Divorce Arbitration in Oklahoma

Arbitration is not often used as a tool to resolve domestic cases in Oklahoma.  It is useful, though, when applied to the right case.  Consider the following advantages and disadvantages of matrimonial arbitration.

ADVANTAGES

Privacy – Arbitration usually takes place in a private office.  No one is present unless all parties agree.  Parties keep control over what makes the public record.  In contrast, Courtrooms are very public places to disclose the private facts that make up most family law cases.

Speedy and efficient resolution of your case – In litigation, the court sets the schedule for what happens when.  An arbitrator will have fewer scheduling conflicts.  You will not be on a docket with several other cases.  Expert witnesses also appreciate not having to sit at the courthouse waiting to be called.  The arbitration can even be brought to them!

A cost-effective process – Arbitration should cost less than litigation in court.  Court rules are cumbersome because they are designed to fit all needs in all cases.  Arbitration can streamline the process.  Examples include stipulations, relaxed rules of evidence and procedure, use of reports or affidavits instead of live testimony and careful use (or non-use) of court reporters.  The cost of an arbitrator should be more-than-covered through reduced litigation costs.

Specialized knowledge – Sometimes a couple will have thorny issues on the characterization, valuation, or distribution of property.  Specialized knowledge of family issues, such as business or personal finance, or family systems, can be useful in deciding family law cases.  Rather than taking an assigned judge who may or may not have such specialized knowledge, the parties can contract to give someone with such knowledge decision-making authority.

DISADVANTAGES

Custody concerns – there is no case-law in Oklahoma as to whether a mediator can make a binding ruling on a child custody matter.  Cases and court rules in other states are not consistent.  While custody matters may be subject to judicial review and approval, the parties can present their custody case to an arbitrator.  A good record in arbitration has a better chance of passing judicial review as being in the best interests of minor children.

Due process and fraud concerns – When considering the rules for arbitration, one must consider the level of trust between the parties to make full disclosure of relevant facts.  Lack of trust between the parties may require use of full disclosure affidavits, or keeping in effect the Oklahoma Discovery Code, which can be enforced in arbitration.

Arbitration has long been used in labor law and securities law.  It’s application to divorce cases is due.  Oklahoma has adopted the Revised Uniform Arbitration Act.  The American Academy of Matrimonial Lawyers has adopted a Model Family Law Arbitration Act and Rules.  A carefully drafted Agreement to Arbitrate, and choice of the right arbitrator, can lead to a private, timely, cost-effective and thorough resolution to your family law problems

by David A. Tracy

Couple Still Fighting Over House Ten Years After Divorce

This small building stands next to the church ...

People getting a divorce generally do not make good business partners.  One Oklahoma couple learned this the hard way.  After trying to maximize the return on their marital residence, they ended up back in court ten years later.

The Original Plan
When the couple divorced in 1995, they entered into a settlement agreement which placed the marital residence  in a Trust “established for the purpose of holding title to and selling same.”  Their stated goal was to get the highest and best price for the house.  The trust provided that wife would continue to live in the house.  Neither the trust nor the settlement agreement were incorporated into the decree dissolving the marriage.

The Plot Thickens

Ten years pass without an offer on the house.  The wife still lives there, and is renting rooms to tenants.  Husband files suit asking the court to remove wife as trustee, and appoint a receiver for the house.  After a contested hearing, the trial court first took control of the trust and ordered the parties to cooperate in selling the house.  After 10 months passed without a sale, or even a listing agreement, the trial court appointed a receiver to take control of the property.  Wife appealed, and the Oklahoma Court of Civil Appeals affirmed the appointment of a receiver.

The Lesson Learned
Despite the best laid plans of the couple, they failed to maximize their investment in the marital residence.  The take-away from this couple’s misfortune – do your best to sever all financial ties to your former spouse in the divorce documents.  Lingering financial connections leave opportunity for continuing discord, and abuse of fiduciary relations.

by David Tracy

What Will Your Divorce Ceremony or Ritual Look Like?

The legal process of divorce does nothing to heal the emotional pain caused by ending a marriage relationship. Filing final papers in court makes you legally single, but healing the damage to your psyche follows an unrelated timetable.  Divorce can be even more traumatic than the death of a loved one. Instead of a loss fixed in time, the end of a marriage can seem like a death of a thousand cuts.

Like a marriage ceremony brings two people together, a divorce ceremony or ritual places you and your spouse on separate paths and promotes emotional healing.  It can be a private ritual involving just yourself, your immediate family, or one or two close friends.  You can involve a larger group of people, and help them feel more comfortable about the breakup as well.  It can be as elaborate or as simple as you choose.  There is even a newly published book with suggested divorce rituals.  The important point is to give it meaning that promotes dignity, respect and healing.

Robert Fulghum, signing his book What On Earth...

Robert Fulghum (Photo credit: Wikipedia)

Author Robert Fulghum writes about ritual as follows: “Meaningful rituals have a lot to do with gaining that inner harmony and making letting go as much a part of life as holding on.  Rituals anchor us to a center while freeing us to move on and confront the everlasting unpredictability of life.  The paradox of ritual patterns and sacred habits is that they simultaneously serve as solid footing and springboard, providing a stable dynamic in our lives.”  From Beginning To End, the Rituals of Our Lives.  Random House, 1995 (p. 265).

A divorce ceremony or ritual serves an important dual purpose.  It helps you let go of the past – to place a period on a chapter of your life.  You are then free to spring into the next chapter of your life – minus the burdens you intentionally leave to the past.

Too much analysis of your divorce ceremony can lead to paralysis.  Give some thought to what works for you, but don’t be afraid to trust your instincts.  Your divorce ceremony can be as elaborate as a wedding reception (complete with divorce vows), or as simple as a meditation (or smashing something into small pieces).  You and your ex might plan something together.  Your circumstances might call for you to plan an event on your own.  Any ritual or ceremony that speaks to you will work, but it does require some action on your part.  The internet has resources to plan your divorce ritual or ceremony.  Do some research.  Talk to your counselor, your spiritual advisor, or a close friend. Don’t just read about it or think about it.  Plan it and do it.  You’ll be glad you did.

by David Tracy

Obamacare And Divorce – It’s Still Complicated

Senate Passes Insurance Industry Aid Bill

(Photo credit: Mike Licht, NotionsCapital.com)

The U S Supreme Court largely upheld the Patient Protection and Affordable Care Act of 2010 (ACA) last week.  The ACA provides more options in coming years for divorcing families who face health care choices.  However, many of the means to the end of making health care more  available and affordable remain to be set. The major goals of the ACA, and its promise for the divorced population, still hang in the balance.

Over the course of ten years, nearly half of the non-elderly population will go without health insurance for some time (U.S. Dept. of Treasury 2009).  Many of these people lose coverage due to a divorce. A lack of cost-effective alternatives often leads to gaps in health insurance.

The traditional method of continuing coverage for the last generation is COBRA (named for the Consolidated Omnibus Budget Reconciliation Act which created it).  COBRA allows someone no longer eligible for group coverage to continue on the policy as an individual for up to 36 months after a divorce.  The employer contributes nothing to the coverage cost, making it cost-prohibitive for many.

If COBRA coverage is not practical, one historically had to explore other alternatives.

  • Find a job with a group health benefit.
  • Buy coverage in the individual health insurance market.
  • Qualify for a public program such as Medicaid or the Children’s Health Insurance Program (SoonerCare in Oklahoma).
  • Go without insurance, cross your fingers and hope for good health.

Those with pre-existing conditions faced added challenges, as they are thrown into high-risk pools with high costs and coverage exclusions.   Many private insurers will decline coverage, make it unaffordable, or make it ineffective with exclusions.  This will change quite a bit under the ACA.

Some changes under the ACA are already in effect.

  • Health plans cannot drop your coverage when you develop an illness or medical condition.
  • You may cover your children on your group health policy up to age 26.
  • Your children will not be denied coverage based on a pre-existing condition.
  • Your plan cannot impose annual or lifetime dollar limits for essential health benefits.
  • The Oklahoma Temporary High Risk Pool provides a bridge program to temporarily cover people who cannot get coverage elsewhere due to pre-existing conditions.  You have to go uninsured for 6 months to qualify for temporary high-risk coverage.

Some changes easing the challenge of post-divorce insurance planning do not take effect until January of 2014.

  • If not covered by an employer plan, people must either get health insurance on their own, pay a penalty on their income tax, or qualify for an exemption.
  • States, or the federal government by default, will set up health insurance exchanges.  These exchanges will outline the competing health insurance plans available to you, and the premium for coverage.
  • The exchange will also offer calculators to figure cost-sharing reductions and premium tax credits available depending on your income and coverage.
  • The amount of the subsidy you’re eligible for will depend on your income. Those with incomes of up to 400 percent of the federal poverty level ($43,560 for an individual and $89,400 for a family of four in 2011, according to the Kaiser Family Foundation) are eligible for premium assistance credits.

The exchanges hold promise for an added cost-effective alternative for divorcing spouses and families.  the U. S. Secretary of Health and Human Services must develop rules for making premium tax credit eligibility determinations based on changes in circumstance, such as a divorce.  We should all stay alert to the when and how of the exchanges, and the premium subsidies.  They will become part of divorce planning very soon.

by David Tracy

Sources:
Link to Text of the Affordable Care Act

How the Affordable Care Act Affects You, CBS News Money Watch, June 29, 2012

The Promise of the Affordable Care Act, the Practical Realities of Implementation: Maintaining Health Coverage During Life Transitions, O’Leary, Capell, Jacobs, and Lucia, Center for Labor Research and Education, University of California, Berkeley; Chief Justice Earl Warren Institute on Law and Social Policy, UC Berkeley School of Law (2011)

Health Reform Subsidy Calculator, Kaiser Family Foundation

Supreme Court Ruling Making Medicaid Expansion Optional Gives Fallin A Big Decision, Tulsa World, July 3, 2012

Attorney Fees Awarded For Husband’s Contempt Of Temporary Orders in Oklahoma Divorce

    Assume your divorce case is pending.  You have a temporary order in place directing the other party to pay child support and make the car payment.  The other party does not follow the court orders, and you cite the other party for contempt of court.  If you are successful, can you ask for a judgment for attorneys fees?  In Buckingham v. Buckingham, the Oklahoma Court of Civil Appeals says yes, you can ask.

Mrs. Buckingham filed her divorce petition.  The assigned judge issued a temporary order.  The order directed Mr. Buckingham to pay child support and make car payments.  Mrs. Buckingham filed an application for contempt alleging Mr. Buckingham failed to pay as ordered.  The court held a jury trial.  The jury found Mr. Buckingham guilty of contempt for failure to pay on the car as ordered (but not guilty as to child support payments).  The divorce was still pending.

Mrs. Buckingham’s attorneys filed her motion to assess attorneys fees regarding the contempt action.  The contempt judge (who was not the divorce judge) heard evidence on the motion before the divorce judge granted a decree of dissolution, and granted the judgment for attorneys fees related to the contempt action after the other judge entered a decree of dissolution.  Mr. Buckingham appealed.  He argued there is no statutory authority for an award of attorney fees to enforce a temporary order in a domestic case.

The American Rule regarding attorney fees is that each party pays their own unless there is a contract or a statute authorizing a different outcome.  The appellate court holds that 43 O.S. §110(E) authorizes awarding attorney fees related to enforcement of a temporary order.

Dividing Stock Options In A Divorce – Part II

In Part I of this topic, I discussed the characterization of stock options as marital or separate property.  After determining the marital and separate property component of each stock option, the next step is to value and divide the option. The following Part II of this topic addresses the valuation and distribution of stock options in divorce actions.

The primary method of dividing stock options in divorce is to defer distribution until the employee exercises the option.  The proceeds, net of taxes to the employee, are divided according to a set percentage established in the decree.  The stock price on the date of exercise sets the value of the option.  This is called the deferred distribution, or “as, if and when” approach to valuation and division.

A second approach is to establish a present value for the options and award them all to the employee spouse.  The other spouse receives different assets of comparable value.  This is called the “immediate offset” approach.  The problem with this approach is the number of assumptions one must make to assign a present value to a contingent asset.

One present value option simply compares the strike price and the market value of the stock on the date of valuation.  The difference between strike price and market value is called the “intrinsic value.”  Using intrinsic value deprives the non-employee spouse of the right to benefit from the anticipated rise in stock price before the employee exercises the option.  The employee spouse receives no discount for lack of transferability of the option, the risk that the option will never be exercised, or that the price of the stock might go down.

The Statement of Financial Accounting Standards adopts the Black-Sholes Option Pricing Model to value stock options.  This is a complicated formula requiring expert analysis and testimony.  Accountants use this method to estimate stock option values on company financial statements.  The SEC and IRS also make limited use of the Black-Sholes method for disclosure statements, and gift and estate tax valuations.  The formula requires use of assumptions and hypotheticals, however, and has been rejected by some courts as too speculative.

In an ideal world, employees would be allowed to divide stock options in divorce like retirement accounts.  A spouse could receive options on a certain number of shares as an alternate participant in the plan.  If the conditions for vesting and exercise are met by the employee, the alternate participant could directly exercise the option.  In the real world, stock option plans rarely, if ever, allow direct assignment of a stock option to a spouse.  I have never seen it.  Employers naturally want discounted stock to remain with the employee, even if the assignment remains in the family unit.  Stock options carry tax consequences that could be manipulated in divorce situations.  This detracts from the original purpose the employer intends in granting the option.

Part III of this topic will discuss the information the parties should exchange in a divorce to develop a plan to characterize, value and divide stock options.

by David A. Tracy

Dividing Stock Options In A Divorce – Part 1

An employee stock option gives an employee the right to buy a specified number of shares of stock in the employer-corporation at a specified price (strike price) at a specified future time.  The goal is to give the employee an incentive for the stock price to go up, making the stock option more valuable.  Companies generally grant stock options to reward years of service, or to induce an employee to remain with the company.  Options change in value with the stock price.  They are not generally assignable.  For all of these reasons, stock options are difficult to characterize, value and divide as spouses go their separate ways.

In this first of a two-part discussion of stock options, I explore the issue of characterization of stock options as marital or separate property.

Characterization – Marital property in Oklahoma is property acquired by the parties during marriage through joint industry.  Spouses contribute to joint industry in various ways, including maintaining the marital home, caring for children, sacrificing a career to further the career of a spouse, as well as earning income through employment.  Stock options granted during marriage are considered marital property in Oklahoma.  See Duty v. Duty.  Stock options granted after a decree of divorce are the separate property of the employee spouse in Oklahoma.  See Ettinger v. Ettinger.

It is possible that stock options granted during marriage are partly marital and partly separate property.  There are several relevant dates to consider in analyzing stock options.

  • Grant date – the date an employer awards a stock option to an employee
  • Vesting date – the date an employee can exercise a stock option
  • Expiration date – the date a vested stock option expires if not exercised by the employee

A divorce can occur at any point along this time line and affect the characterization of the stock option as partly marital and partly separate property.  Consider options granted during marriage, but which vest after joint industry ends. What if the options are granted before marriage and vest during marriage?

Stock options granted but not yet vested are contingent assets.  Their value will be realized in the future.  Taking a cue from how courts treat retirement accounts in divorce, these contingent assets are still considered marital property, even though they require continued employment, or expire on the occurrence or non-occurrence of some future event.

The reason a company grants a stock option can also affect its characterization in divorce.  One must always determine why a company grants a stock option.  Is it a reward for past service?  Is it an incentive to remain with the company?  Is it a bonus or a form of deferred compensation? Each case is fact specific.

Parties and courts must fashion a time rule in each case to equitably allocate the marital or separate property components of each stock option award.  The time rule is a ratio, or fraction,  based on the number of months between various dates such as the date of marriage, date of employment, date the option is granted, date joint industry terminates, vesting date, and exercise date.  It is interesting to note that in the Duty case, the Oklahoma Court of Civil Appeals affirmed an award to the wife of one-third of husband’s stock options.  Neither the trial court or appellate court explained how it arrived at the one-third figure, except to note that the husband had to continue to work after the marriage to make the options vest.

In part two of this topic, I will explore the valuation and division of stock options in an Oklahoma divorce.

by David Tracy