It is time for Hug/Nelson’s Hegemony Over the Division of Stock Options to End?
James M. Crawford, Jr.
Jim Crawford is an employee benefits/ ERISA attorney who, for more than 30 years, has been serving as a consultant and expert witness for California family law practitioners regarding the characterization, apportionment and division of retirement plans and other forms of deferred compensation. He may be reached at jcrawford@ ERISAsite.com.
In In re Marriage of Hug, 154 Cal. App. 3d 780 (1984) (hereafter, "Hug"), the First District was asked to address what it referred to as an issue of "first impression," i.e., how to apportion unvested stock options that are granted during marriage before separation and that vest after separation.1 The case arose because while the parties agreed the options should be apportioned according to "a time rule," 2 they disagreed as to how the rule should be applied.
As background, the time rule was originally developed as a means of apportioning retirement benefits to which a right is acquired over time.3 It basically holds that where there is a "substantial relationship" between the number of years of service and the amount of an employee benefit, the relative contributions of the community and separate estate to acquiring a right to that benefit can reasonably be determined based upon the amount of credited service contributed by each.4