§ 7.13 Long-Term Employment Contracts

• Jurisdiction: United States
• Publication year: 2021

§ 7.13 Long-Term Employment Contracts

There are very few divorce cases that discuss the characterization of money payable under a long-term employment contract. It is unclear whether courts would extend the pro rata pension characterization approach¹⁰⁹⁰ to such a contract right, or whether the inception of title rule¹⁰⁹¹ would be applied. Under the inception of title approach, the contract benefits would be characterized according to the marital status of the employee when the contract term began. Any services rendered after a change in marital status would create a reimbursement right. If the value of the services, for reimbursement purposes, is calculated merely by applying a pro rata approach to the total compensation due over the life of the contract, the result under the inception of title approach would be quite similar to one reached under a pro rata approach. However, if the reimbursement amount is calculated by attempting to calculate the reasonable value of the services, this amount might not correlate with the compensation due under the contract. Pursuant to a pro rata approach, the periodic compensation due under the contract would basically be characterized according to the marital status of the employee at the time the particular payment is due.

Some long-term employment contracts are quite simple. They provide for a monthly or yearly salary, and the compensation payment period is identical to the period services will be rendered by the employee. Many variations can be encountered, however, that can complicate property characterization. For example, some long-term contracts provide for various types of signing bonuses to induce the employee to sign.¹⁰⁹² The...