Business - Idaho Assets from United Airlines '90s bankruptcy divisible in divorce

Convertible notes issued to a husband as the result of his employer's bankruptcy may be divided as community property in his divorce, the Idaho Supreme Court has ruled.

The husband worked as a pilot for United Airlines during his marriage. As a result of United's bankruptcy in the early 90s, pilots lost their retirement plan. They were partly compensated by insurance payments from the Pension Benefit Guaranty Corporation (PBGC). In addition, pilots who met certain requirements could also receive convertible notes and stock allocations.

The parties divorced in 2005. Under the terms of their property settlement, the wife was entitled to 50 percent of the husband's "pension" benefits from either United or the PBGC.

After the divorce, the husband received $56,000 in convertible notes and 2,000 shares of United stock.

The husband argued that these distributions were not community property because his right to them vested post-divorce.

The court concluded that the wife had waived any right to the United stock pursuant to language in the divorce agreement waiving her interest in property under the "control" of the husband but not specifically awarded.

However, the court said that the convertible notes were subject to division pursuant to the pension clause in the parties' divorce agreement.

"[I]t is uncontroverted ... that the notes were meant to compensate the pilots, at least in part, for the loss of their pension. ...

"Thus, the district court was correct to affirm the magistrate court's decision that the notes were not 'an omitted asset, but rather [were] controlled by paragraph four [of the property settlement agreement] under the division of retirement benefit and specifically under amounts to be received from United Airlines,'" the court said.

Idaho Supreme Court. Borley v. Smith, No. 35751. May 11, 2010. Lawyers USA No. 993-1936.

Published: Tue, Jun 1, 2010