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OVERVIEW OF PENSION RIGHTS AND DIVORCE
© 1994 National Legal Research Group, Inc.
Given the highly technical nature of pension plans, along with the substantial amounts of money at stake with most pensions, it is not surprising that many disputes and many appellate cases center on these assets. Recent cases show that equitable distribution of pension rights is still a fertile area for litigation, with many issues still unresolved.
In addition to the more standard issues relating to classification, valuation, and distribution, quite a few recent appeals have presented questions about governmental plans, post-divorce increases, early retirement benefits, and survivorship rights. This article summarizes recent cases, grouped according to the issues presented in the appeals.
I. Classification Issues
Determining the Marital Portion. Whenever the period of a spouse's participation in a pension does not exactly coincide with the marriage, classification issues may arise.
In one type of scenario, the employee begins participating in the pension before the marriage. When a portion of the pension is earned before the marriage, the spouse seeking a share of the pension must demonstrate what portion of the pension is marital, a Virginia appeals court held. Gamer v. Gamer , ___ Va. App. ___, 429 S.E.2d 618 (1993).
In a Missouri case where the husband began making contributions to the pension plan almost two years before the parties' marriage, the trial court decided that the plan was wholly marital property because the husband's interest in the plan did not vest until during the marriage. This conclusion was erroneous, the appeals court held. The percentage of contributions made by the husband to his pension plan prior to his marriage represents the percentage of the plan's present value at dissolution which should be characterized as his nonmarital property, the court said. In re Marriage of Daniele , 854 S.W.2d 489 (Mo. Ct. App. 1993).
An Illinois appeals court approved a trial court's decision to award the wife one-half of the husband's entire pension, even though he had been employed for three years before the marriage. Generally, the court observed, the marital portion of a pension should be calculated by the ratio of years the pension accumulated during the marriage to the total years the pension accumulated, but here, the husband alone received benefits from the pension for approximately two years, which offset the years that the pension accumulated before he was married. In re Marriage of Parker , ___ Ill. App. 3d ___, 625 N.E.2d 237 (1993).
When the pensioned spouse's employment begins sometime after the marriage ceremony, the nonemployee's share should be calculated only on the basis of the years of employment during the marriage and not on the total years of the marriage, the Iowa Supreme Court held. The appropriate fraction is the number of years the employee contributed to the plan during the marriage, over the total number of years the employee contributed to the plan before drawing benefits, the court ruled. In re Marriage of Branstetter , 508 N.W.2d 638 (Iowa 1993). A Maryland appeals court, however, said that the marital portion of the pension should be determined by comparing the years of employment during marriage to the total years of employment, even if the employment began sometime after the marriage. Pleasant v. Pleasant , 97 Md. App. 711, 632 A.2d 202 (1993).
In a case where the employee worked and accumulated a pension during marriage and during a lengthy period of separation, the West Virginia Supreme Court upheld the trial court's decision to determine the marital portion of the pension by calculating the length of employment during marriage up until the date of separation. The court rejected the wife's argument that the court should have calculated the marital portion by basing it on the much longer period of time spanning the length of employment during the marriage and the period of separation. The trial court did not abuse its discretion by excluding the period of the separation from the calculation, the court held. Smith v. Smith , ___ W.Va. ___, 438 S.E.2d 582 (1993).
Nonvested Pensions. Nonvested military pension plans are marital property, the South Carolina Court of Appeals held. Hall v. Hall , ___ S.C. ___, 430 S.E.2d 533 (Ct. App. 1993). Most other courts have reached the same conclusion. E.g., Poe v. Poe , 711 S.W.2d 849 (Ky. Ct. App. 1986) (former husband's nonvested military pension held to be property subject to division as marital property). Contra Kirkman v. Kirkman , 555 N.E.2d 1293 (Ind. 1990) (relying on specific statutory language, court held that husband's nonvested military pension was not "property" subject to division). The South Carolina appeals court noted that a service member acquires a vested right to participate in a military pension at the time of enlistment. The pension benefits that the service member stands to acquire upon completing 20 years of active military service would result directly from this right to participate and would be, when received, a form of deferred compensation for his years of service, the court said. The difficulty of determining the exact value of the plan can be avoided by deferring payment of the other spouse's share until the time pension benefits begin, the court added.
Retirement Benefits Versus Disability Benefits. In a Pennsylvania case, the trial court awarded the wife one-third of the future pension payments from the husband's employment as a firefighter. He had begun receiving pension payments when he became disabled and could no longer work as a firefighter, which occurred before he met the normal age and length-of-service requirements for a firefighter's pension. The appeals court approved the award, holding that the payments really constituted payments for retirement rather than disability, because all the benefits were earned prior to the parties' separation, and the husband's disability did not alter the total value of his benefits. His disability enabled him to begin receiving benefits at an earlier age, but the benefits were reduced to account for a longer payout, the court explained. Hayward v. Hayward , ___ Pa. Super. ___, 630 A.2d 1275 (1993).
II. Valuation Issues
Need for Valuation Evidence. In a Virginia case, the husband retired from the military just a year after the parties' marriage, and then worked in civil service employment for the remaining eight years of the marriage. The appeals court said that for either a deferred distribution or a distribution based on the immediate offset method, the spouse claiming to be entitled to a share of the pension must present sufficient evidence to enable the judge to determine what percentage of the pension is the marital share or to determine the present value of the marital share. Where the wife introduced no evidence of the present value of the husband's pension, the record was insufficient for the trial court to award the wife any amount using the immediate offset approach. And although the parties had used $6,000 in marital funds to purchase additional retirement benefits for the husband after he retired from military service and began civil service employment, the wife failed to show the extent to which the payment enhanced the present value of the pension or affected the marital share of the pension. Since the trial court could not determine what portion of the husband's premarital pension may have been transmuted into marital property, it could not award the wife a percentage of the pension benefits. The trial court was not required to award the wife a percentage of the pension merely because a significant disparity may have existed in the value of the parties' respective pensions, the court added. Gamer v. Gamer, supra .
The Ohio Court of Appeals held that it is not necessary for the trial court to determine a present value for a pension fund when the actual division will not occur until benefits are paid. A present value must be determined if that value is going to be immediately divided through liquidation of the fund, by being offset against other marital assets, or by periodic payments from one spouse to the other, the court said. But when division will occur instead at the time benefits are actually paid, it is the projected amount of those payments that is critical, not the value at the time of the hearing. Sprankle v. Sprankle , 87 Ohio App. 3d 129, 621 N.E.3d 1310 (1993); see also In re Marriage of Clabault , 249 Ill. App. 3d 641, 619 N.E.2d 163 (1993) (any error regarding calculation of pension's present value was irrelevant, since court apportioned benefits under reserved jurisdiction approach).
Present Value Calculation. The New Mexico Supreme Court held that when determining the present value of a retirement plan, the trial court not only must discount for the time value of money (interest or investment yield), but also must apply an appropriate discount to account for the possibility that the employee will die before he actually retires. The probability of mortality is not the same as life expectancy, and a life expectancy table cannot be used to calculate the probability of survival to a given age, the court emphasized. A mortality discount can be determined using readily available mortality tables to derive the probability that the employee will survive from the date of dissolution to the date he attains normal retirement age under the particular pension plan. The present value of an employee's interest in a retirement plan, even when the interest is fully vested and matured, is not the same as the employee's right to future payments for the rest of his life discounted only for the time value of money. All during the marriage, the court pointed out, the spouse's right to receive retirement benefits was contingent upon the employee's actual survival; that contingency extends past the dissolution and should be recognized in assigning a present value to the community interest. Ruggles v. Ruggles , ___ N.M. ___, 860 P.2d 182 (1993).
In a North Dakota case, the state's high court declared that the payments expected from a pension must be reduced to the present value, but it nevertheless affirmed a judgment where the trial court had failed to make that reduction. The trial court accepted the wife's method for valuing the pension, computing the value of the payments the husband would receive when he reached age 60, without discounting that sum to the present value. That method of evaluation was erroneous, but under the circumstances the error was not reversible, the appeals court said. The husband's opinion that the retirement was of no value was not legitimate, and he made no effort to introduce evidence of the present value of the retirement, the court explained. "We will not permit a party to take advantage of his duplicity at the trial court level to urge error on appeal," the court said. Anderson v. Anderson , 504 N.W.2d 569, 571 (N.D. 1993).
III. Distribution Issues
Immediate Distribution as Preferred Method. In an abrupt about-face, the New Mexico Supreme Court abandoned its position that pension benefits should be distributed on a "pay as it comes in" basis, and adopted instead an express preference for an immediate distribution. Ruggles v. Ruggles, supra .
The statement in Schweitzer v. Burch , 103 N.M. 612, 711 P.2d 889 (1985), that trial courts must divide community property retirement benefits on a "pay as it comes in" basis was mere dictum, the court said. The preferred method of dealing with these community assets is to treat them as all other community assets are treated upon marriage dissolution - namely, to value, divide, and distribute them, or other assets with equivalent value, to the divorcing spouses. In particular, where the employee's interest is vested and matured, the trial court must adopt as its first priority the making of a "lump-sum" or other equivalent distribution to the nonemployee spouse, the court held.
Lawyers seeking an immediate distribution on behalf of a client in another state may want to read the opinion in Ruggles , where the court examined and criticized the ostensible benefits of deferred distribution. First, the court said, deferred distribution does not live up to the claim that it allocates the risk of forfeiture equally. Instead, the nonemployee spouse risks losing everything if her husband dies before retirement. In the meantime she may lack employment, and her future security will depend entirely on when her former spouse decides to retire.
Second, the court continued, the alleged difficulty of estimating the present value of retirement plans has been overstated. While there are various contingencies that may affect present value, an expert's informed evaluation based on accepted actuarial and statistical techniques does not render the estimate of present value more unacceptably speculative than, say, the computation of earning capacity in a wrongful death case. Third, the reserved jurisdiction method raises many problems not apparent from its deceptively simple formulation. For example, the nonemployee spouse's lawyer may die or leave his firm; the waiting spouse may move out of the court's jurisdiction; the employee spouse may move across the country or retire in a foreign land.
In some cases, the court acknowledged, it will not be possible or practicable to achieve an immediate distribution. One such occasion will arise when the court has no satisfactory evidence upon which to make a finding of present value. Another will relate to the parties' financial circumstances: if there are insufficient assets with which to satisfy or secure a lump-sum distribution, the trial court may be forced to award the nonemployee spouse's share "as it comes in." A third factor, the court noted, would be the undesirability of indirectly or directly forcing the employee spouse to retire prematurely and remove himself from the workplace.
A Florida appeals court held that a deferred distribution of the husband's pension would be unfair and an abuse of discretion, where the wife had been a homemaker throughout the marriage and the husband would not receive any benefits if he died before retirement. Under these circumstances, the wife's entitlement to a share of the pension should not be made contingent upon the husband's survival. Instead, the court decided, the wife should be granted an immediate distribution by awarding her the husband's interest in the marital home. Rogers v. Rogers , 622 So. 2d 96 (Fla. DCA 1993).
Deferred Distribution. The South Carolina Court of Appeals affirmed a decision to award the wife a specified percentage of the husband's nonvested military pension, with payment deferred until he received benefits. The wife would receive a percentage of the benefits only if the plan eventually vested, and if the plan did not vest, neither party would suffer disproportionately with relation to the entire marital estate, the court said. Hall v. Hall, supra .
Equal Division. The West Virginia Supreme Court held that a wife was entitled to one-half of an investment account which the husband had acquired through his employment during the parties' lengthy marriage, along with one-half of the interest the investment had earned since the date of the parties' divorce in 1983. The wife made a significant monetary contribution to the marriage, as well as many other contributions for which she did not receive any sort of financial compensation, the court reasoned. An equal division was required in view of the equal division of the parties' savings account and the evolution of West Virginia law, which now presumptively requires an equal division of marital assets, the court decided. Raley v. Raley , ___ W.Va. ___, 437 S.E.2d 770 (1993).
Nonvested Pensions. The Kentucky Court of Appeals held that a nonvested pension, although marital property, should not be divided until the pension has vested. A distribution at the time of vesting is more equitable than awarding the other spouse a share of the nonvested pension, "because the non-pensioner spouse will receive exactly that portion of the pension to which she is entitled (instead of perhaps receiving an inadequate amount of marital property), while the pensioner spouse will not be unjustly penalized by the unequal distribution of marital property in the event his pension does not vest." Glidewell v. Glidewell , 859 S.W.2d 673, 679 (Ky. Ct. App. 1993).
Cases Involving Two Pensions. When both spouses have a pension of approximately the same value, courts generally do not award each spouse a share of the other's pension, but just award each spouse his or her own pension. In the more typical case, however, one spouse may have a pension which is relatively small compared to the other spouse's pension. Faced with such a scenario, an Illinois appeals court upheld an award which divided the husband's pension equally but did not grant him any share of the wife's pension. This was not an abuse of discretion, the appeals court held, because the wife would not receive her own pension until she was 65 years old, and the benefit from her pension was only $200 per month. In re Marriage of Parker, supra .
Qualified Domestic Relations Orders. A QDRO must be entered in order for a former spouse to acquire an enforceable interest in the other spouse's pension plan, according to an Illinois appeals court. In re Marriage of Norfleet , 243 Ill. App. 3d 925, 612 N.E.2d 939 (1993). The parties' settlement agreement and dissolution decree provided that the husband would pay the wife $50,000 from his IRA or other retirement account, but the husband died before he paid the full amount. The wife then sought entry of a QDRO to enable her to obtain the unpaid amount from the husband's company, where he had a 401(k) plan. The husband had designated the parties' son as the beneficiary of the plan.
As authority for entry of a QDRO, the wife quoted this statement from a federal district court decision: "This conclusion does not mean that the judgment creditor spouses cannot ever reach their ex-spouses' pension benefits. Nothing precludes them from going back to the Superior Court to seek an order which qualifies as a QDRO." Arizona Laborers, Teamsters & Cement Masons, Local 395 Pension Trust Fund v. Nevarez , 661 F. Supp. 365, 368 (D. Ariz. 1987), quoted in In re Marriage of Norfleet, supra , 612 N.E.2d at 943.
The Illinois appeals court held that the wife did not have any interest in the 401(k) plan since no QDRO had been entered before the husband's death. The federal Retirement Equity Act prohibits the creation of any lien or encumbrance on a qualified plan, absent a QDRO, the court said. It rejected the wife's claim that she could seek a QDRO at any time. That claim presupposes some type of interest in the QDRO, yet federal law permits only those assignments which are created in a QDRO, the court observed. "In other words, no QDRO - no interest." In re Marriage of Norfleet, supra , 612 N.E.2d at 943. In a New Jersey case, the court awarded the wife attorney's fees necessitated by the husband's refusal to cooperate in entering QDROs to implement the parties' property settlement agreement for an equal division of his pension. Marx v. Marx , 265 N.J. Super. 418, 627 A.2d 691 (Ch. Div. 1993). After execution of the agreement and entry of the dissolution decree, the husband first took the position that his defined benefit plan should be segregated into two accounts, with the amount of the wife's account fixed as of the date of the complaint and increased only by the interest which would accrue on her account until it was paid. Subsequently, he proposed an order which called for the wife's interest to be set at 50% of the amount contributed to the plan as of the date of the complaint, with interest up until paid. The wife had to hire an expert to explain that it is not possible to establish two separate accounts in a defined benefit plan under the Internal Revenue Code . The expert also stated that the amount of contributions cannot be used to determine the present value of a defined benefit plan. The court rejected the husband's proposals and accepted the wife's proposed QDRO, which called for the plan administrator to determine the coverture fraction and multiply it by the total accrued benefit when the wife became entitled to move her share of the pension benefit to pay status. The court also decided that the wife was entitled to $6,000 in attorney's fees and $1,150 in expert's fees because the husband prolonged the litigation for almost two years without any expert or legal opinion to support his position.
For a good discussion of the genesis and requirements of a QDRO, see Rohrbeck v. Rohrbeck , 318 Md. 28, 566 A.2d 767 (1989).
IV. Public Pensions
Effect of Antialienation Statute. A state law that prohibits a government employee's pension from being subject to execution or any other process does not preclude a court from distributing the pension as property upon marriage dissolution, the Iowa Supreme Court held. The court's opinion includes a list of decisions to the same effect from other states, as well as a persuasive discussion of the policy considerations. In re Marriage of Branstetter, supra.
Along the same lines, New York's high court held that a separation agreement expressly distributing pension benefits as marital property is enforceable and exempt from the statutory antiassignment provision governing teachers' retirement benefits. Equating the rights of the spouse with those of any other creditor for purposes of applying the antiassignment rule is no longer justified now that marriage is recognized as an economic partnership, the court said. It cited numerous cases from other jurisdictions which have reached a similar conclusion. The broad language and reasoning used by the court suggest that its ruling would extend to other types of state and local pensions, and also to court-ordered distribution of pension benefits. Kaplan v. Kaplan , 82 N.Y.2d 300, 624 N.E.2d 656 (1993). Similarly, a Kentucky appeals court held that a state statute precluding attachment of police officers' pensions did not preclude equitable distribution of such a pension as marital property. Cases from other states supported this holding, the court said. The funds contributed to a pension are funds that could have been spent by the family during the marriage, so the pension should be treated as marital property absent a statute unequivocally stating otherwise, the court reasoned. Glidewell v. Glidewell, supra.
In Missouri, however, a state statute now specifically precludes courts from distributing retirement benefits for Missouri teachers as marital property. See Mallams v. Mallams , 861 S.W.2d 822 (Mo. Ct. App. 1993).
Deferred Distribution. A deferred distribution can be ordered for a governmental pension even though such pensions are not covered by the Employee Retirement Income Security Act and even though such pensions may refuse to recognize QDROs, an Ohio appeals court held. It rejected the husband's argument that in such a case the trial court must order a present division of the pension through an offsetting award or installment payments. Sprankle v. Sprankle, supra.
The court approved a decree which ordered the husband to pay the wife a set amount each month as her share of his teacher's pension once he began to receive payments. The decree stated that if in the future the state teacher's pension system became subject to the Employee Retirement Income Security Act or consented to use of QDROs, a QDRO would be entered. It is generally preferable, the court commented, to disentangle the parties' economic affairs by an immediate division of pension benefits, but when that is not viable, a QDRO is a good compromise because the nonparticipant spouse can look directly to the pension fund for benefits rather than having to look to the participant spouse. Interplay with Social Security. Some employees are exempt from paying Social Security because they have a public or government pension plan in lieu of Social Security. A Pennsylvania appeals court held that in such cases the pension should be valued by deducting the hypothetical value of the employee's Social Security benefits. Cornbleth v. Cornbleth , 397 Pa. Super. 421, 580 A.2d 369 (1990).
An Ohio court, however, refused to adopt that view and held that a portion of an employee's civil service pension should not be exempted from the marital estate to the extent that it is in lieu of Social Security benefits. It is more equitable, the court decided, to take into consideration the present value of the actual Social Security benefits of the spouse of the exempt party, rather than the present value of the hypothetical Social Security benefits of the exempt party. Thus, the court said, the marital portion of the pension is the present value of the public pension earned by the exempt spouse that exceeds the present value of the Social Security benefits actually earned by the other spouse. This setoff would not violate federal law prohibiting division of Social Security benefits, the court declared. It cautioned, however, that a setoff should not be applied in cases where it is unlikely that the other spouse, due to age and/or health reasons, will actually receive Social Security benefits in the near future, if at all. Coats v. Coats , 63 Ohio Misc. 2d 299, 626 N.E.2d 707 (C.P. 1993).
The Arkansas Supreme Court approved a decree that divided the husband's civil service pension like any other pension, without regard to the fact that the husband had not accumulated any Social Security benefits. The husband failed to provide authority supporting his argument that the court should have awarded him part of the wife's Social Security benefits or should not have awarded the wife part of his civil service benefits, the court said. It also observed that "Congress has spoken in this area" by enacting 42 U.S.C S.S. 407, 659, and 662(c) (indicating that Social Security benefits are not assignable, not subject to legal process, and not to be divided by a state court considering property in a divorce case) and 5 U.S.C. S. 8345(j)(1) (providing that civil service retirement benefits may be paid directly to a person other than the employee pursuant to a state court order). Box v. Box , 312 Ark. 550, 851 S.W.2d 437, 442 (1993).
V. Survivorship Rights
Award of Survivor Benefits. Courts disagree as to whether a former spouse should be awarded survivorship rights over the employee spouse's objections.
Illustrating one view, the Montana Supreme Court held that where the only major asset awarded to the husband was his pension, it was inequitable for the trial court to award the wife a 100% contingent annuity interest in the present value of the pension in the event he predeceased her. By designating the wife as the irrevocable recipient of the survivorship benefits, the pension's value to the husband was diminished, the court noted. Part of the value of a pension is the ability to provide for others through survivorship benefits, it pointed out. Since the husband was not able to designate anyone other than the wife as the recipient of his pension benefits, the value of the pension to the husband, should he predecease the wife, was illusory, in that if he died before the wife prior to his retirement, he would essentially have received nothing from the marital estate. The division would only be fair if the husband received the full value of his pension, the court decided. In re Marriage of Zander , ___ Mont. ___, 864 P.2d 1225 (1993).
At the other end of the spectrum, a Maryland appeals court held that the right to a survivor annuity is analogous to the right to the pension itself, and thus constitutes marital property. Consequently, the court said, it is within the discretion of the trial judge to order that a former spouse survivor annuity be provided so as to continue the protection of the spouse's interest in the marital portion of the pension. Pleasant v. Pleasant, supra.
Civil Service Survivor Benefits. The subject of civil servšice survivor benefits was examined in great detail in Pleasant v. Pleasant, supra . Under the pertinent regulations, set out in 5 C.F.R. pt. 838, a court may award a former spouse a survivor annuity up to a maximum of 55% of the employee's annuity. The cost of the survivor annuity may be borne by the employee, the former spouse, or shared, depending on the type of annuity the court selects as the basis for the former spouse's share during the lifetime of the employee. A determination that the cost of the survivor annuity is to be borne in full or in part by the employee is neither an abuse of discretion nor an award of nonmarital earnings, the court declared.
Military Survivor Benefit Plan. The West Virginia Supreme Court reversed an order that awarded the wife a share of her husband's military pension but failed to order that she be designated as the irrevocable beneficiary of his military survivor benefit plan. Pursuant to a 1985 amendment to 10 U.S.C. S. 1450(f)(4), courts are authorized to order a military member to provide the annuity to a former spouse regardless of the intentions of the military member, the court observed. The trial court should enter an order designating the wife as the beneficiary in order to assure her continued support should the husband predecease her, the court decided. If she were not so designated, the pension payments would cease upon the husband's death, and she would be left with nothing. In this case, the court directed, the premiums necessary to sustain the survivor benefit plan should be deducted from the military pension prior to its disbursement to either party. Smith v. Smith, supra ; accord Johnson v. Johnson , 602 So. 2d 1348 (Fla. DCA 1992) (wife should be awarded a share of both the former husband's military retirement plan and the survivor benefit plan, in view of the potential unfairness to wife if former husband predeceased her); Paul v. Paul , 410 N.W.2d 329 (Minn. Ct. App. 1987) (affirmed requirement that military spouse designate his former spouse as beneficiary under survivor benefit plan).
Motion for Modification To Obtain Award of Survivor Benefits. In a Michigan case, a former wife sought modification of the parties' 1983 divorce decree after the husband retired in 1990. The decree awarded her a share of pension payments received by him but did not grant her any survivorship benefits. The husband died several months after the wife filed her motion for modification. The Michigan Court of Appeals held that no extraordinary circumstances warranted modification of the divorce judgment. Although the wife's award under the decree turned out to be illusory, she was charged with the knowledge that the mortality tables showed that the husband was likely to predecease her, and she should have negotiated an alternative payment method to take effect in that event. Furthermore, the court observed, she delayed filing any motion for relief for more than five years after the enactment of the federal Retirement Equity Act. Hence, her motion for relief was not filed within the "reasonable time" requirement of the court rule on modification of judgments. Roth v. Roth , 201 Mich. App. 563, 506 N.W.2d 900 (1993).
VI. Early Retirement Benefits
In a decision which will likely be influential in other states, New York's highest court held that a former spouse who has been awarded a share of an employee's eventual pension benefits is entitled to share in the increased retirement benefits offered to induce the employee's early retirement after the divorce. The court also held, however, that a former spouse has no right to share in Social Security bridge payments (payments to compensate the employee for not yet being eligible to receive Social Security) or separation payments included in a postdivorce early retirement package. Olivo v. Olivo , 82 N.Y.2d 202, 604 N.Y.S.2d 23 (1993).
The Olivos' divorce decree granted the wife a share of the pension payments which the husband would receive after he retired. After the decree, the husband accepted an early retirement incentive package. The high court held that "such postdivorce incentive packages are not marital property, and therefore not subject to equitable distribution, except for the portion of the package that enhances pension benefits payable to the employee." 604 N.Y.S.2d at 24.
The Social Security bridge payments and separation payments were not marital property, the court held, because the husband had no right during the marriage to receive these payments. Rather than being compensation deferred until some point after the divorce, these two payments were compensation created after the divorce, the court said. Although the husband's right to participate in the program was determined by the length of his employment, that factor alone did not conclusively establish that the bridge payments and separation payments were deferred compensation, the court said. Otherwise, it noted, a salary increase given years after divorce but based on an employee's seniority would be marital property.
The court reached a different result with respect to the enhanced retirement income which the husband received by accepting the early retirement incentive package. The employer paid him an additional amount so that he would receive the full amount of his expected pension benefit instead of the reduced amount usually payable upon early retirement. The lower court held that the husband alone should enjoy this additional amount, but the high court disagreed. By its very nature, the court noted, a pension right owned as marital property is subject to modification by future actions of the employee. For example, if the employed spouse retires early, both parties receive a smaller benefit. "On the other hand, an employee who engages in extended employment at progressively higher wages is not entitled to keep the `excess' earned beyond what would have accrued at the time of expected retirement." Id. at 27. Similarly, the court observed, both parties' rights are generally subject to changes in the terms of a retirement plan, as well as to circumstances largely beyond their control, such as the salary level finally achieved by the employee.
Thus, the court decided, when the husband here accepted an early retirement package that enhanced his pension, it perforce enhanced the wife's share in that pension as well. "Unlike the other two components of the package, the enhancement was a modification of an asset not the creation of a new one." Id.
VII. Postdissolution Increases
A significant new case on the troublesome issue of how to treat postdissolution increases in pension benefits is Berrington v. Berrington , ___ Pa. ___, 633 A.2d 589 (1993). The opinion contains something of value for lawyers on both sides of this issue: the majority held that most postdivorce increases are not marital property, and two dissenting opinions lay out arguments to the contrary.
A majority of the Pennsylvania Supreme Court held that in a deferred distribution of a defined benefit pension plan, the spouse not participating may not be awarded any portion of the participant spouse's retirement benefits which are based on postseparation salary increases, incentive awards, or years of service. Any retirement benefits awarded to the nonparticipant spouse must be based only on the participant spouse's salary at the date of separation. However, should there be increases in retirement benefits payable to the employee spouse between the date of marital separation and the date the nonparticipant spouse begins receiving benefits which are not attributable to the efforts or contributions of the participant spouse, any such increased benefits may be shared by the nonparticipant spouse based upon his or her proportionate share of the marital estate, the court said.
A dissenting opinion filed by one justice asserted that the majority's ruling was based on three assumptions that were "demonstrably incorrect." Berrington v. Berrington, supra , 633 A.2d at 595 (Cappy, J., dissenting). The other justice who dissented contended that the majority had improperly adopted a distribution scheme which is an amalgamation of immediate offset and defined distribution concepts. The hybrid method "fails to compensate the non-employee spouse for waiting to receive her portion of the pension benefit." Id. at 600 (Montemuro, J., dissenting).
The Virginia Court of Appeals reversed a decree that limited the marital share of the parties' pension benefits to values at age 55. At the time of the divorce, the parties were not yet 40 years old. The trial court's approach denied to each party a full participation in the statutory marital share of the other's entire pension, the court held. It is only fair that both parties share in the increased value of the pensions, or else one spouse will be receiving the increase in value over time which is attributable to the other's marital interest, the court explained, citing Primm v. Primm , 12 Va. App. 1036, 407 S.E.2d 45 (1991). The enhanced value is clearly a part of the total pension interest and not akin to a judicial award of interest on a deferred share of a pension, the court said. Banagan v. Banagan , ___ Va. App. ___, 437 S.E.2d 229 (1993).
In an Ohio case, the trial court determined the amount of the monthly pension benefit which the husband would receive at age 65 if he left his job at the time of the divorce. The wife was entitled to one-half of that amount (that is, $314.50) monthly from the husband's pension payments when he retired, the trial court decided. The appeals court held that this division constituted an abuse of discretion. The incorrect assumption that the husband had already retired substantially undervalued the wife's share of the pension, the court declared. Until the cash value of the husband's eventual benefit was determined upon retirement, the trial court's order should be limited to a division of the rights of the spouses and an order that the wife receive a distributive portion of the benefits payable to the husband upon his retirement. That may readily be done through a QDRO, which reserves a determination of cash shares until the amount of the pension benefit is known, the court observed. Layne v. Layne , 83 Ohio App. 3d 559, 615 N.E.2d 332 (1993).
The court rejected the notion that a former spouse is unjustly enriched when the value of his or her share is increased by the other spouse's postdivorce participation in a pension plan. A retirement plan is an investment made by both spouses during marriage to provide for their later years, with the expectation that the value of the investment will increase over time. At divorce, each spouse is entitled to the value of his or her investment. When the investment has not yet matured, each is entitled to a right to its value at maturity in proportion to the years of marriage. The nonemployed former spouse is not entitled to share in the direct contributions made by the participant spouse after divorce. However, the nonemployed former spouse is entitled to the benefit of any increase in the value of his or her unmatured proportionate share after divorce attributable to the continued participation of the other spouse in the retirement plan. "That increase was contemplated when the investment was made. It would be inequitable to deprive the owner of its value." 615 N.E.2d at 337.
Motion To Modify. Not infrequently, the spouses do not realize the impact of the decree on the sharing of postdivorce increases until well after the time for appeal has elapsed. In a Missouri case, the husband was held not entitled to modification of a final dissolution decree, which granted the wife a one-half fractional share of his retirement benefits, with the fraction being the number of years of the marriage over the number of years of employment at the time benefits were payable to him. The husband claimed that the formula improperly gave the wife a share of his postdissolution earnings, but the appeals court held that the trial court properly dismissed his motion. The results of the decree were plainly foreseeable, yet he did not appeal from the decree, and in any event, it was by no means clear that the decree was inequitable, the court added. The approach taken by the trial court has been approved in numerous cases, the court observed. Anderson v. Anderson , 850 S.W.2d 404 (Mo. Ct. App. 1993).
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