When are the proceeds from an employer loan considered a “debt,” or “income,” or “marital property”? This is one of the questions faced by the Maryland Court of Special Appeals in the recent case, Troy T. Bryant v. Roxanna K. Bryant.
In this case, Husband was a successful employee of a financial institution, UBS. Husband and UBS entered into an agreement where Husband received what was characterized in the employment agreement as a “cash loan” or “transition loan” in the amount of $1,305,000. Unlike a more conventional loan, UBS made “payments” to Husband by forgiving one-ninth of each loan on Husband’s anniversary dates with the company as long as he worked there with the total “loan” being forgiven in nine years.
Husband argued that the “loans” were in fact loans, not signing bonuses or compensation, because after the divorce he would remain responsible to repay them. He also argued that this money could not be considered “property acquired during the course of the marriage” because he would have not done the work entitling him to forgiveness until after the divorce. Husband not only received the loan proceeds, but he also earned a commission-based salary from UBS.
Not surprisingly, Wife argued that the payment of $1,305,000 was really a “retention bonus” that UBS structured for tax purposes as a loan with payments due over a period of years. Wife added that UBS paid Husband over $2.2 million between November 2010 and February 2013. After construing the employment agreement between Husband and UBS, listening to the testimony of the parties and dueling experts, the Court of Special Appeals affirmed the decision of the trial court and concluded these “loans” were in fact incentive payments or bonuses and should be treated as an asset acquired during the marriage. As seen in this decision, when evaluating financial arrangements, courts of equity can cut through complex structures to get to the heart of the matter and allocate monies between spouses.