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In re the Marriage of Gail E. MacMillan v. William C. Schwartz

Court of Appeals of Arizona, Division 1, Department E
250 P.3d 1213 (2011)
ELI5:

Rule of Law:

When interpreting a spousal maintenance modification clause in a property settlement agreement, the term 'earnings' is not limited to salary and can include non-speculative deferred compensation that is an alternative means of payment for work performed.


Facts:

  • In March 2005, Gail MacMillan ('Wife') and William Schwartz ('Husband') divorced, incorporating a Property Settlement Agreement (PSA) into the decree.
  • The PSA required Husband to pay spousal maintenance, but stated it could be modified if Wife 'earns income from employment or other active business endeavors of $50,000 per year or greater.'
  • In April 2006, Wife began working for Company Nurse at a salary of $48,000, with a promise of a promotion and a raise to $60,000 the following January.
  • In January 2007, Wife's salary was raised to $60,000, but in August 2007, she requested her salary be returned to $48,000 to 'keep the stress to a minimum.'
  • Beginning in January 2008, Company Nurse started depositing $1,000 per month into a deferred compensation plan in which Wife was the sole participant.
  • In July 2008, Company Nurse deposited a $12,000 bonus into the plan to compensate Wife for her 'reduced' salary in 2007.
  • The combination of Wife's $48,000 salary and the $12,000 annual contribution to the deferred compensation plan resulted in a total annual compensation of $60,000.

Procedural Posture:

  • William Schwartz ('Husband') filed a petition in the trial court to reduce his spousal maintenance obligation.
  • Gail MacMillan ('Wife') filed her own counter-petition in the same court to increase and extend spousal maintenance.
  • The trial court held a consolidated hearing on both petitions.
  • The trial court found that Wife's earnings, including the deferred compensation, exceeded the $50,000 threshold in the parties' agreement and issued an order reducing Husband's spousal maintenance obligation from $6,666.67 to $4,250 per month.
  • Wife, as appellant, appealed the trial court's order to the intermediate court of appeals.

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Issue:

Does money contributed by an employer to a deferred compensation plan on an employee's behalf constitute 'earnings from employment' for the purpose of triggering a spousal maintenance modification clause in a property settlement agreement?


Opinions:

Majority - Irvine, Judge

Yes, money contributed by an employer to a deferred compensation plan on an employee's behalf constitutes 'earnings from employment' for modification purposes. Because the parties' PSA was incorporated but not merged into the divorce decree, it is interpreted using principles of contract law to determine the parties' intent. The plain language of the agreement uses the broad term 'earnings,' not the more restrictive 'income' or 'salary.' The record shows the parties intended for modification to be possible if Wife's earning capacity substantially changed, which they pegged at the $50,000 level. The deferred compensation was not speculative future income; it was an 'alternative means of paying Wife' for current work, making her total compensation equivalent to the $60,000 salary she had been promised. Therefore, the trial court correctly combined the salary and the deferred compensation to find that the $50,000 threshold for modification had been met.



Analysis:

This decision clarifies that courts will look to the substance, rather than the form, of compensation when determining if a spousal maintenance modification trigger has been met. It establishes that arrangements like deferred compensation plans, which might be structured to keep an ex-spouse's technical 'salary' below a certain threshold, can still be counted as 'earnings' if they represent actual, non-speculative payment for work performed. The case reinforces the principle that incorporated settlement agreements are governed by contract law, and the parties' original intent is paramount. This precedent makes it more difficult for parties to use creative compensation structures to circumvent the terms of their spousal support agreements.

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