Can Utah courts include restricted stock units in income calculations for divorce proceedings? Merrill v. Merrill Explained

In Merrill v. Merrill, the Utah Court of Appeals addressed several important issues regarding income calculation, alimony determination, and property division in divorce proceedings, providing valuable guidance on how courts handle complex financial assets in marital dissolution cases.

Background and Facts

John and Lutisha Merrill divorced after 18 years of marriage. During their marriage, they maintained a comfortable standard of living through substantial incomes. Lutisha operated her own advertising agency, 360 Touch LLC, which experienced a 37% revenue decline during COVID-19. John worked as CFO of a publicly traded software company, earning a $225,000 base salary plus bonuses and restricted stock units (RSUs). The parties disputed various aspects of the court’s income calculations, including whether John’s vested but unliquidated RSUs should be included in his gross income for alimony and child support purposes.

Key Legal Issues

The court addressed multiple issues: (1) whether income imputation to Lutisha was appropriate given pandemic impacts on her business, (2) whether John’s RSUs constituted “gross income” under Utah Code section 78B-12-203(1), (3) proper tax rate calculations for determining net income, and (4) whether including RSUs in both income calculations and marital property division constituted improper “double-dipping.”

Court’s Analysis and Holding

The court held that vested RSUs constitute gross income even when subject to trading restrictions. The court explained that “gross income” includes “prospective income from any source” and that vested stock received in exchange for labor falls squarely within this definition. The court rejected John’s argument that unliquidated stock cannot be valued, noting that all income categories involve predictions of future value based on current data. Importantly, the court clarified that while voluntary unemployment or underemployment may be relevant to income imputation analysis, it is not a statutory prerequisite under current Utah law, which requires only that judges “enter findings of fact as to the evidentiary basis for the imputation.”

Practice Implications

This decision provides important guidance for practitioners handling divorces involving stock compensation. Courts will include vested RSUs in income calculations despite trading restrictions, provided there is insufficient evidence that such inclusion creates genuine inequity. The decision also reinforces that courts have broad discretion in income determinations and property division, with appellants bearing a heavy burden to demonstrate abuse of discretion. However, the court remanded for clarification of tax rate calculations, emphasizing the need for consistency between stated findings and applied calculations.