Court: Client List, Bonus Money is Community Property – In re Marriage of Finby

Bonuses are a common and often significant form of compensation for a number of people who live and work in California, particularly those in certain professional fields. In In re Marriage of Finby, the state’s Fourth District Court of Appeals explains that all or some of the money is likely to be deemed community property to be divided among spouses in the event of divorce.Husband and Wife married in 1985 and separated 15 years later in February 2010. Wife worked as a financial advisor during the course of the marriage and was employed by UBS before signing a contract with Wachovia in 2009. The company was later purchased by Wells Fargo.

Wife’s contract with Wells Fargo provided for a variety of bonuses, including a “transitional bonus” of more than $2.8 million. The bonus was premised on the fact that she had developed a list of clients – referred to as her “book of business” – whose investments were worth more than $192 million at the time and whose accounts were expected to go with her to the new job. Under the terms of the contract, the bonus was conditioned on Wife’s staying at Wells Fargo for more than 9 years and maintaining a gross production level of over $1.12 million, as determined on an annual basis. Wife opted to obtain the complete amount of the bonus immediately, however, and signed a loan agreement with her employer under which it agreed to forgive $27,700 each month over the course of 112 months. If Wife stopped working at any time during the period, the company had the right to demand the entire amount remaining on the bonus/loan.

A trial court ruled that the first 11 months’ worth of the bonus, about $380,000 earned while Husband and Wife were still married, was community property to be divided equally among the spouses upon divorce. It further held that Wife’s book of business was her sole property because it couldn’t be valued and Husband had no interest in it.

The Fourth District disagreed on appeal. “The parties have not cited, nor have we found, a California case on point concerning whether a licensed professional’s list of clients is an asset subject to division in a dissolution action,” the Court continued. “But courts in other jurisdictions have generally held customer lists of licensed professionals who are employed in a business or industry constitute divisible marital property.”

Wife didn’t dispute that she developed the book of business during the 15 years that she was married, the Court said, noting that the client list was a “valuable asset” and that Wells Fargo had essentially agreed to pay the bonus money in exchange for Wife bringing her clients business to the company. Indeed, the Court found that the book of business was akin to the “goodwill” of her practice as a licensed professional and thus could be assigned a particular value.

That Wife’s right to the entire bonus wasn’t yet guaranteed didn’t change the Court’s analysis. “While her right to retain the entire bonus is contingent on satisfying certain obligations, they are conditions within wife’s control,” the Court said. Nevertheless, the Court declined to rule that Husband was entitled to a full half of the bonus amount. Instead, it remanded the case back to the lower court to determine how the money should be divided.

How to characterize bonus money and other forms of income is an important, but certainly not the only, issue that often comes up in California divorce cases. While not possible in every situation, divorcing spouses can often save a lot of time, money and stress by taking advantage of litigation alternatives, such as collaborative divorce and mediation. With offices throughout the Bay Area, California divorce lawyer Lorna Jaynes provides innovative legal tools to resolve family law disputes without the bitterness and acrimony engendered by the adversarial process.