December 2011 Archives

Is Accrued Vacation Time a Community Property Asset Subject to Division?

December 15, 2011

There are many great companies in San Diego. A lot of these companies offer fantastic employment benefits, such as generous amounts of vacation time. Some companies even have policies allowing their employees to accrue vacation time, as opposed to a "use it or lose it" policy. As a San Diego divorce attorney, it is important to understand this employment benefit, which is often overlooked when bigger benefits are also at stake, such as stock options, 401(k)'s and pensions.

Vacation.jpg "Image courtesy of animalclipart.net".

Vested vacation time is an asset which, if earned during marriage, is considered a community property asset. However, vested vacation time is, in and of itself, not divisible in kind. If there are 30 days of vested vacation time, the judge cannot award 15 days of vested vacation time to each party because the vacation time that is vested can only be used or taken by the employee spouse. To make the issue of vested vacation time even more complicated, there is conflicting case law on how the courts handle the division of vested vacation time.

A close reading of the various cases, in my opinion, favors that if the vested vacation time is convertible (or can be converted) into cash, then it can be considered by the court as a divisible community property asset. Thus, the employee spouse who can elect to take his or her accumulated vacation time as cash may be charged with the after-tax amount he or she could realize. The court can also order a party to cash in the vested vacation time and pay one-half (or other amount) to the non-employee spouse.

On the other hand, if the employee spouse must take the time off or lose it, and there is no cashing out of the vacation time, then the court could find that the employee spouse is not receiving an economic benefit which can be fairly valued and charged to that party. In other words, if accrued or vested vacation time can be cashed in, it should be considered an asset subject to division. If it, or a portion of it, cannot be cashed in, meaning that it must be taken or lost, then the court may determine that it has no economic benefit to the employee spouse and the court will not consider it as an asset subject to division.

In one "vacation benefit" case, Husband had accumulated 120 hours of vacation time through his employment, for which he would not receive cash if he did not use. The Trial Court found that the vested vacation time was an asset not subject to division. The Court of Appeal affirmed the decision, holding that the mere fact that a benefit exists for an employee, doesn't mean that a value can be placed on it in a dissolution proceeding. These include: use of employer provided health club, purchasing meals in company cafeteria, or ability to buy at discount prices through employer subsidized retail establishment. Although these benefits may affect need or ability re support, they are not convertible to cash and therefore not divisible on dissolution.

However, another case held just the opposite. When that Court of Appeal considered that Supreme Court's meaning of the phrase "vested vacation time" it believed that it was important to keep in mind the nature of vacation pay. The court went on to explain that vacation pay is not a gratuity or a gift, but is, in effect, additional wages for services performed and that the right to a paid vacation, when offered in an employer's policy or contract of employment, constitutes deferred wages for services rendered. That Court of Appeal held that there was no reason deferred wages cannot be commuted to present value and divided.

Even if the vacation time cannot be valued and divided, the vacation time may still be taken into consideration by the court when determining spousal support. The fact is that the paid vacation time (and other similar employment benefits) reduces the employee's reasonable living expenses and thus can be considered by the court in exercising its discretion as to the amount of spousal support to order.

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