Court of Appeals confirms that severance pay that is not tied to an agreement not to compete is marital property

Posted Monday, May 3rd, 2010 by Gregory Forman
Filed under Attorney's Fees, Equitable Distribution/Property Division, Family Court Procedure, Of Interest to Family Law Attorneys, South Carolina Appellate Decisions, South Carolina Specific

When a spouse becomes terminated in the midst of marital litigation there are frequent disputes whether any severance should be treated as income to the terminated spouse or as marital property.  Within the past few years I have had a couple of cases in which the parties disputed whether these payments were income or marital property.  South Carolina family law has previously implied a distinction between severance payments based on an agreement not to compete–which have been treated as income to the terminated spouse–and severance payments designed to compensate for past service, which I have always seen as property and as subject to equitable distribution (to the extent the severance is based upon employment services during the marriage). The May 3, 2010 Court of Appeals decision in Farmer v. Farmer, 388 S.C. 50, 694 S.E.2d 47 (2010),  establishes that, unless the severance is coupled with or conditioned upon an agreement not to compete, the severance is to be treated as marital property.

In Farmer, Husband received $771,992.87 in severance at approximately the time the parties’ separated.  While Husband had been subject to a non-compete agreement with this company prior to this termination, the severance agreement discontinued that restraint.  Further the agreement expressly stated twice that it was to compensate Husband for his contributions to the business venture and appreciation of business assets.  Given this, the Court of Appeals affirmed that it was appropriate to treat the severance as marital property and award Wife half.

The other issue on appeal was Wife’s entitlement to attorney’s fees.  The family court awarded Wife $9,416.25 in attorney’s fees and $8,000.00 in costs.  Husband appealed, arguing that the family court had failed to comply with Rule 26(a), SCRFC in making detailed factual findings to support the fee award.

There are two steps the family court must go through in awarding fees.  The first step is determining whether a party is entitled to fees, the test for which is set forth in E.D.M. v. T.A.M., 307 S.C. 471, 476-77, 415 S.E.2d 812, 816 (1992).  In deciding whether to award attorney’s fees and costs the family court must consider: (1) each party’s ability to pay his or her own fee; (2) the beneficial results obtained by the attorney; (3) the parties’ respective financial conditions; and (4) the effect of the fee on each party’s standard of living.  Once the family court has decided that an award of fees to one party is justified, it looks to the factors set forth in Glasscock v. Glasscock, 304 S.C. 158, 161, 403 S.E.2d 313, 315 (1991) to determine the amount of fee that should be awarded.  Those factors are: (1) the nature, extent, and difficulty of the case; (2) the time necessarily devoted to the case; (3) professional standing of counsel; (4) contingency of compensation; (5) beneficial results obtained; and (6) customary legal fees for similar services.

In Farmer, the family court had made the factual findings required under Glasscock on the amount of fees to be awarded but failed to make the factual findings required by E.D.M. on whether an award of fees was justified.  The Court of Appeals still affirmed the fee award, noting it had the right to make its own factual findings based on the record before it and that Wife prevailing on the one contested issue (her entitlement to a share of Husband’s severance) justified the award of fees.

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