expert reports or testimony on the issue. Accordingly, we remand this issue for the trial court to consider evidence, including the parties' experts' testimony regarding the tax consequences of distributing the non-qualified plans.
To summarize our decision, we hold that (1) plaintiff's stock options are subject to equitable distribution; (2) the Marx coverture fraction must be applied to the distribution of plaintiff's Cash Benefit Plan; and (3) we remand the distribution of the non-qualified plans to the trial court for consideration of the tax consequences and a determination of which party should bear the tax burden in the distribution of those plans.
Affirmed in part and remanded in part for further proceedings. We do not retain jurisdiction.