NOLTE v. KANE (2019)

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

Natalie Potter (mother) appeals from the judgment of modification dated July 28, 2017 (modification judgment), primarily challenging the Probate and Family Court judge's decision to exclude for child support purposes the $1.27 million stock option payout that Alexander Nolte (father) received from his former employer, CoLucid Pharmaceuticals, Inc. (CoLucid), on the basis that the payout was not a “bonus” under the parties' separation agreement. We vacate the modification judgment and remand for further proceedings.

Background. The parties were divorced in March 2013, pursuant to a judgment of divorce incorporating their separation agreement (which merged as to provisions involving the children). The separation agreement provided, in relevant part, that the father would pay weekly child support of $672, calculated pursuant to the Child Support Guidelines (Guidelines) using the father's annual “gross income” excluding bonuses. The parties agreed to review their income annually and to recalculate the Guidelines payment if either party's income changed by fifteen percent or more. The agreement also required the father to pay additional child support consisting of twenty percent of his “gross bonus(es)” (bonus provision). Separate from the bonus provision, the agreement also included a handwritten provision that the father would pay “$7,557.60 representing twenty percent ․ of his retention bonus he received in October, 2012.”

At the time of the divorce, the mother parented the parties' two children full-time, and the father was employed by Genzyme Corporation (Genzyme), earning an annual base salary of $137,500 ($2,644.23 per week), along with bonus income averaging $346.15 per week. After the divorce, the mother briefly obtained part-time employment; however, she stopped working outside the home following the birth of her child with her current husband in June 2015.

In June 2015, the father accepted a position with CoLucid. The CoLucid offer letter outlined two forms of compensation: (1) “cash compensation” consisting of an annual base salary of $175,000 ($3,365.38 per week) and an annual bonus of up to twenty percent of the base salary “based on the achievement of written performance criteria”; and (2) a “sign-on equity grant,” also described in the letter as a “sign-on bonus,” consisting of an “incentive stock option” to purchase 30,000 shares of CoLucid common stock at a set price, vesting on a particular schedule. In February 2016, the father received an additional stock option to purchase 15,000 shares at a different price, vesting on a different schedule.³

In the spring of 2017, because of CoLucid's acquisition by another company, the father received a payout of $1.27 million (netting $673,000 after taxes) to settle his CoLucid stock options. Around the same time, the father accepted a new position with Syndax Pharmaceuticals, Inc. (Syndax), earning an annual base salary of $225,000 ($4,326.92 per week). The father's offer from Syndax also included a one-time “signing bonus” of $10,000.

After learning of the mother's part-time employment, in 2014 the father filed a complaint for modification seeking a reduction in child support. The mother counterclaimed, seeking an upward modification of child support in light of the father's increased income. At trial, the primary issue in dispute was whether any child support should be awarded from the father's $1.27 million CoLucid stock option payout.

In the resulting modification judgment and supporting findings of fact, the judge (1) increased the father's weekly child support obligation to $830, the “minimum presumptive order” under the 2013 Guidelines based on the first $250,000 of the parties' combined incomes;⁴ (2) ordered the father to pay retroactive child support for the periods of January 1, 2015, to December 31, 2016, and June 16 to July 28, 2017 (while omitting retroactive support for the period of January 1 to June 15, 2017); (3) ordered the father to pay twenty percent of his Syndax signing bonus to the mother, pursuant to the bonus provision; and (4) declined to award any child support in connection with the CoLucid stock option payout. In excluding the stock option payout for child support purposes, the judge found that the stock option was not a “bonus” under the separation agreement; rather, it was an “equity grant” that was part of the father's “overall compensation.” The judge also found it unnecessary to order additional child support from the stock option payout because the father had set aside $100,000 for the children's future college expenses, and the children's “current needs [would] be well met” without additional support. The present appeal by the mother followed.

Discussion. The mother principally contends that the judge, in declining to award any additional child support from the stock option payout, erroneously interpreted the separation agreement's bonus provision and failed to properly account for the children's needs. The mother further argues that the judge erroneously calculated the amount of retroactive child support owed by the father.

The stock option payout. We review the modification of child support for an abuse of discretion. Wasson v. Wasson, 81 Mass. App. Ct. 574, 576, 965 N.E.2d 882 (2012). Where, as here, the Guidelines do not strictly apply,⁵ notwithstanding the existence of a separation agreement, a judge may modify child support based upon “a material change of circumstances” since the entry of the prior judgment. Feinstein v. Feinstein, 95 Mass. App. Ct. 230, 235, ––– N.E.3d –––– (2019), quoting Pierce v. Pierce, 455 Mass. 286, 293, 916 N.E.2d 330 (2009). See Morales v. Morales, 464 Mass. 507, 509-512 & n.4, 984 N.E.2d 748 (2013). See also G. L. c. 208, § 28. The change may be in the parties' respective lifestyles or financial resources, or in the needs of the children. See Brooks v. Piela, 61 Mass. App. Ct. 731, 734-735, 814 N.E.2d 365 (2004). That said, “[t]o the extent possible, and consistent with common sense and justice, the modified judgment should take into account the earlier, expressed desires of the parties” as set forth in their separation agreement. Katzman v. Healy, 77 Mass. App. Ct. 589, 598, 933 N.E.2d 156 (2010), quoting Bercume v. Bercume, 428 Mass. 635, 644, 704 N.E.2d 177 (1999). Here, the judge concluded that the CoLucid stock option payout was not a “gross bonus” under the bonus provision of the separation agreement because it was “a part of [the father's] overall compensation package.”

Although a separation agreement loses independent legal identity when merged in a judgment, we apply contract principles to the interpretation of a separation agreement. See Bercume, 428 Mass. at 641, 704 N.E.2d 177. Because the meaning of a term of a contract is a question of law, our review is de novo. See Balles v. Babcock Power Inc., 476 Mass. 565, 571, 70 N.E.3d 905 (2017); Colorio v. Marx, 72 Mass. App. Ct. 382, 386, 892 N.E.2d 356 (2008) (“The interpretation of the separation agreement is a question of law, and is therefore ‘afforded plenary review’ ” [citation omitted] ). “[W]hen the language of a contract is clear, it alone determines the contract's meaning.” Balles, supra. Such clear contractual language “must be construed in accordance with [its] ordinary and usual sense.” Fried v. Fried, 5 Mass. App. Ct. 660, 663, 368 N.E.2d 1222 (1977). Where, however, the words of a contract are ambiguous, other provisions of the contract and, where available, extrinsic evidence are examined to decipher the parties' intent and construe the ambiguous language in accordance with that intent. See Robert Indus., Inc. v. Spence, 362 Mass. 751, 753-755, 291 N.E.2d 407 (1973). The existence of ambiguity in a contract term is a question of law. Suffolk Constr. Co. v. Illinois Union Ins. Co., 80 Mass. App. Ct. 90, 94, 951 N.E.2d 944 (2011). “Contract language is ambiguous ‘where the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken’ ” (citation omitted). Bank v. Thermo Elemental, Inc., 451 Mass. 638, 648, 888 N.E.2d 897 (2008). Here, the term “gross bonus(es)” is undefined in the agreement, and is ambiguous.

On the one hand, the plain and ordinary definition of the term “bonus” can encompass a stock option payout. A “bonus” is defined broadly as a “premium paid in addition to what is due or expected,” and in the employment context it is defined as compensation paid “in addition to or in excess of the compensation that would ordinarily be given.” Black's Law Dictionary 217 (10th ed. 2014). A bonus can be cash “or an equivalent.”⁶ Webster's Third New Int'l Dictionary 252 (2002). Moreover, stock options are “another way for employers to compensate their employees” in addition to a salary. Wooters v. Wooters, 74 Mass. App. Ct. 839, 841, 911 N.E.2d 234 (2009), quoting Baccanti v. Morton, 434 Mass. 787, 795, 752 N.E.2d 718 (2001).

On the other hand, it is not clear that the expansive dictionary definition of “bonus” is the meaning intended by the parties. The agreement provides for two principal sources of child support -- weekly child support calculated pursuant to the Guidelines based on the parties' income “excluding bonuses,” and the bonus provision. Nothing in the record before us indicates that the parties intended stock options (once income is realized from exercising them) to be treated as a “bonus” subject to the bonus provision rather than as falling within the “income” used for purposes of calculating the weekly child support due pursuant to the Guidelines.⁷ See Guidelines I.A. (2013) (defining “income” as “gross income from whatever source,” including “bonuses”). See also Wooters, 74 Mass. App. Ct. at 843, 911 N.E.2d 234 (“gross annual employment income” for purposes of alimony included “income realized from the exercise of stock options”). It appears from the record that, at least at the time of the divorce, the bonus provision was applied only to the father's year-end performance bonus. Thus, despite the bonus provision, a separate, handwritten provision was utilized to account for the treatment of the father's “retention” bonus for 2012.⁸ In any event, the applicability of the bonus provision to the father's stock options is open to reasonable interpretations on both sides.

Accordingly, we conclude that the bonus provision of the separation agreement, as applied to the income realized from the father's stock options, is ambiguous. In light of the foregoing, the record needs to be developed to decipher the parties' intent. See Parrish v. Parrish, 30 Mass. App. Ct. 78, 86, 566 N.E.2d 103 (1991) (resort to extrinsic evidence regarding background and purpose of parties, and their understanding of meaning of particular language, may be considered in construing ambiguous contractual language). Additional fact finding concerning the intent of the parties and the nature of the stock options ⁹ is necessary.

College savings plan. Because the issue may arise on remand, we consider the judge's treatment of the father's investment in the children's college savings plan as an equitable alternative to paying twenty percent of his stock option payout to the mother. Specifically, the judge found that the $100,000 set aside by the father for the children's future college expenses was “not significantly less than what [the] [m]other would receive” if the net option payout of $673,000 were “considered a ‘bonus’ under the parties' [s]eparation [a]greement.” This finding is clearly erroneous. See Millennium Equity Holdings, LLC v. Mahlowitz, 456 Mass. 627, 636-637, 925 N.E.2d 513 (2010) (finding is “clearly erroneous” where it leaves reviewing court with “definite and firm conviction that a mistake has been committed” [citation omitted] ). The bonus provision calls for twenty percent of the father's “gross bonus(es)” (emphasis added). Application of the bonus provision to the gross stock option payout of $1.27 million results in a payment of $254,000 to the mother -- a sum significantly more than the $100,000 set aside by the father in a college savings plan for the children.

Furthermore, treating the father's college savings contribution as an alternate means of satisfying his child support obligation improperly allows the father to direct the manner in which his child support payments are spent. See T.M. v. L.H., 50 Mass. App. Ct. 856, 860, 742 N.E.2d 89 (2001). In fact, the father's obligations under the separation agreement already include a requirement that he contribute to the payment of the children's future college expenses “based on [his] ability to pay.” Thus, any funds invested in a college savings plan satisfy that obligation, which is separate and apart from the father's obligation to pay child support.¹⁰

Findings regarding children's needs. Notwithstanding the foregoing, the judge can modify the father's agreed-upon child support obligation after a determination is made that there is a material change in circumstances. See Feinstein, 95 Mass. App. Ct. at 235, ––– N.E.3d ––––; G. L. c. 208, § 28 (“A modification of child support may enter notwithstanding an agreement of the parents”). Such a modification may be warranted if, on remand, the judge determines that the bonus provision applies but that awarding the mother twenty percent of the payout pursuant to that provision would result in a child support award that is “excessive and not rationally related to the reasonable needs of [the] children.” Cooper v. Cooper, 62 Mass. App. Ct. 130, 136, 815 N.E.2d 262 (2004). Similarly, if on remand the judge determines that the bonus provision does not apply and that instead the stock option payout is part of the “income” to be used for calculating weekly child support under the Guidelines, an award of support based on income above $250,000 is left to the judge's discretion. See Guidelines II.C. (2013). Here, it appears the judge believed any support awarded from the $1.27 million option payout would exceed the children's needs, as he concluded the children's “current needs” would be “well met” with the minimum presumptive order of $830 per week and twenty percent of the father's future bonuses. The judge, however, did not make any subsidiary findings regarding the children's needs to support this conclusion.

Thus, on remand, subsidiary findings expressly reflecting the children's needs, including findings accounting for the apparent disparity in the parties' respective households,¹¹ are required. “[C]onsistent with principles underlying the [G]uidelines, children's needs are to be defined, at least in part, by their parents' standard of living and ․ children are entitled to participate in the noncustodial parent's higher standard of living when available resources permit.” Brooks, 61 Mass. App. Ct. at 737, 814 N.E.2d 365. When determining the children's needs, a judge should consider the noncustodial parent's “enhanced standard of living and the resulting disparity in parental households.” Id. at 732, 814 N.E.2d 365. See Smith v. Edelman, 68 Mass. App. Ct. 549, 554, 863 N.E.2d 576 (2007) (disparity must be “material”). See also Guidelines IV (2013) (deviation from minimum presumptive order proper where “application of the [G]uidelines would result in a gross disparity in the standard of living between the two households such that one household is left with an unreasonably low percentage of the combined available income”); Guidelines, Principles (2013) (child support is meant in part “to meet the child's survival needs in the first instance, but to the extent either parent enjoys a higher standard of living, to entitle the child to enjoy that higher standard”).

In sum, because additional fact finding is required to determine whether application of the bonus provision to the father's stock option payout is consistent with the parties' intent, and because the children's needs must be considered when modifying the father's agreed-upon support obligation, we vacate the modification judgment and remand for additional fact finding and a redetermination of child support consistent with the children's needs, as defined, in part, by the parties' respective standards of living.¹² Brooks, 61 Mass. App. Ct. at 737, 814 N.E.2d 365.

Retroactive support. Because we are vacating the modified child support order, the retroactive support order must be vacated and remanded as well. We nevertheless touch upon an additional issue that may arise on remand. The modification judgment required the father to pay specific sums of retroactive child support for the periods of January 1 to December 31, 2015, January 1 to December 31, 2016, and June 16 to July 28, 2017. Retroactive support was not awarded for the period of January 1 to June 15, 2017, and no explanation for this omission was provided in either the judgment or accompanying findings of fact. Accordingly, on remand, retroactive support should be awarded for all periods falling between January 1, 2015, and July 28, 2017. See Hoegen v. Hoegen, 89 Mass. App. Ct. 6, 11-12, 43 N.E.3d 718 (2016) (retroactive support is warranted “absent a specific finding that retroactivity would be contrary to the child's best interest, unjust, or inappropriate” [citation omitted] ).

Conclusion. The modification judgment dated July 28, 2017, is vacated and the case is remanded for further proceedings consistent with this memorandum and order. Until a new modification judgment enters, the father shall pay temporary child support of $830 per week.

So ordered.

Vacated and remanded

FOOTNOTES

3.   In September 2016, the father exercised his option to purchase 7,500 shares, sold the shares, and received gross proceeds of $175,000 (which was reflected on his 2016 Federal W-2 form). The father earned a total of $374,066 from CoLucid in 2016.

4.   In arriving at the weekly base support amount of $830, the judge used the father's 2017 base salary of $225,000 and the mother's attributed annual income of $35,000.

5.   The parties' combined annual income exceeded the $250,000 maximum of Guidelines II.C. (2013). See now Guidelines II.C.2. (2018) (same).

6.   Here, there is no language in the agreement restricting the definition of “bonus(es)” to cash bonuses only. Cf. Katzman, 77 Mass. App. Ct. at 598, 933 N.E.2d 156 (agreement specifically required husband to pay twenty percent of net “cash bonus” as child support).

7.   It appears that at the time of the divorce, the parties' combined annual income was significantly below the $250,000 Guidelines maximum.

8.   The vesting schedule for the stock options, which the record shows occurred at the earliest at the one-year anniversary of the father's employment, suggests a retention incentive.

9.   The fact that the CoLucid offer letter refers to the stock options as a “sign-on bonus” is not dispositive. The offer also refers to the stock option as a “sign-on equity grant” and an “incentive stock option.” Of course, the label “sign-on bonus” does not apply to the additional option to purchase 15,000 shares granted to the father in February 2016.

10.   The separation agreement provided that “[a]ll education accounts or accounts of any kind created by a party for the payment of [c]ollege [e]xpenses ․ shall be credited towards that party's obligation to contribute to the payment of the children's [c]ollege [e]xpenses.”

11.   Here, the parties' financial statements reveal significant differences in household spending, with the father reporting weekly expenses substantially higher than those reported by the mother. See M.C. v. T.K., 463 Mass. 226, 234 n.11, 973 N.E.2d 130 (2012) (“standard of living, as the concept is used in the [G]uidelines, may be closely linked to household spending”). The judge found the mother had utilized retirement funds to meet her living expenses, and the father had refused to contribute to the cost any of the children's extracurricular activities while in the mother's care. In his testimony, the father acknowledged the existence of a disparity in the parties' households.

12.   The judge, of course, has discretion to reopen the evidence on remand as necessary for these determinations.