Niroo v. Niroo

MURPHY, Chief Judge. The question presented is whether anticipated renewal commissions on insurance policies sold by a spouse during marriage but accruing after dissolution of the marriage are “marital property” within the meaning of the Property Disposition in Divorce and Annulment Act (the Act), Maryland Code (1984), § 8-201(e) of the Family Law Article; this section defines “marital property” as “property, however titled, acquired by 1 or both parties during the marriage. (2) ‘Marital property’ does not include property: (i) acquired before the marriage; (ii) acquired by inheritance or gift from a third party; (iii) excluded by valid agreement; or (iv) directly traceable to any of these sources.” I. The appellant, David Niroo (the husband) contests a monetary award to the wife imposed pursuant to a divorce decree of the Circuit Court for Montgomery County (Messitte, J.). In particular, he challenges the determination of the trial judge that future renewal commissions accruing on insurance policies sold by him or his agents during the marriage were marital property. ²²⁹ The couple was married in 1977.

In 1978, the husband began work as an insurance salesman for Pennsylvania Life Insurance Company (Penn Life); pursuant to contract, he received commissions on individual policies sold. In 1980, he became a branch manager and entered into agency manager agreements with Penn Life and the Executive Fund Life Insurance Company. Under these agreements, the husband shared in the profits (and the losses) of the company as determined by specific “office codes,” or blocks of insurance, assigned to agents under him and for whom he was responsible. The husband was entitled under the agreements to receive income derived from net profits generated if and when insurance policies coming under his office codes were renewed, provided that certain conditions in the agency manager agreements were satisfied.

In particular, the contracts included, inter alia, a covenant not to compete, an exclusivity clause, and a required renewal volume. The agreement specified that the husband’s “proportional share of the Agency profits shall be vested in him even if he is permanently and totally disabled, or after his death in his heirs and assigns.” At trial, both parties presented expert testimony as to the present day value of these renewal commissions after expenses were deducted, i.e., what the husband could expect to receive from the renewal policies. This valuation was based on industry “persistency rates,” explained by the husband’s expert witness as “the portion of the premiums that are in force in one year that renew and hence are paid and are still in force in the following year.” This expert included only those renewal commission profits on policies sold during the marriage. The trial judge determined that the husband’s interest in the renewal income constituted marital property.

He accepted the valuation testimony of the husband’s expert and found the present discounted profit value of the renewal commissions to be $410,000. The court also took into account various “advances” made to the husband by the insurance companies which were chargeable against renew ²³⁰ al commissions. Under the agreements, these advances were considered as loans, repayable on demand. At the time of trial, the husband was indebted to the companies in the amount of $267,000.

In assessing the proper amount to be awarded to the wife, the trial judge determined that although the renewal income was marital property, the husband’s $267,000 debt was not marital debt, but instead was to be taken into account as an “economic circumstance.” The court arrived at a final monetary award of $200,000; in doing so, it considered various statutory factors, including the economic circumstances of the parties. The husband appealed. We granted certiorari prior to consideration of the appeal by the Court of Special Appeals to consider the important question involved in the case.

II

In 1978, in response to recommendations proposed by a special commission established by the Governor, the General Assembly enacted ch. 794, the Property Disposition in Divorce and Annulment Act, which significantly changed traditional notions as to property rights between spouses upon dissolution of the marriage. 1 Enacted to remedy the inequities inherent under the previous system of allowing the property to remain with whichever spouse held title to it during the marriage, the Act, now codified as Code (1984), §§ 8-201 through 8-213 of the Family Law Article, mandates that title alone is not the determining factor in disposing of marital assets. Although the statute does not authorize the court to transfer title, nor require that all property be evenly divided, it does allow the trial judge to make a ²³¹ monetary adjustment to more fairly and equitably allocate the various property interests between the divorcing spouses. In essence, as we recently explained in Unkle v. Unkle, 305 Md. 587, 595 , 505 A.2d 849 (1986), the statute provides that “nonmonetary contributions within a marriage should be recognized in the event that a marriage is dissolved; that a spouse whose activities do not include the production of income may nevertheless have contributed toward the acquisition of property by either or both spouses during the marriage; that when a marriage is dissolved the property interests of the spouses should be adjusted fairly and equitably, with careful consideration given to both monetary and nonmonetary contributions made by the respective spouses; and that the accomplishment of these objectives necessitates that there be a departure from the inequity inherent in Maryland’s old ‘title’ system of dealing with the marital property of divorcing spouses.” To effectuate this realignment of assets, the statute imposes a three-step process whereby the trial judge first determines what property is marital property, § 8-203(a); then assigns a value to it, § 8-204; and thereafter may grant a monetary award to whichever spouse would not otherwise receive his or her fair share of the marital assets, § 8-205(a). In determining the proper amount and method of payment of this award, the court must consider the following factors provided under § 8-205(a): “(1) the contributions, monetary and nonmonetary, of each party to the well-being of the family; (2) the value of all property interests of each party; (3) the economic circumstances of each party at the time the award is to be made; (4) the circumstances that contributed to the estrangement of the parties; (5) the duration of the marriage; (6) the age of each party; ²³² (7) the physical and mental condition of each party; (8) how and when specific marital property was acquired, including the effort expended by each party in accumulating the marital property; (9) any award of alimony and any award or other provision that the court has made with respect to family use personal property or the family home; and (10) any other factor that the court considers necessary or appropriate to consider in order to arrive at a fair and equitable monetary award.” III.

The husband first challenges the trial judge’s determination that renewal commissions on policies sold during the marriage are marital property. He asserts that due to the speculative and contingent nature of these commissions, they are not within the definition of marital property, as contemplated by the legislature in § 8-201(e). Furthermore, he argues that as it is necessary for him to “work” and nurture these accounts through activities performed after the marriage was dissolved, the income thereby derived is not “acquired” during the marriage. Thus, he contends, classification of renewal commissions as marital property would improperly give his former wife the fruits of his future efforts and would penalize him if the renewal commissions were not actually realized, As a preliminary matter, we have repeatedly noted that the meaning of property within the statutory definition of “marital property” encompassed in § 8-201(e) “ ‘embraces everything which has exchangeable value or goes to make up a man’s wealth—every interest or estate which the law regards of sufficient value for judicial recognition.’ ” Deering v. Deering, 292 Md. 115, 125 , 437 A.2d 883 (1981), quoting Diffendall v. Diffendall, 239 Md. 32, 36 , 209 A.2d 914 (1965).

Accord Queen v. Queen, 308 Md. 574, 577 , 521 A.2d 320 (1987); Unkle v. Unkle, 305 Md. 587, 590 , 505 A.2d 849 (1986); Archer v. Archer, 303 Md. 347, 356 , 493 A.2d 1074 (1985). Furthermore, in Unkle, supra, 305 Md. at 590 , ²³³ 505 A.2d 849 , in considering the meaning of “property” under the Act, we quoted from Bouse v. Hutzler, 180 Md. 682, 686 , 26 A.2d 767 (1942), that “when used without express or implied qualifications, [property] may reasonably be construed to include obligations, rights and other intangibles as well as physical things.” Under this broad concept of property, we have found that marital property includes: that portion of a husband’s workers’ compensation award for permanent partial disability which compensated for wages lost during the marriage, Queen v. Queen, supra; pension rights accumulated during the marriage, Deering v. Deering, supra; and a work-related contributory disability pension plan, Lookingbill v. Lookingbill, 301 Md. 283 , 483 A.2d 1 (1984). On the other hand, we have found the following interests not includable as marital property: an inchoate personal injury claim arising from an accident occurring during the marriage, Unkle, supra, and a medical degree or license, Archer, supra. In Deering, supra, we found that the right to pension benefits accumulated during marriage was a contractual right and therefore enforceable as a property right rather than as a mere conditional expectation. 2 There, we said that the proper analysis to be applied was, first, to decide whether the property right was acquired during the marriage and secondly, whether it is equitable to include it as marital property, without regard to whether the right is vested or not.

Moreover, we noted that the fact that the right to the pension benefit may be contingent upon continued employment did not matter, as such contingent future interests constituted property. Finally, it was clear in Deering that both spouses were relying on the pension benefits to provide for their future, so that an equitable distribution of the benefits was indeed proper. See also Lookingbill v. Lookingbill, 301 Md. 283 , 483 A.2d 1 (1984). ²³⁴ Recognizing the employment related nature of workers’ compensation benefits, we held in Queen, supra, that that portion of the husband’s award which compensated for the loss of earning capacity during the marriage was marital property, while his loss of future earning capacity arising after dissolution of the marriage was not marital property. We reached a similar conclusion in Unkle v. Unkle, supra, finding that a personal injury claim arising from an injury which occurred while the injured spouse was married was so uniquely personal that it could not be considered marital property “acquired” during the marriage, as required by the statute.

Instead, we found that the claim “arose from purely fortuitous circumstances and not from any on-going marital initiative to acquire marital assets. The claim simply accrued to the injured spouse as a result of an accident and was his separate property.” 305 Md. at 596 , 505 A.2d 849 . The personal nature of a medical degree and license to practice medicine was found dispositive in Archer v. Archer, supra, where we held that the degree should not be considered part of the couple’s marital assets. In distinguishing a medical degree from the contractual right to receive pension benefits, we found that the professional degree represented a “mere expectancy of future enhanced income____ The [degree] is but an intellectual attainment; it is not a present property interest.

It is personal to the holder; it cannot be sold, transferred, pledged or inherited. It does not have an assignable value nor does it represent a guarantee of receipt of a set monetary amount in the future, such as pension benefits.” 303 Md. at 357 , 493 A.2d 1074 . When analyzed under the principles set forth in our cases, we think it clear that contractually vested rights in renewal commissions are a type of property interest encompassed within the definition of marital property under § 8-201(e). That an insurance agent has a vested right in commissions on renewal premiums when provided for by ²³⁵ contract is well settled.

Travelers Ins. Co. v. Hermann, 154 Md. 171, 185 , 140 A. 64 (1928); see 16B Appleman, Insurance Law and Practice, § 9001 (1981) and Couch on Insurance 2d, § 26A:231 (1981) for citations from other jurisdictions. This contractual right was clearly established in the husband’s agency contract whereby Penn Life agreed to pay him a stipulated percentage of renewal premiums collected in the future. Indeed, this right to renewal premiums cannot be terminated unilaterally by the company, but instead would require an affirmative surrender by the agent to forfeit the future commissions due.

See Couch on Insurance, supra, at § 26A:232. In this case, the agency contract provided that should the husband die or become disabled, his right to receive the renewal commissions, as well as his heirs’ right thereto, would not be affected. We note also that under the agency agreements the husband’s right to the renewal commission was assignable with the prior written consent of the company. See also Fitch v. Pacific Life Ins.

Co., 54 Cal.App.3d 140 , 126 Cal.Rptr. 445 (1975), in which the court upheld the assignment of the right to future renewal commissions between an insurance agent and the general agent, reasoning that the assignment was not rendered uncertain because the insurance agent was assigning commissions that he had not yet received. Thus, considering the legal attributes of a contractual right to renewal commissions, the husband’s right amounts to more than a “mere expectancy,” or a “mere historical possibility of gain” as he alternatively characterizes it. The husband claims that after the dissolution of the marriage, he must continue to “service” his accounts after their initial procurement if he is to realize the renewal commissions. He thereby seeks to distinguish his situation from that involving pension