§ 7.12 Other Employee Compensation and Fringe Benefits
| Jurisdiction | United States |
| Publication year | 2021 |
§ 7.12 Other Employee Compensation and Fringe Benefits
Employees earn other fringe benefits in addition to pension rights. For example, some employees accumulate vacation time, personal leave, sick leave, and seniority rights. At divorce a court must decide how to characterize and divide such fringe benefits. This presents issues such as whether these rights constitute "property" that should be divided at divorce.
[1]—Accrued Vacation, Comp Time or Sick Pay
Courts have not yet reached agreement about how to treat accrued sick leave, comp time or vacation time rights at divorce. From one perspective, the benefits seem to be potentially valuable rights, so to the extent they were acquired during marriage from work, it seems fair to include them in the marital estate. However, the employee may take all the sick leave or vacation time after divorce, so no cash value will remain. Three basic views have been expressed.
First, some courts have concluded that accrued sick leave and vacation time are valuable rights accumulated during marriage due to work during marriage, and should be included in the marital estate and divided at divorce.946 Courts accepting this view then need to determine how to calculate the value of such benefits. To date, it appears that courts calculate the value, after income tax, based on the spouse's salary at divorce.947 For example, a Nebraska court determined the value of the leave time at divorce by multiplying the number of hours of accrued leave times the employee's hourly wage.948 The court did not apply any discount for income taxes.
Other courts have concluded that, due to the fact that the spouse might exhaust the sick leave or vacation time in the future and receive no monetary benefit, the non-employee should share in any cash value of the benefit only when it is received (normally at retirement).949 So, in an Ohio case the non-employee was awarded the lesser of $8,433 (50% of the value of the sick leave at divorce) or 50% of the value of any unused sick leave that remained at termination or retirement.950
These courts have emphasized that an employee spouse might become sick at some point between the divorce and retirement and deplete some or all of the accrued sick time.951 In addition, in most instances, the employee has the right to receive cash for unused leave time only at retirement. As a result, a number of courts award the non-employee a portion of the cash payment the employee receives at retirement for unused leave time.952 If the employee has the right to receive cash for the accrued leave time at the time of divorce, courts have divided the value of the accrued leave as of the time of the divorce.953
Generally, the accrued leave time must be divided fairly. A Nebraska court has considered it reversible error to give the non-employee 100% of the value of the accrued leave.954
In a California case, the husband had accumulated vacation pay and sick leave during marriage from his employer. He had the right to retire at the time of divorce but chose to continue working. He had the right to receive cash for unused vacation pay when he retired. Because he had the right to retire at the time of divorce but had decided to continue working, the court held that the accrued vacation pay should be considered marital property and the value divided at divorce. In contrast, as to sick pay, the court considered sick pay to be like disability benefits. Sick pay taken after divorce would be a benefit to replace post-divorce lost earnings, which should be considered the employee's separate property. The appellate court affirmed the trial court's decision to reserve jurisdiction over the sick pay and review the issue of the marital claim to the sick pay when the employee actually retired.955
A third group has concluded that leave time is different from deferred compensation. One court argued:
"[Accrued leave benefits] replace wages on days where the worker does not work, [and] is really only an alternate form of wages. . . . It may be, and often is, dissipated when this person entitled to do so takes vacation time. Thus, it is far from tangible as . . . a pension. Accordingly, we hold that accrued vacation entitlement is not marital property."956
A number of courts agree with this view.957 They emphasize that the future value of these rights is indeterminate and speculative.958 These courts have emphasized that sick leave and vacation time cannot be sold and therefore have no fair market value.959
In some cases, the employee has the right to receive a cash payment for the unused leave or vacation time remaining at retirement. Of course, if the employee divorces before retirement, it is unclear whether any leave time will remain and whether the employee will receive any cash payment at termination of employment. Courts that have not included these benefits in the marital estate have emphasized the contingent and speculative nature of the employee's future right to secure a cash payment for unused vacation or sick leave.960 These courts also note that the employee has no present right to receive a cash payment for unused time or sick leave.961
Some courts have included accrued sick leave in the marital estate when any unused leave at the time of retirement is paid in cash.962
Employees at divorce sometimes have earned a certain amount of accrued vacation or sick pay. In a "marital property" state, one question to be determined is whether the vacation was earned before or during marriage. In a Florida case, the court determined that the husband's accumulated leave time was not earned during marriage; he had accrued thirty days of leave time when he married and possessed the same amount of leave time at the time of divorce.963
The divisibility of a spouse's vacation benefits was considered by a California court that held the benefits were not divisible property.964 Even though the benefit was of some value, the court did not consider this determinative. A "convertibility to cash" test was applied to determine whether the benefit was divisible property. Since the vacation benefit was not immediately convertible to cash, either by sale or loan, it was not divided. There is substantial tension between the test the court applied for divisible property and the test that has been applied by most courts regarding whether contingent pension rights are divisible property.
An Indiana court applied a similar analysis when determining whether to include a spouse's accrued vacation leave in the marital estate. Indiana has a strict requirement that rights be "vested" at divorce if they are to be included in the marital estate. The court emphasized that the spouse had no current right to receive the funds, so the value of the vacation leave was not included.965
A Michigan court applied a similar approach when determining how much of spouse's "banked" vacation time should be considered marital property. In this case, the husband had accrued 200 sick days as of divorce, but could only receive a cash payment at retirement for a maximum of eighty-nine unused sick days. The court included the value of eighty-nine sick days in the marital estate.966
A Delaware court held that "compensatory time" accrued during marriage was marital property when it was immediately convertible to cash.967
A number of other courts have held that accrued leave time is a divisible marital asset if the employee had the immediate right to convert the leave to cash.968 If the employee has converted the accumulated leave to cash during marriage, it seems clear the cash is marital property, to the extent the leave was earned by services during marriage.969 The Colorado Supreme Court has ruled that accrued vacation and leave time is marital property only if the employee had an enforceable right to be paid for the leave time.970 The Colorado court ruled that, because such a right to be paid had not been established, it was an error to treat it as a marital asset.
In a California case, the employee had the right to retire at the time of divorce and could convert unused vacation time to cash when he retired. As a result, the court ruled that the vacation time should be treated as marital property.971 In contrast, the court was concerned that, with regard to the employee's sick leave, he might be forced to take the sick leave before he retired. The court, therefore, thought it was appropriate to reserve jurisdiction and treat any cash the employee received at retirement for unused sick leave as marital property.
A New Jersey case did treat a vacation fund earned during marriage as marital property when the employee after the parties separated withdrew the balance of the fund and bought a boat.972
A Louisiana couple assumed at divorce that the husband's sick leave earned during marriage was divisible property, where the unused portion would be paid to the husband in cash at retirement.973 In a New Mexico case, the husband had accrued at divorce 300 hours of vacation leave and 800 hours of sick leave. The court noted that, because the husband could "cash out" a maximum of 240 hours of vacation leave and 200 hours of sick leave, that was the maximum marital claim.974 A Wyoming court has also suggested that an important factor in characterizing accrued sick leave time is whether the employee could receive the cash value of the leave time if he had not used the leave as of the date of termination of employment.975
A Wisconsin court considered how to characterize sick leave accumulated during marriage. The employee retired just before divorce. The benefits were "worth" $70,000, but could not be paid in cash; the employee could use these benefits as a credit toward health insurance premiums, which otherwise would have cost $500 per month. The court concluded that because the sick leave could not be transferred it was not marital property.976
Another Wisconsin court considered a sick leave account of this type. The court reaffirmed...
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