California Court of Appeals, Fourth District, Third Division
In re the Marriage of MARK and RHONDA FINBY.
RHONDA FINBY, Respondent. MARK FINBY, Appellant, v.
Order Filed 1/7/14
Appeal from a judgment of the Superior Court of Orange County, No. 10D004955 Ronald P. Kreber, Judge.
Law Offices of Brian G. Saylin and Brian G. Saylin for Appellant.
Phillips, Whisnant, Gazin, Gorczyca & Curtin, Gary S. Gorczyca and Daniel Gorczyca for Respondent.
Mark Finby (husband) appeals from a judgment on reserved issues, covering child custody and support, spousal support, and division of the parties’ assets. He contends the trial court erred in its characterization, valuation, and division of Rhonda Finby’s (wife) bonuses conditionally received or earned from her employer before the parties separated. We find his arguments have merit and reverse the judgment.
The parties married in 1995 and separated in February 2010. During the marriage, wife worked as a financial advisor. Before January 2009, she worked for UBS Financial Services. She developed a list of clients referred to as her “book of business.” As of January 2009, the value of her clients’ investments exceeded $192 million.
That month wife signed a contract with Wachovia Securities LLC, entitled “Offer Summary, ” agreeing to work for it as a financial advisor and its managing director of investments. (Some capitalization omitted.) Shortly thereafter, Wachovia was purchased by Wells Fargo Advisors (Wells Fargo).
The offer summary contained several compensation bonuses. The first, a transitional bonus exceeding $2.8 million, was “based on 150% of [wife’s] pre-hire trailing twelve months production... of $1, 868, 631.00... and pre-hire assets of $192, 671, 911.” Her entitlement to receive the entire amount was conditioned on her remaining employed as a financial advisor by Wells Fargo for 112 months, maintaining a gross production level of over $1.12 million on each anniversary date, and remaining current on any other obligations she owes to the firm.
Wife chose to immediately receive the entire amount of the transitional bonus. Thus, payment was arranged as a loan evidenced by a promissory note whereby Wells Fargo agreed to forgive the sum of $27, 687.54 each month over 112 months. For tax purposes, Wells Fargo credited wife with an equal amount of income on each monthly pay voucher. However, to enforce the foregoing conditions, it was provided that if she stopped working for Wells Fargo, the entire unpaid balance of the loan would be due. In the event wife continued working for the firm but failed to satisfy the minimum production quota during annual reviews, Wells Fargo could “reduce the amount of [the] [m]onthly... [b]onus [p]ayment” credited to her.
The offer summary also provided wife could receive a deferred recruitment award bonus of $186, 863. But to be eligible for it she must remain employed by Wells Fargo until January 31, 2016.
In addition, the offer summary stated wife was eligible for two production bonuses. Wells Fargo agreed to pay her a first production bonus of $373, 726 if her “total gross production equal[ed] or exceed[ed] $1, 494, 905.00 in the best twelve months of the first fourteen month period beginning February 2009 and ending March 2010....” Wife achieved this goal and received the entire amount of the bonus in April 2010. Like the transitional bonus Wells Fargo arranged the payment as a loan evidenced by a promissory note with the balance to be forgiven in equal monthly installments over a 10-year span, and crediting an equal amount as income on wife’s monthly pay vouchers. In addition, Wells Fargo’s forgiveness of this obligation was also subject to the same employment and production level conditions. The offer summary authorized a second production bonus if wife achieved a higher gross production level between April 2010 and March 2011. Wife failed to achieve the higher production goal and did not qualify for this bonus.
In mid-2009, Wells Fargo announced another benefit for its financial advisors, entitled a level 4front bonus. Wife testified that to receive it, she had to meet with clients, prepare and maintain investment profiles of them, plus follow up with each client’s investment profile. She qualified for this bonus and was paid $890, 000 in mid-2010. As with the foregoing bonuses, payment of the level 4front bonus was arranged as a loan evidenced by wife’s promissory note with Wells Fargo agreeing to forgive the balance in equal installments over 108 months and, for tax purposes, crediting an equal amount as income to each of her pay vouchers. Wife testified this bonus was also conditioned on her remaining employed with Wells Fargo and maintaining her client’s financial profiles.
Both parties presented expert testimony on wife’s book of business and the character of the bonuses she received. Andrew Hunt, a certified public accountant, testified for wife. He employed the time rule to determine the character of the bonuses and accompanying loans. He described the transitional bonus as a “mixed-type asset, ” with “approximately... 13 and a half percent of” it “on an after-tax basis was community” and the balance being wife’s separate property. Hunt concluded the first production bonus and the level 4front bonus were wife’s separate property because, being earned over a period of years, they were received after separation.
Wife also called Quinton Ellis, an associate with a firm providing litigation assistance to firms in the securities industry. He described the transitional bonus as a “kind of pay for the book of business... coming over, ” calculated as a “multiple of the value of... the [recruitee’s] production credits of the trailing 12 months before they were to join your firm.” The hiring firm would also expect to receive “a nine- to ten-year commitment to earn that bonus” because “you don’t want to pay somebody upfront and then have them go into early retirement once they join the firm.” Ellis described the production bonus as “a back-end bonus” that is a “performance-based” incentive for the “consultant to work extremely diligently in bringing their book over, as well as to continue to seek new business and continue to be successful....” The level 4front bonus required wife to perform extensive analytical work and complete financial plans for her clients. David Altshuler, wife’s boss, testified the level 4front bonus was a “loyalty award” created “to retain our financial advisors.”
Barbara DiFranza, an attorney and certified family law specialist testified that in her opinion, the bonuses constituted community assets. She described wife’s book of business as “[t]he consideration” for the benefits contained in the offer summary.
Husband also called Howard Buchler, an attorney with previously work experience in the securities industry. Buchler agreed with Ellis that the offer summary’s transitional bonus compensated wife for bringing her book of business to Wells Fargo. He stated the brokerage industry now recognizes that brokers own their book of business. Asked if a market existed for “a financial advisor... to sell her book of ...