A Party’s Right to Retain a Contingent Portion of an Employment Bonus for a Client List Brought to a New Firm is Community Property

The parties separated in 2010 after five years of marriage. Wife worked as a financial advisor. Before the separation wife signed an employment contract with Wells Fargo that contained several compensation bonuses. One such bonus was a transactional bonus that had several conditions, including 112 months of employment with Wells Fargo. Thus the entire balance of the bonus would become due to wife’s employer if she stopped working there. The contract indicated wife would also receive a deferred recruitment award bonus if she remained employed with Wells Fargo until January 2016. Lastly, wife was also eligible for two production bonuses. The trial court found that the community had an interest in the transactional bonus, but only to the portion including payments earned before separation. It also found that the other bonuses were wife’s separate property. Husband appealed.

Did the trial court properly characterize and valuate the wife’s list of clients? Specifically, is a wife’s conditional bonus earned from her employer before the parties separate community property? The main issue concerned when wife’s right to each bonus actually accrued. The answer is no – the trial court erred. Property acquired by a spouse before separation is presumed to be community property. However, when a spouse acquires property by gift or inheritance, it is presumed to be separate property. The earnings of a spouse while living separate from the other spouse is the property of that earning spouse. To characterize property, the court looks at when the property is acquired in relation to marital status. After the court determines the liability of the community estate, it divides the estate equally. Moreover, to qualify as community property, an asset must actually be “property.”

Husband argued that wife’s book of business could be valued even if there was no market for it. Specifically, he stated that wife’s ability to induce a client following when transferring to a new firm should have been treated like business good will. The Business and Professions Code section 14100 defines goodwill of a business as the “expectation of continued public patronage.” Goodwill created during marriage is generally treated as divisible community property at divorce.  Wife’s business book was acquired during marriage. The employment contract she signed, as well as expert witnesses, reflected that the business book was in fact a valuable asset, albeit subject to contingencies. The Supreme Court in In re Marriage of Brown, noted that pension rights represented a property interest whether they had actually vested or not. Specifically the contingent nature of an asset does not preclude it from classification as a divisible community asset. Here, wife received a bonus contingent on conditions within her control. Thus the Court of Appeal reversed the trial court order and  ordered the trial court on remand to determine the portion of each bonus earned before the parties separated. It is also to consider the possibility that wife might not meet the conditions of the contingent bonus.

In re Marriage of Finby (2013) 222 Cal.App.4th 977