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1999 National Legal Research Group, Inc.

NEW JERSEY: LaSalla v. LaSalla, ___ N.J. Super. ___, 735 A.2d 52 (Ch. Div. 1999).

The husband's pension as a police officer was subject to equitable distribution, but only to the portion acquired during the marriage.

The husband and the wife were married in 1968. The wife filed for divorce in 1996. During the first 16 years of the marriage, the wife was a full-time mother and housewife. She reentered the workforce in 1984; at that time, she also attempted to further her education but was unable to attain any degree. The wife lost her job in 1994 due to downsizing by her employer. She has been unable to find permanent employment since then because of her age (51), education level (high school diploma only), and limited job skills.

When the couple married, the husband had been a police officer for one year. In 1970, he transferred to the fire department without a break in service. He eventually attained the rank of deputy chief, with an annual salary slightly in excess of $98,000. The husband is more than 10 years away from mandatory retirement and has no plans to retire before then.

During the marriage, the couple acquired only two assets of significance, the marital home and the husband's pension. Excluding the pension, the net worth of the couple is just slightly more than $12,000. The husband's pension had a fixed value of $669,000 as of the date of the filing of the divorce.

The New Jersey Supreme Court in Rothman v. Rothman, 65 N.J. 219, 320 A.2d 496 (1974), enumerated a three-step process the trial court must undertake for the equitable distribution of property:

LaSalla, 735 A.2d at 59 (citing Rothman, 320 A.2d at 497).

The portion of a spouse's pension that was acquired during the marriage qualifies as marital property subject to equitable distribution upon divorce. LaSalla, 735 A.2d at 52. Here, the husband did not contradict the eligibility of his pension for distribution, its valuation ($669,000), the determination of the wife's share ($334,500), or the manner of distribution proposed.

Thus, the first step of the Rothman process was met.

The second step, the valuation of the pension, was more difficult.

A practical distribution of the assets would be for the husband to pay over to the wife $334,500, yet this would not be an equitable distribution. Both the husband and the wife acknowledged that the couple did not have sufficient assets to effect an offset of the wife's claim against the pension. In addition, an offset of the husband's distributive share is quite different from an immediate payout. The former is accomplished with non-PFRS (Police and Fire Retirement System, the administrators of the pension fund) assets, while the latter requires distribution of funds that are maintained by PFRS. There was no precedent in New Jersey allowing the wife to receive an immediate payout; therefore, the court looked to other states for a possible variant form of immediate payout. Under this variant, the member spouse (here, the husband) is required to pay the distributive share of his pension to the nonmember spouse (here, the wife) in regular installments out of current, preretirement income. However, this method is subject to two criticisms. First, payments from the member spouse's current income for equitable distribution are taxable to him and tax-free to the recipient. Second, the substantial amount of current net income required to satisfy the obligation would in many cases force the payor into an involuntary retirement.

The court declined to resort to this variant form because of the criticisms mentioned and because a court resorting to such extraordinary relief should be limited to those instances where the remedy's absence would deny the applicant his or her right to equitable distribution. The court then looked to whether an existing form of deferred distribution would produce an equitable result.

The court noted that there is an element of risk inherent in the deferral of the wife's interest. At the time of a judgment of divorce, the trial court would be able to distribute the anticipated value of the asset between the parties. The actual value would be speculative and would remain so, to be determined finally by the husband's lifespan. If the husband should die prematurely, the wife's benefits would be greatly reduced or totally eliminated. If the wife were still married to the husband, this risk would be acceptable because the state legislature has provided for her needs in the form of the "widows pension." If she is divorced from her husband, however, as she was here, she faces the risk of elimination of benefits:

Id. at 61 (emphasis added).

Following this analysis, the court ordered that the pension be fixed at $334,500. The Police and Fire Retirement System then commenced monthly installment payments to the wife and should continue these payments for the remainder of her life, or until the maximum benefit has been paid to her.

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