Are unvested Shares Considered a Financial Resource?
Unvested Shares in a Divorce – Although the term “financial resource” is not defined by the Family Law Act (“the Act”), section 79 (4) and section 75 (2) of the Act set out the matters the Court must take into account when considering what Orders should be made in terms of the alteration of property between the parties.
Unvested Shares in a Divorce – Family Law Act
Amongst the section 79 (4) considerations; such as the financial contributions of the parties, the non-financial contributions of a party, the contributions of the parties to the welfare of the family and the effect of any proposed order on the earning capacity of the parties, there is also an extensive list of matters pursuant to section 75 (2) that the Court is required to take into account so far as they are necessary and these include matters such as the age and state of health of each of the parties and the income, property and financial resources of each of the parties.
Although there are several more considerations listed in this section, the term we will focus on for the purposes of this article is “financial resource” because unlike many other elements of the Act, this term is undefined and therefore can sometimes be more difficult to answer the question – “what exactly is a financial resource?”
What is a Financial Resource?
The term “financial resource” has been found to be a very broad term that refers not to property that the party currently holds in his or her own name but refers to some future financial benefit that is likely to be given or provided or allocated to the party at some future point time. Financial resources include things such as expected inheritances or a pattern of financial support from a relative that is likely to continue. However, we have recently been confronted with the following question: “are unvested shares considered a financial resource?” The short answer to this question, in accordance with the recent Federal Circuit Court of Australia decision of Russell & Russell [2016] FCCA 137, is yes.
Russell & Russell Case
In the case of Russell & Russell, the Court decided that unvested shares in a divorce stemming from the Husband’s employment were to be considered a financial resource. Naturally, each party had opposing views. The husband submitted that he is issued a number of unvested shares from his employer for the business each year, however that those shares will only vest and he will only have a right to sell those shares three years after they are allocated to him, IF the company as a whole meets a number of performance criteria. The Husband further argued that he only has the right to sell those shares if he is still employed by the employer at the time they vest. The Husband also presented evidence that his company and another company were contemplating re-merging, however recent publicity on these company suggested that neither company were considering re-merging at this time.
It was submitted by the Wife that the Husband’s shares are a financial resource even though it is unknown if the shares will vest and unknown what their value will be until the vesting date.
Ultimately, the Court was satisfied that the Husband’s rights to the unvested shares are a financial resource for the Husband however it was noted that there is a big unknown element in whether the performance of the company is such that it will meet its required targets to cause the shares to vest.
Therefore, these unknowns will influence the weight that the Court will give in exercising its discretion to what adjustment (if any) is given in the Wife’s favour as a result of the Husband’s financial resource.
At Cominos Family Lawyers, we have experience in dealing with financial resources of all kinds. For more information, contact us on 02 8999 1800 or info@cominoslawyers.com.au