Profit-sharing plans are a form of retirement contributions where an employee receives a share of the business’s profits. The Virginia Court of Appeals recently considered an appeal where a husband was alleged to have failed to disclose his Ernst & Young profit-sharing plan, despite the provisions in the Property Settlement Agreement (PSA) that granted half of the husband’s retirement plan benefits to the wife.
The PSA in the case of Dance v. Dance divided the husband’s entire pension in half, but there was no reference to the profit-sharing plan in the sections regarding retirement benefits. The PSA further certified that both parties had fully disclosed their retirement accounts or benefits of any nature.
At the circuit court, the husband testified that the profit-sharing plan was not a retirement asset, but a form of contingent future earnings that may or not be paid to him. The husband further stated that his wife was aware of the difference between these retirement benefits, but the wife stated she was unaware and was never informed about a profit-sharing plan. She claimed that if she was aware of the profit-sharing plan, she would have included it specifically in the PSA. The circuit court found that the husband did not commit fraud, but that he violated the PSA with regard to disclosure of the plan. The circuit court ordered that the husband had to pay the wife one-half of the profit-sharing plan, without an equitable distribution hearing.
After motions to reconsider by both parties, the Virginia Court of Appeals upheld the circuit court’s ruling about the PSA violation. The circuit court emphasized that it will not retry facts, and it found the wife’s testimony and lack of knowledge about the plan credible. Further, since the PSA did not mention the profit-sharing plan, the circuit court correctly had the ability to determine whether the husband or wife’s tax rate would apply, concluding that the husband’s tax rate was proper.
This case demonstrates that profit-sharing plans should be disclosed in a PSA. A profit-sharing plan that also has aspects of a retirement benefits plan or is disguised as something different will similarly need to be disclosed. Even if the PSA does not specifically mention this type of pension or benefit, the PSA may include a statement that all forms of benefits have been disclosed. If a party to a divorce proceeding certifies that all retirement accounts or benefits of any nature have been disclosed, a person may be liable for violating the agreement if a profit-sharing or benefits plan is not disclosed.