What happens when a professional athlete gets divorced? For some, it may be relatively easy to divide earnings between spouses, but for others, things become much more complex. When a player’s earnings come not only from the games they play, but commercials, endorsement deals, bonuses, and appearances—some of which are planned out years in the future—how does the court decide how to split things “in a fair and just manner” between spouses?
SIGN HERE: HOW CONTRACTS DETERMINE MARITAL PROPERTY
When compared to other professions, the career of a professional athlete is relatively short—a reality reflected in most standard athletic contracts. These often stipulate that, rather than a guarantee, athletes have only an expectancy of receiving future income. For example, the NFL’s standard player contract contains numerous provisions that could cause a player to be terminated, such as ineptitude, underperformance or misconduct. Contracts that do not clearly identify a guarantee of future payment would, in most instances, not be considered marital property and therefore would not be subject to division. Such guarantees, however, are very much the exception to the rule, and only applicable under certain circumstances, such as death, sustaining an injury during a game or official practice or a disability. In all other instances, the athlete must fulfill the terms laid out in his or her contract in order to receive the income.
When it comes to athletic contracts and divorce, here are two arguments we often see:
Argument for Marital Property – Contracts that contain substantial guarantees of income that are entered into during the marriage have a likelihood of being ruled marital property. Here the contract would be similar to two spouses signing the deed to a house, which would also be considered marital property.
Argument for Separate Property – Any contract stipulating future income that has not yet been received could reasonably be considered separate property, which would not necessitate division upon dissolution of the marriage. A court might still take this income into consideration, however, by awarding an athlete’s spouse a sizable alimony.
There are exceptions to every rule, of course, and it is possible for guaranteed income to be considered separate property. In Loaiza v. Loaiza, for example, the ex-wife of a player for the Toronto Blue Jays appealed a trial court’s decision that postdivorce payments under her ex-husband’s contract be characterized as separate property. She claimed the court had failed to properly determine when he acquired the right to be paid under his contract. According to her claim, while her ex-husband was required to render services in order to receive payment, there were situations, such as hospitalization for an injury, that would still entitle him to payment without actually playing baseball. Therefore, it was argued that her ex-husband was not required to render services before being entitled to payment.
However, the appellate court ruled that the guaranteed provision established in the contract could in no way be construed to excuse the husband from fulfilling his obligations. Therefore, the right to payment did not accrue until he performed his services as a highly skilled baseball player. The appellate court upheld the trial court’s ruling that payments made to the ex-husband after their divorce was finalized were correctly characterized as separate property.
Provisions such as those found in Loaiza v. Loaiza and the timing of a divorce can easily add a layer of complexity to the settlement. In Anderson v. Anderson, the court ruled that income from an NBA contract, which included both future payments as well as payments already received by the player be separate property not subject to division. The decision was appealed, however, and it was ultimately decided that, while future payments were dependent on services that had not yet been rendered, payments that had already been received were fair game and could be divided.
SOMETHING EXTRA: HOW TO DIVIDE A BONUS
The court will often consider bonuses to be “vested” or guaranteed rights and, therefore, marital property. It falls upon the attorney to show that this is not always the case and that the income derived from these bonuses may not be disbursed for years to come.
For example, the NFL salary cap represents the total amount of money the league has to pay players—base salaries as well as signing and performance bonuses. Because these bonuses count against the cap, they are never paid out all at once but are divided equally over the number of years in a player’s contract. For example, a $5 million signing bonus for a five-year contract would be paid out $1 million a year. In this example, the athlete expects to receive a bonus, but because time is part of the equation, the question of whether this income is guaranteed must be considered. We’ll dive a little deeper into this argument below. Before that, however, let’s quickly review the:
Argument for Marital Property – If the bonus was given and received before the marriage was dissolved, the court’s course is clear. This income would, quite literally, be money in the bank.
Argument for Separate Property – Returning to our example of an athlete receiving a bonus over five years—are his or her deferred bonus payments considered guaranteed income? Not necessarily, because a lot can happen over the course of those five years and bonuses can be forfeited. If a contract stipulates that a player must complete the full length of his or her contract, he or she may be responsible for the amount awarded to an ex-spouse should the player be injured or cut from the team for any reason. The court must understand that, with few exceptions, the career of any professional athlete is brief. If a bonus depends on a player’s continued employment, the risk of having to return that bonus is high and, frankly, unnecessary. Put in the proper context, the court may be persuaded by this argument.
Also important is the fact that different leagues and sports structure their playoffs and playoff bonuses in different ways, which may impact how they are viewed by the court. Several past cases have shown that these bonuses, as well as incentive clauses, are given only in return for services performed. If these have not been performed at the time of the divorce, these bonuses would not be considered marital property but rather future income.
TRADING ON YOUR NAME: HOW ENDORSEMENTS FACTOR INTO MARITAL PROPERTY
Endorsement opportunities are common for successful athletes, even those who do not have national recognition. The issue here is a common one: Is an endorsement contract signed during a marriage but requiring postdivorce services considered separate or marital property?
Argument for Marital Property – Because large endorsement contracts are typically given only to the most successful athletes, an argument can be made that it was not only the player but both spouses who contributed their time and effort, over a period of years, to get the athlete into a position where he or she would be offered such an opportunity. Additionally, companies want athletes in commercials, not because of their acting skill but because of their name and image. A spouse can claim that they contributed to the athlete’s name and image, and that their work and effort in this area entitles them to a portion of the proceeds resulting from it. After all, they might reason, if a married athlete does not possess a positive image in the moment, it is highly unlikely he or she will acquire it postdivorce, years down the road.
Argument for Separate Property – Many requirements in any endorsement contract will be spread out over a set amount of time. Depending on the nature of what is required of the athlete, for example a short, in-person appearance versus a role in a motion picture, the court might rule that the ex-spouse is not entitled to the proceeds resulting from work that is taking place after the marriage has been dissolved.
As with so much in life, reasonable people will disagree on all the above. Opinions will differ on what constitutes marital versus separate property, but it will fall to the attorney to make his or her client’s case and convince the court. Fortunately, there is a healthy record of case law supporting both fair and favorable outcomes.
Brad LaMorgese is managing partner at the Family Law boutique Orsinger, Nelson, Downing & Anderson, LLP. He regularly represents clients in trials and appeals involving high stakes family law legal disputes, including matters involving interstate jurisdiction disputes, prenuptial agreement litigation, property divisions, custody, and visitation.
