Divorce Settlements

The Value of Leave

Who hasn’t doubted the value of a vacation day or two during busy times at work? The rest and respite provided by taking leave for a few days can often recharge one’s batteries, as well as make room for family time and duties at home.

But the North Carolina Court of Appeals was thinking of a different “value of leave” when it decided Rathcamp v. Danello on December 4, 2018.  In the Rathkamp case, the Court of Appeals (COA) addressed an appeal by both parties to a 2017 equitable distribution order from Mecklenburg County related to the parties’ divorce. One of the issues was valuation and classification of the vacation and sick leave of the former husband.

The ex-wife claimed that the judge had erred in failing to classify, value and divide her former husband’s job-related sick leave or annual leave. The judge made a finding in his order that there was insufficient evidence to allow classification, valuation or distribution of the accrued leave.

What did the former wife have for proof? The COA said that there was a “Statement of Earnings and Leave” that documented the ex-husband’s accrued leave as of 6 days after the date of separation, but there was no proof of its value, only the affidavit of the ex-wife that it was worth $56,218.

The COA noted that the record showed annual leave of 83 hours and sick leave of about 440 hours for the ex-husband; there was no evidence, however, no evidence in the record supported the classification and valuation claimed by the ex-wife.  Noting that case law provides that the “… party claiming that property is marital property must also provide evidence by which that property is to be valued by the trial court,” the COA affirmed the trial court’s finding of insufficient evidence, which meant a loss of about $28,000 by the former wife.

What went wrong? The ex-wife should have obtained documents from the former husband’s employer (such as an employee manual) which would have stated whether there was a cash value to accrued sick leave and vacation time.  A current or former employee familiar with the policy of the employer could have also given testimony to back up the ex-wife’s assertion of a value of over $56,000.  With such a value at stake, it certainly would make sense for the ex-wife and her attorney to spend some time nailing down the means of establishing value for the accrued leave.

The issue is not unique to North Carolina.  While half a dozen states have clearly held that vacation time and leave are marital or community property, three states – Illinois, Kentucky and Maryland – have stated that leave may not be distributed as marital property.  The Maryland case found that leave was “alternative wages,” not deferred compensation; the appellate court held that accrued leave was less tangible, more difficult to value and more personal than pension and retirement benefits, and thus it was a nonmarital asset.

In some cases, leave can have little or no value.  In the Maryland case, for example, the wife would have lost her sick leave (about $11,000) if she terminated employment.  It was only good for taking time off for health reasons, not for cashing in the time.

The same is not true, however, for military leave.  Servicemembers get 30 days of paid leave each year, accruing at 2.5 days a month.  It is worth the same amount as the base pay for each day of leave, and thus one can determine the value of an Army sergeant’s accrued leave by looking at the Leave and Earnings Statement (LES); the row entitled “Leave” will show in the box marked “CR BAL” the number of days of existing leave that have been earned as of that pay period. If the sergeant’s base pay is $4,000 a month, and his or her LES shows 60 for “CR BAL,” then the leave is worth $8,000.

It takes some time to establish the rules for valuing leave.  I was tasked with writing a brief for a Colorado attorney who needed to determine the value of the 65 days of leave shown on the LES of the husband, an Army warrant officer.  I finally figured out the location of the rules and the statute governing this issue for military cases, and I’ve finished the brief; it will be presented to the court in Colorado Springs in April.

It’s surprising how seldom accrued leave comes up in settlement negotiations.  Most of the time the parties seem unaware of the value of this asset.  It’s truly “hidden money” for some people who are going through a divorce.  In recognition of this potential problem, I wrote an article several years ago entitled “Hidden Money in Military Divorce Cases” which deals with this and other matters which may be overlooked in the divorce process.

The case is: Rathkamp v. Danello, No. COA 17-760, 2018 N.C. App. LEXIS 1190, 2018 WL 6318307 (N.C. Ct. App., Dec. 4, 2018).