Posted by Nydia Streets of Streets Law in Florida Divorce
How are contingent liabilities treated in a Florida divorce? These liabilities are potential debts that will become owed if certain events happen. For example, a party might be involved in a lawsuit and if they lose the lawsuit, they might owe money to the opposing party in the law suit. Contingent assets and debts must be listed on a financial affidavit in a Florida divorce case. A contingent debt was an issue in the case Alvarez v. Stochetti, 3D23-1277 (Fla. 3d DCA March 12, 2025).
The former husband filed for divorce in 2020. He proceeded to trial and represented himself. A final judgment was entered, and the former husband appealed on three bases: (1) the child support was calculated based on a 70-30 timesharing split; (2) the former husband was ordered to provide life insurance to support his child support obligation; and (3) the trial court did not treat as a marital debt certain promissory notes assigned to him by his employer.
Regarding the child support, the appellate court noted the time-sharing did not appear to be a 70-30 split and instead closer to 65-35. Therefore, this matter was reversed for the trial court to calculate the number of overnights each party has throughout the year and recalculate child support accordingly. Turning to the life insurance requirement, the appellate court held that no required findings were made by the trial court to support the life insurance award, specifically any special circumstances warranting the award.
Last, turning to the former husband’s argument about the promissory notes, the appellate court explained “During the marriage, the husband became employed as a financial advisor with Morgan Stanley Smith Barney, LLC. As explained by the wife’s expert and reflected in the contracts entered into the trial record, when commencing employment, the husband was given a substantial signing bonus deposited into a brokerage account in his name. In return, he signed a promissory note committing to pay back the bonus in nine annual payments at certain set amounts. Under the promissory note, if he left the firm voluntarily or involuntarily during the years the payments were due, all amounts outstanding under the note would become owing. As part of this arrangement, the husband also entered into a bonus agreement where Morgan Stanley contracted to pay annual bonuses to him a few weeks after each annual payment on the note. These payments were larger than the payments due under the promissory agreement. These payments represented the only taxable income in the arrangement. This method of structuring the signing bonus thus allowed the husband to receive a large payment upfront and to defer taxes on that payment. Explaining that the former husband held in an account $93,000 of the bonus payments, the appellate court noted “The trial court classified the remaining funds as part of the marital assets. It classified the promissory note as ‘a contingent debt’ but assigned no value to it. It also did not list the future payments under the bonus contract as marital assets.”
The court concluded there was no error in the trial court’s treatment of the promissory notes, holding “Under the existing circumstances, while the husband remains employed at Morgan Stanley, any required payments by the husband to Morgan Stanley are almost immediately reimbursed by larger payments by Morgan Stanley to the husband. The trial court correctly determined that the liability to make future payments could not be separated from the related asset of the future income stream to reimburse the payments. The trial court’s treatment is in accord with how these types of promissory-note-bonus contract arrangements have been treated by other courts.”
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