Court: All Options Proceeds Community Property

January 5, 2006 ( - A state of Washington appeals court has ruled that an ex-Microsoft worker can't keep any of the sale proceeds from his exercised stock options separate from his divorce case.

The appeals opinion, written by Judge C. Kenneth Grosse for the Washington Court of Appeals, Division One, asserted that it was impossible to trace the residual amounts in Shawn Rose’s investment accounts to the exercised options from where they came. That’s why all proceeds in all accounts are legally considered community property for the purposes of Rose’s divorce, Grosse ruled.

Because Judge Mary Roberts of King County Superior Court failed to classify the proceeds in Rose’s four investment accounts as entirely community property – a “crucial” determination to dividing the marital assets between Rose and estranged wife Joyce Shui – the appellate court threw out the lower court decision.

After hearing the case without a jury, Roberts had characterized the proceeds of the stock options contained in Rose’s investment accounts as 61.073% Rose’s. The court then awarded Shui 75% of the couple’s community property and allowed each party to keep all of their own separate property.

In appealing the Roberts ruling, Shui claimed the proceeds of the options sale became so intermixed after being deposited into the four investment accounts that it was impossible to figure out what part of the proceeds was the husband’s separate property and what was community property.

According to the appellate ruling, Rose was hired by Microsoft in 1991. As part of his compensation package, he was granted unvested options to purchase shares of Microsoft stock. The grant of additional unvested options in 1993 and 1994 coincided with his performance reviews. The parties married two months after the husband received the 1994 options.

In late 1998 and early 1999, the husband exercised the 1991, 1993, and 1994 options, along with others granted during the marriage, in anticipation of his departure from Microsoft, and then sold the stock for $6.5 million. He initially deposited the proceeds in an investment account held in his name before finally distributing the funds among four different investments accounts. Only one of those accounts was held jointly with Shui.

When the couple divorced in 2002, the trial court characterized 61% of the proceeds of the stock options contained in the four investment accounts as the husband’s separate property. The wife appealed, questioning the ruling as to the options granted in 1991, 1993, and 1994.

The ruling in Shui v. Rose, Wash. Ct. App., No. 54539-6-I, 12/19/05 is  here .