Can an Insurance Agent’s Post-Divorce Termination Payments be Considered Marital Property?
The Nebraska Supreme Court Ruling in Bergmeier v. Bergmier says yes.
In a Nebraska divorce or separation, the husband and wife’s “marital estate” is to be equitably divided. The marital estate consists of property accumulated and acquired during the marriage through the joint efforts of the parties. Non-marital property, on the other hand, is not ordinarily divided and is instead set off the party who acquired it. Generally speaking, non-marital property consists of (a) property that a spouse had before the marriage happened, (b) a gift or inheritance that a spouse received during the marriage, and (c) property the spouse acquires after the marriage is dissolved.
The Nebraska Supreme Court recently held that an insurance agent’s post-divorce termination payments are subject to division even though the payments would not be realized until after the divorce, and despite the fact that they would only be paid so long as there is post-divorce compliance with non-competition and other conditions. In Bergmeier v. Bergmeier, the court agreed with the reasoning of other jurisdictions that determined such termination payments are marital property subject to division, as opposed to non-marital property that is ordinarily set off to a spouse in its entirety and without division.
In the Bergmeier case, Mr. Bergmeier (“Husband”) became a captive State Farm insurance agent during the marriage. His State Farm contract gave him the right to termination payments if he complied with certain conditions at the end of his relationship with State Farm. Those conditions, generally, were that he return all property to State Farm upon termination and that he not compete with State Farm for 12 months. Because Husband was still working with State Farm at the time of the divorce, the termination payments were not yet acquired, and could only be acquired after the marriage ended and so long as Husband honored the non-competition and other required conditions. He argued that since his right to receive the termination payments depended upon his post-divorce activities, the termination payments should be classified as non-marital property and set off to him.
The court disagreed. It found that the State Farm contract was acquired during the marriage and that the termination benefits were subject only to minimal qualifying conditions. The fact that one of those conditions was a 12 month non-competition requirement that would transpire after the marriage ended did not change the court’s view that the the contract was part of the marital estate.
As to how to calculate the percentage of the termination benefit that Ms. Bergmeier (“Wife”) was entitled to in the divorce, the court used the “coverture fraction” method that is frequently used when pensions are to be divided in a divorce. The coverture fraction method:
- Allowed Husband and Wife to each get a percentage of the asset’s value that corresponded with the amount of time the asset accumulated value during the marriage, and
- Allowed Husband alone to be awarded the asset’s value that corresponded with the amount of time the asset accumulated value after the marriage ended.
To put the coverture fraction into effect, the fraction’s numerator is the number of months of State Farm service that occurred during the marriage and that counts toward calculating the termination benefit. The fraction’s denominator is the total number of months, both during and after the marriage, that count toward calculating the termination benefit. Once we have that fraction, we multiply it by the benefit.
For example, assume the following: (a) Husband worked at State Farm for 10 years during the marriage, (b) Husband works for State Farm for five years after the divorce, (c) all of those 15 years count toward calculating the amount of the benefit, and (d) the total termination benefit will be $1 million. Using these assumptions, the coverture fraction is 120/180 which equates to 2/3:
Significance Of The Bergmeier Decision
While there is a split of authority among the states as to how a deferred compensation asset such as this is classified, the Bergmeier decision indicates Nebraska has joined those states that have decided that the asset is partially marital and partially non-marital. But the analysis should not stop there. Consideration should be given to the parties’ relative economic circumstances when determining how much of the marital portion of the asset should be awarded to a spouse.
For example, consider a situation where a husband must refrain from competition in order to get the termination benefit and if he unlawfully competes, he loses the benefit. Perhaps wife, not being under the same restriction, is a high income earner herself and will have plenty of post-decree income whereas husband was counting on the termination benefit to replace his income during the period of non-competition. In that situation, the “burden” of having limited or no income during the non-compete period would be felt only by husband after the marriage has ended, and in that sense, it may not be equitable to award 50% of the marital portion of the benefit to wife. In that situation, perhaps the split of the marital estate should not be 50/50, but a greater portion of the marital estate should be awarded to husband in order to make the division equitable. Like anything else in family law, answer depends on the family’s facts and circumstances, all of which counsel needs to be aware in order to advocate for the best and most equitable outcome possible.