2009 Wi App 90
court of appeals of
published opinion
Case No.: |
2008AP2020 |
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Complete Title of Case: |
†Petition for Review |
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In re the marriage of: John N. Heppner, Petitioner-Respondent,† v. Susan M. Heppner, Respondent-Appellant. |
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Opinion Filed: |
May 5, 2009 |
Submitted on Briefs: |
April 7, 2009 |
Oral Argument: |
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JUDGES: |
Curley, P.J., Fine and Kessler, JJ |
Concurred: |
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Dissented: |
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Appellant |
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ATTORNEYS: |
On behalf of the respondent-appellant, the cause was
submitted on the briefs of Nina M. Vitek of Lara, |
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Respondent |
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ATTORNEYS: |
On behalf of the petitioner-respondent, the cause was
submitted on the brief of Bruce M. Peckerman of Peckerman & Klein, |
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2009 WI App 90
COURT OF APPEALS DECISION DATED AND FILED May 5, 2009 David
R. Schanker Clerk of Court of Appeals |
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NOTICE |
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This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62. |
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Appeal No. |
2008AP2020 |
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STATE OF |
IN COURT OF APPEALS |
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In re the marriage of: John N. Heppner, Petitioner-Respondent, v. Susan M. Heppner, Respondent-Appellant. |
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APPEAL
from a judgment of the circuit court for
Before Curley, P.J., Fine and Kessler, JJ.
¶1 FINE, J. John N. and Susan M. Heppner were married in May of 1974, when he was just shy of his twenty-second birthday and she was almost twenty-three. They were divorced in March of 2008. Ms. Heppner appeals the judgment of divorce, contending that the trial court erred in deciding that maintenance payable by Mr. Heppner should end when he turns sixty on May 30, 2012. She also asserts that the trial court erred in ruling that: (1) Mr. Heppner’s stock options exercised by him after the divorce were not to be considered in determining the amount of Mr. Heppner’s maintenance obligation; and (2) those of Mr. Heppner’s stock options whose grant price exceeded the value of the stock as of the divorce would be awarded to Mr. Heppner because they allegedly had “no value.” We modify the judgment in part, see Wis. Stat. § 808.09, reverse in part, and remand with directions.
I.
¶2 Mr. Heppner filed this divorce action in September of 2006, approximately two months after the parties separated. The Heppners have no children, and other than a clerical job before she married Mr. Heppner, a nine-month teaching stint in the 1974–1975 school year, and employment with a car dealership thereafter “for a couple [of] years,” Ms. Heppner has not worked outside the home. Her college degree is in Geography and she let her teaching certificate lapse because, according to her testimony, she could not get a teaching job after her nine-month teaching contract was not renewed when the incumbent teacher whose place she took returned to the school.
¶3 Ms. Heppner’s health, which she described as “[f]ragile,” has not been good. She was diagnosed with breast cancer in 2003 and had a lumpectomy, radiation treatment, and currently sees an oncologist because, according to Ms. Heppner, “there’s something suspicious” in her other breast. Additionally, Ms. Heppner told the trial court that she has “[s]pinal stenosis,” painful trouble with her teeth and jaw, and herniated disks in her neck and lower back. She had a hysterectomy in 2001, and a subsequent laparoscopy a year before the divorce hearing because of, according to her testimony, “complications after the hysterectomy.” She also takes a thyroid medicine.
¶4 Mr. Heppner is in apparent good health and has done very well in his career, rising from low-level employment as a corporate accountant to be the president and chief executive officer of the storage and security division of Fortune Brands, which according to Mr. Heppner’s testimony “is a large conglomerate, [with] about eight billion dollars in total sales.” His group within Fortune Brands encompasses Master Lock and “Waller Industries, which is Craftsman tool boxes if you went to Sears.” There are some 3,500 employees in Mr. Heppner’s group, and nine persons report to him directly. Mr. Heppner reports directly to the president and chief executive officer of Fortune Brands. Mr. Heppner received his masters of business administration degree in 1992, shortly after he left a previous employer, JI Case, which paid his business-school tuition. Mr. Heppner and his father paid for Mr. Heppner’s undergraduate college degree.
¶5 Mr. Heppner testified that his job is very stressful and
requires significant travel, both in the
¶6 Ms. Heppner testified that Mr. Heppner was OK with her not working outside the home once they were able to buy their first home, some two years after they married. Although Mr. Heppner disputed this, contending that he constantly asked her to work outside the home, either for pay or as a volunteer, the trial court found that Mr. Heppner agreed over the years that his wife would not work and that he would retire sometime between the ages of fifty-five and sixty. This is how the trial court described in its oral decision what it called that “tradeoff”: “That I [Mr. Heppner] get the benefit of my bargain, which is, I’m going to do this, you don’t have to work, but I want to be able to get out from underneath the stresses of this position” by retiring early.
II.
¶7 As we have seen, the issues on this appeal concern the duration of maintenance set by the trial court, and the trial court’s treatment of Mr. Heppner’s stock options. We analyze these matters in turn.
A. Maintenance.
¶8 Whether to award maintenance, how much that maintenance should
be, and how long it should be paid is within the trial court’s discretion. LaRocque v. LaRocque, 139
¶9 The “touchstone” of a proper maintenance award is set by
statute. LaRocque, 139
Upon a judgment of annulment, divorce, or legal separation, or in rendering a judgment in an action under s. 767.001 (1) (g) or (j), the court may grant an order requiring maintenance payments to either party for a limited or indefinite length of time after considering:
(1) The length of the marriage.
(2) The age and physical and emotional health of the parties.
(3) The division of property made under s. 767.61.
(4) The educational level of each party at the time of marriage and at the time the action is commenced.
(5) The earning capacity of the party seeking maintenance, including educational background, training, employment skills, work experience, length of absence from the job market, custodial responsibilities for children and the time and expense necessary to acquire sufficient education or training to enable the party to find appropriate employment.
(6) The feasibility that the party seeking maintenance can become self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage, and, if so, the length of time necessary to achieve this goal.
(7) The tax consequences to each party.
(8) Any mutual agreement made by the parties before or during the marriage, according to the terms of which one party has made financial or service contributions to the other with the expectation of reciprocation or other compensation in the future, if the repayment has not been made, or any mutual agreement made by the parties before or during the marriage concerning any arrangement for the financial support of the parties.
(9) The contribution by one party to the education, training or increased earning power of the other.
(10) Such other factors as the court may in each individual case determine to be relevant.
The statute incorporates the
two components of maintenance: “the
support objective” and “the fairness objective.” LaRocque, 139
¶10 “Fairness” has a special meaning under the law of
maintenance: “We believe that a
reasonable maintenance award is measured not by the average annual earnings
over the duration of a long marriage but by the lifestyle that the parties
enjoyed in the years immediately before the divorce and could anticipate
enjoying if they were to stay married.” LaRocque,
139
¶11 As material to this appeal, the trial court’s written order concerning maintenance appears inconsistent. First, in paragraph 11(c), the trial court ordered the following:
Beginning
Yet, paragraph 11(e) of the order provides: “Upon husband reaching age 60, maintenance payments to wife shall terminate.” Nevertheless, under both provisions read in tandem, maintenance ends when Mr. Heppner turns sixty on May 30, 2012, irrespective of whether he has retired. Neither party argues otherwise.
¶12 As we have seen, the trial court found that Mr. and Ms. Heppner
had a tacit agreement during their marriage, what the trial court referred to
as the “bargain,” that in return for Ms. Heppner not working outside the home,
Mr. Heppner would retire by age sixty, if not a few years before. The trial court’s selection of a
fifty-percent division of Mr. Heppner’s income for maintenance is consistent
with
¶13 The trial court recognized that the Heppners had “a very long-term marriage,”
and found that the “tacit agreements” that Ms. Heppner would not work and that
Mr. Heppner would retire early “were a part of the fabric” of their
marriage. Further, no one seriously
argued (despite Mr. Heppner’s off-the-wall opinion that Ms. Heppner had an
earning capacity of $100,000 per year), and the trial court never found, that
Ms. Heppner, given her age, lack of work experience, and health problems could,
at any point in the future, be self-supporting.
Assessing the support objective of maintenance, the trial court opined
that the fifty-fifty split was on the high side in light of Ms. Heppner’s
support needs, finding that “the monthly budget that you have proposed is -- is
inflated exponentially.”[1] The trial court
explained that it nevertheless applied the fifty-fifty split because it was
granting maintenance for a short time:
“[S]ooner or later she’s going to be on her own, without spousal
support, without sharing in the fruits of the labor of this marriage.… I’m going to err on giving her more because
she’s going to get a less [sic] period
of time of it.”
¶14 In addressing the “fairness” aspect of maintenance, the trial court
acknowledged that a maintenance award could be justified under that element
even if the money awarded “exceeds [Ms. Heppner’s] needs.” By cutting off maintenance when Mr. Heppner
turned 60 on May 30, 2012, however, the trial court prevented Ms. Heppner from
realizing what Hefty says was her right—to enjoy “the lifestyle that the
parties could anticipate enjoying if
they stayed married,” id., 172 Wis. 2d at 134, 493 N.W.2d
at 37 (bolding in Hefty), even though the trial court’s oral decision repeatedly
referred to that as being Ms. Heppner’s bargained-for expectation: the Heppners envisioned the post-retirement
era when, as phrased by the trial court, “we can enjoy our lives together while
we still have our good health,” “we’re going to be able to enjoy and reap the
rewards of what we have worked so hard for,” and, addressing Ms. Heppner,
“[y]ou were looking forward to the day that he retired so then you could reap
the rewards of which he was being the workaholic for.” Despite this recognition of
Ms. Heppner’s expectations of what her lifestyle would be after
Mr. Heppner retired, the trial court obliterated those expectations
because it seemed to assume that it should cut off maintenance once Mr. Heppner
retired because that would, for reasons the trial court did not explain and are
not evident in the Record, cut off his sources of income. Indeed, Mr. Heppner repeats this
contention in his brief by asserting without citation to anything in the Record
to support it that his “ability to pay ends at age 60.”
¶15 By ending maintenance on
B. Stock options as income.
¶16 Ms. Heppner argues that in setting the income pool from which
Mr. Heppner would pay maintenance the trial court improperly excluded
those stock options that he would exercise after the divorce, contending that
money received from the exercise of those options is part of Mr. Heppner’s pay
package. This presents an issue of law
that we analyze de novo. See Wright v. Wright, 2008 WI App 21,
¶37, 307 Wis. 2d 156, 178, 747 N.W.2d 690, 701 (“[W]hether income from assets
awarded in an equal property division should be considered in calculating a
spouse’s income available for maintenance is a question of law.”); Rohde-Giovanni, 2004 WI 27, ¶19, 269
¶17 Under Wisconsin law, “the trial court is obligated to
consider all sources of income when establishing maintenance.” Wright,
2008 WI App 21, ¶39, 307
¶18 Consistent with what Maritato v. Maritato, 2004 WI App 138, ¶22, 275 Wis. 2d 252, 265, 685 N.W.2d 379, 385, recognized as a way to compensate “key employees to motivate them to remain as employees,” much of Mr. Heppner’s income from his employer over the years has been from stock options, not traditional salary. Thus, according to a trial exhibit in the Record, from 1996 through 2005, Mr. Heppner received the following forms of income:
• “Base Salary” $1,853,922.68
• Short- and Long-Term Incentive
Compensation 973,792.00
• “Income from Options” 961,400.00
The break out for 2006 through 2007 is:
• “Base Salary” $ 676,074.70
• Short- and Long-Term Incentive
Compensation 658,714.00
• “Income from Options” 1,022,221.96
According to the exhibit, the
“Income from Options” was included as “W2 Wages,” and Mr. Heppner admitted
during his testimony that his W2 forms included income received from his
exercise of stock options. The trial court
gave no reason other than its ipse dixit
why such a significant component of Mr. Heppner’s income should not be
included in the income pool for the payment of maintenance.[2] Further, there would be no improper “double
counting” because the principle that prevents the “double counting of an asset
for both property division and maintenance … does not apply to income from assets awarded in a property
division.” Wright, 2008 WI App 21,
¶42, 307 Wis. 2d at 181, 747 N.W.2d at 702 (emphasis in Wright) (“Income from
assets awarded to a spouse as part of an equal property division are generally
included in calculating that spouse’s income for maintenance.”).
¶19 The trial court’s refusal to include stock-option income in the pool for maintenance was an error of law and, accordingly, an erroneous exercise of discretion. Thus, as we did in subpart A., we exercise our authority under Wis. Stat. § 808.09 and modify the trial court’s maintenance order to encompass income that Mr. Heppner receives from the exercise of stock options. Upon remand, the trial court shall enter a revised judgment to conform to our ruling.
C. Property division of stock options whose exercise price exceeds the current price of the underlying stock.
¶20 As we have seen, Ms. Heppner contends that the trial court
erroneously exercised its discretion in refusing to divide as part of the
marital estate those stock options that the trial court viewed as having “no
value” as of the time of the divorce because what Mr. Heppner would have to pay
to exercise the options was greater than the price of the stock he would get
from that exercise. For the purposes of
a divorce property division, property is generally valued at the time of the
divorce. Wikel v. Wikel, 168
¶21 Ms. Heppner does not dispute the trial court’s conclusion that
the “underwater” stock options did not have value at the time of the divorce,
and this conclusion is incontrovertible on appeal in light of the following
from Maritato,
2004 WI App 138, ¶35, 275 Wis. 2d at 271, 685 N.W.2d at 388: “‘If the exercise price is less than the
market value, of course it [the option] has no value.’” (Quoted source omitted.) We are bound by Maritato. See Cook v. Cook, 208
¶22 First, as we have seen, Chen does not mandate the exclusion of underwater stock options from a marital-estate property division. Thus, the fact that neither the trial court nor the parties endeavored to give a value to those options (see footnote 3) is a neutral consideration.
¶23 Second, Mr. Heppner testified that the major reason the division he runs suffered “quite substantially” was because of the precipitous decline in the housing industry:
The housing market in the last 18 months has declined
40 percent, and that has led to a significant number of layoffs within our
business. Last year, I closed a factory
in
….
Our profitability in our storage unit has declined almost 50 percent.
Although giving a passing nod to the options’ sensitivity to the national economy, the trial court’s core reason to not award the underwater options as part of the marital-estate property division was that the stock’s (and, therefore, the options’) “potential upside [is] solely driven by the exclusive effort of Mr. Heppner post divorce, none of which she [Ms. Heppner] can contribute to, … it’s going to be by his own grit and hard work, and factors that she has absolutely no control over[,] the economy.” The trial court reiterated this reason several pages later in its oral decision: “[I]t’s also a fairness issue, which is that he’s going to be the sole reason, along with his company’s performance, to get some value to that property [the stock options].… The economy will do what it’s going to do, and Mr. Heppner is going to do what he does without the benefit of having a home domestic engineer at his house, i.e., Miss Heppner, there to help him perform.”
¶24 As we have seen, a discretionary determination must be based on facts that support a reasonable decision. Although there is no doubt that Mr. Heppner has significant responsibilities with his company, he had those responsibilities during the stock’s decline as well—his efforts were insufficient, in the face of the economic decline, especially in the segment served by his group, to stem the loss of the stock’s value. It takes no special insight to recognize that whether the stock rebounds is largely, if not almost wholly, dependent on what the economy (and the housing segment) does before the options expire. The options were earned during the Heppners’ marriage; they are part of the marital estate. The trial court’s rationale for excluding them from the normal division of property does not wash. The trial court erroneously exercised its discretion by excluding the options from division because it erroneously viewed their potential value as being almost solely a function of what Mr. Heppner would do in his business after the divorce, and largely ignored the fact that the options were earned while the Heppners were married. Accordingly, we reverse the judgment insofar as it did not make a property division of the underwater options, and remand this matter to the trial court so that can be done.
By the Court.—Judgment modified in part, reversed in part, and cause
remanded with directions.
[1] Later in its lengthy oral decision, the trial court opined that a fifty-fifty split was appropriate because the Heppners had a long-term marriage and that, accordingly, given that Mr. Heppner was in his “high earning years,” it was also fair, apparently despite its perception that Ms. Heppner’s budget was inflated.
[2] Significantly,
the decision upon which the trial court relied in concluding that stock options
were “property” and “not income,” Maritato v. Maritato, 2004 WI App
138, 275 Wis. 2d 252, 685 N.W.2d 379, concerned whether certain stock
options should be “included in the marital estate” and “subject to property
division,” id., 2004 WI App 138, ¶24, 275
[3] Were
we writing on a clear slate, we would not accept the conclusion that an
underwater option necessarily has no value.
Thus, as one respected observer of the financial scene has noted, “out
of the money does not equal worthless.
As long as the option has not expired, its potential value gives it
value.” Alex Berenson, The Number 94
(2004). Indeed, there are various tools
to ascertain the value of an out-of-the-money option. See In re Zoran Corp. Derivative Litigation, No.
C 06-05503 WHA, 2008 WL 941897, at *6 (N.D. Cal.