In re Marriage of Hyman (Undisclosed Stock Options)

Jeffrey and Rachel were divorced on December 31, 2015, after a thirteen year marriage. For a part of the marriage, Jeffrey was self-employed running a consulting company called Strong Suit LLC.

Based on Jeffrey’s responses to discovery requests made by Rachel throughout the divorce proceedings, Jeffrey described his business, Strong Suit LLC as having “ceased operations in 2010,” and disclosed that the Strong Suit LLC business checking account had been closed in September, 2014.

In May, 2015, Jeffrey stated that he had not established any new entities or businesses other than those already disclosed, including Strong Suit, LLC.

Despite these disclosures, sometime in the spring of 2015, Jeffrey had reactivated Strong Suit, LLC, and in June, 2015, he entered into an agreement with a company called Fitness, Cubed, Inc. (Cubed). Pursuant to this agreement, Jeffrey personally received stock options issued by Cubed. These stock options were the only consideration received by Jeffrey pursuant to the agreement.

Pursuant to the stock option agreement, Jeffrey was awarded an option to purchase 500 shares of Cubed stock at a price of $7.30 per share, for a total value of $3,650.00. These options would vest pursuant to a vesting schedule, with 40 options vesting immediately, and the remainder of the options vesting over a period of two years.

As of the date of the divorce, 160 options had vested.

Jeffrey never disclosed these stock options to Rachel prior to the parties executing their Marital Settlement Agreement on December 31, 2015.

In February, 2021, Rachel filed a petition for allocation of undisclosed marital assets, alleging that Jeffrey failed to disclose his interest in Cubed.

On January 27, 2022, after hearing, the trial court ruled in favor of Rachel, and found that the options received by Jeffrey were not contemplated in the Marital Settlement Agreement executed by the parties in December, 2015. The Court found that 500 shares of stock options awarded to Jeffrey during the marriage were marital property, and were subject to equitable division. The Court found that there was no issue with Jeffrey holding the awarded stock options in his own name, rather than in the name of company. The trial court did not believe Jeffrey was trying to conceal anything by placing the shares in his name, and that at the time the shares were awarded, they have very little value. The trial court ordered Jeffrey to pay Rachel $130,196.00, which represented the value of Rachel’s 50% share of the 500 stock option received by Jeffrey during the marriage, minus taxes and expenses.

Jeffrey appealed the trial court’s decision.

First, Jeffrey argued that the trial court erred in concluding that the Cubed stock options were not disclosed within the meaning of the Marital Settlement Agreement, as the stock options were a nominal asset of Strong Suit LLC that did not warrant separate disclosure.

The Appellate Court disagreed with Jeffrey. The Appellate Court noted that the stock options were not held by Strong Suit LLC, but rather were held personally by Jeffrey. The notice of stock option grant and stock option agreement clearly shows that Jeffrey received the stock and not his company. Based on these facts, Jeffrey’s remaining argument that the options were disclosed by Jeffrey as part of his interest in Strong Suit LLC , was found to be immaterial and counterfactual.

Second, Jeffrey argued that the Marital Settlement Agreement’s undisclosed asset provision cannot be used to penalize him, and reward Rachel for her decision not to pursue further discovery.

The Appellate Court disagreed with this argument, as well. The Appellate Court noted that Jeffrey “took every opportunity to fail to provide Rachel” with the stock option information. The Appellate Court also noted that in the Marital Settlement Agreement, Jeffrey acknowledged that he “fully disclosed” his assets; however, the stock options were not referenced in the Marital Settlement Agreement or any of its exhibits. The Appellate Court stated that Jeffrey had multiple opportunities to fulfill his obligation to notify Rachel of his receipt of stock options, but he failed to do so, and therefore he cannot complain that Rachel did not, “dig deeply enough.”

The Appellate Court also distinguished the facts in the present case with the case of In re Goldsmith, 2011 IL App (1s) 093448 that was cited by Jeffrey in support of his position that Rachel did not pursue further discovery. The Appellate Court distinguished the case due to the fact that the Goldsmith case was a case brough pursuant to Section 2-1401 of the Illinois Code of Civil Procedure requesting to vacate a judgment after 30 days of entry. Such a motion requires a showing that newly discovered evidence was not known to the petitioner at the time of the proceedings, and that such evidence could not have been discovered with the exercise of reasonable diligence. The Appellate Court found that in the present case, Rachel did not have to show her, “due diligence” regarding evidence as her motion did not request to vacate a judgment after 30 days of entry pursuant to Section 2-1401 of the Illinois Code of Civil Procedure, but rather Rachel filed a motion to enforce the parties’ Marital Settlement Agreement. The Appellate Court noted that the Marital Settlement Agreement provided for a 50/50 division of marital assets that are later discovered, and which are not otherwise set forth in the agreement.

Third, Jeffrey argued that the trial court erred in barring him from introducing letters from Rachel’s counsel during settlement negotiations at hearing. Jeffrey argued that such correspondence was relevant to show that the parties’ intended to award everything pertaining to Strong Suit LLC to Jeffrey pursuant to the parties’ agreement.

The Appellate Court disagreed with Jeffrey’s contention and stated that the trial court, “correctly diagnosed the issue” of whether the stock options were disclosed. The settlement discussions related to Strong Suit LLC were irrelevant because the stock options belonged to Jeffrey and not the business. Any evidence regarding the negotiations related to Strong Suit LLC has no bearing on the assets that belonged to Jeffrey personally.

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