## Facts

- Mary K. Nelson and Harold F. Nelson, Jr. dissolved their marriage; the trial court characterized and divided multiple assets in an interlocutory judgment.
- Harold worked for Ampex Corporation and received employee stock options during and after the marriage.
- The trial court addressed three option categories: (1) granted and exercisable before separation, (2) granted before separation but exercisable after separation (“intermediate options”), and (3) granted after separation (“postseparation options”).
- The trial court treated: (1) pre-separation exercisable options as entirely community property; (2) intermediate options as partly community and partly separate, apportioned by a time rule; and (3) postseparation options as Harold’s separate property.
- A year-end bonus paid about six months after separation was characterized as Harold’s separate property.
- The trial court characterized as community property both a one-half interest in Maui real property and the parties’ Half Moon Bay residence, and it made related valuations.
- Both parties appealed portions of the property characterization and division.

## Issues

1. Whether stock options granted before separation but not exercisable until after separation have a community property component, and whether the trial court’s time-rule apportionment method was proper.
2. Whether stock options granted after separation and a bonus paid after separation were correctly characterized as separate property.
3. Whether the Maui property interest and other real property characterizations and valuations were supported by the evidence.

## Decision

- The Court of Appeal affirmed the trial court’s characterization that intermediate options were partly community and partly separate, rejecting the argument that they had no community component.
- The Court of Appeal upheld the trial court’s discretion to apply a time-rule formula apportioning the intermediate options between community and separate interests.
- The Court of Appeal affirmed the characterization of postseparation options and the postseparation bonus as Harold’s separate property based on substantial evidence regarding when they were earned or attributable.
- The Court of Appeal affirmed the characterization and valuation of the Maui property interest and the Half Moon Bay residence as community property.
- The judgment was largely affirmed, with a limited remand on appellate attorney’s fees and costs.

## Legal Principles

- Employment benefits akin to deferred compensation (including stock options) may have a community property component when granted, at least in part, for services performed during the marriage, even if not exercisable at separation.
- Trial courts have broad discretion to select an equitable time-rule method to apportion a mixed community/separate interest in stock options granted during marriage but exercisable after separation.
- A permissible apportionment approach measures the community share by the ratio of time from option grant to separation over time from grant to exercisability, applied to the option shares at issue.
- Compensation or benefits attributable to postseparation services or not earned/guaranteed during the marriage may be classified as separate property.
- Property characterization and valuation determinations are upheld on appeal when supported by substantial evidence and not shown to be an abuse of discretion.

## Conclusion

The court held that stock options granted during marriage but exercisable after separation can be apportioned between community and separate property using an equitable time rule, while benefits tied to postseparation efforts—such as later-granted options and a postseparation bonus—may be treated as separate property; the trial court’s real property characterizations and valuations were also affirmed.


In re Marriage of Nelson, 177 Cal. App. 3d 150, 222 Cal. Rptr. 790 (Cal. Ct. App. 1986)