Alimony based on “bonus income” is not available when income is determined to be payment for stock options

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In a recent summary decision, a panel of the Massachusetts Appeals Court considered whether or not certain payments that a former husband received in addition to his base salary constituted “bonus income,” of which husband would then be obligated to pay his former wife a percentage as alimony.  (See Dunbar v. Dunbar, 2019 WL 993330) (Pursuant to Rule 1:28).

At the time of the parties’ divorce in 2004, the husband in Dunbar was ordered to pay his former wife $850/week as alimony, and “[a]s additional alimony, the husband [was ordered to] pay one third (1/3) of his gross bonus income within forty-eight (48) hours of his receipt.”

In 2008, husband accepted a job that resulted in changes to his compensation structure.  Specifically, in addition to his new salary, husband was entitled to receive certain stock options in accordance with his employer’s Employee Stock Plan. Subsequently, the husband’s employer replaced the Employee Stock Plan with the “Change of Control Bonus Plan.” Under the Change of Control Bonus Plan, husband’s stock options were converted into “points.” The number of points was equivalent to the number of stock options the husband had been granted previously.

In 2014, husband’s employer entered in to a stock purchase agreement and husband received a payment labeled “Change of Control Bonus Plan” in the amount of $487,145.82.  In 2015 and 2016, husband received two additional Change of Control Bonus Plan payments in the amounts of $22,785.72 and $22,906.09, respectively.  Husband did not pay additional alimony on these sums to wife, arguing that they were not bonus payments as contemplated by the judgment of divorce nisi, but rather payments for stock options.  The wife filed a complaint for contempt.

The appellate panel ruled that the three (3) Change of Control Bonus Plan installment payments husband received were not “bonus income” on which additional alimony was required to be paid. In arriving at its decision, the appellate panel focused on the following facts:

1.  The number of “points” that the husband received under the Change of Control Bonus Plan mirrored the number of stock options that the husband received in connection with his employment.

2.  The vesting schedule for the husband’s points under the “Change of Control Bonus Plan mirrored the vesting schedule for the prior stock options.

3.  The husband was required to complete a “Beneficiary Designation Form” to participate in the Change of Control Bonus Plan.

Based on the above, the panel found that “[a]lthough styled by the company as a bonus payment, the payment was not a bonus as contemplated by the judgment of divorce.”  The Dunbar ruling calls to attention the need for individuals and practitioners to clearly define key terms (e.g., bonus income) within a separation agreement to avoid any future ambiguity or dispute in implementation.


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