Pension & Divorce Center

"To the Penny Pension Evaluations"

The leading case that holds both vested and nonvested pension benefits are marital property is In re Marriage of Brown, 544 P.2d, 566 CA, decision by the Supreme Court of California. This landmark case overruled a decision some thirty years earlier In re Marriage of French, 544 P2.d 561 CA. The court's holding in French was that a nonvested pensions were a mere expectancy and were not, therefore, subject to division upon divorce. The husband in Brown was in a noncontributory pension plan. Under the Plan an employee who was discharged before accumulating a minimum number of "points" could forfeit his pension rights. The trial court held that the husband's nonvested rights were not divisible in divorce. The Supreme Court of California reversed this decision, observing that pension benefits were not a mere expectancy. Rather, the benefits were a form of deferred pay for the services rendered and were, therefore, distributable in divorce.

ALL PENSIONS MAYBE CONSIDERED MARITAL PROPERTY IF A QUANTIFIABLE AMOUNT IS ASCERTAINABLE IN MARITAL DISSOLUTION OR RETIREMENT

VESTING IS NOT A FACTOR IN PENSION EVALUATIONS
UNVESTED RETIREMENT BENEFITS ARE SUBJECT TO PROPERTY DIVISION

IF YOUR PENSION CONSULTANT UTILIZES A REDUCTION FOR NON-VESTING OF THE PENSION AND PRESENTS A REDUCTION IN THEIR PENSION EVALUATIONS, TECHNICAL ERROR MAY NEED TO BE EXAMINED.

Alaska: Laing v. Laing 741P.2d 649 (Alaska 1987)

Arizona: Van Loan v. Van Loan 569 P2.d 214 (Arizona 1977)

Delaware: Robert C.S. v. Barbara J.S 434 A.2d 383 (Delaware 1981)

Georgia: Courtney v. Courtney 344 S.E.2d 421 (Georgia 1986)

Indiana: Wilson v. Wilson 409 N.E.2d1169 (Indiana 1979)

Kentucky: Foster v. Foster 589 S.W.2d 223 ( Kentucky 1979)

Maine: Stotler v. Wood 687 A.2d 636 (Maine 1996)

Maryland: Deering v. Deering 437 A.2d 883 (Maryland 1981)

Michigan: Perry v. Perry 350 N.W.2d 275 (Michigan 1984)

Minnesota: Janssen v. Janssen 331 N.W.2d 752 (Minnesota 1983)

Mississippi: Tillman v. Tillman 716 So.2d 1090 (Mississippi 1998)

Mississippi: Selman v. Selman 722So.2d 547 Mississippi 1998)

Nevada: Gemma v. Gemma 778 P.2d 429 (Nevada 1989)

New Hampshire: Halliday v. Halliday 593 A.2d 233 (New Hampshire 1991)

New Jersey: Kikery v. Kikert 438 A.2d 317 (New Jersey 1981)

New Jersey: Whitfield v. Whitfield 535 A.2d 986 (N.J. Super. App. Div. 1987)

New Mexico: Berry v. Meadows 713 P.2d 1017 (New Mexico 1986)

New York: Majuskas v. Majuskas 463 N.E.2d 15 (New York 1984)

New York: Damiano v. Damiano 463 N.Y.S. 2d 477 (N.Y. App. Div. 1983)

New York: Burns v. Burns 643 N.E.2d 80 (New York 1984)

Oklahoma: 657 P.2d 646 (Oklahoma 1983)

Oregon: In re Marriage of Rogers 609P.2d 877 (Oregon 1980)

Pennsylvania: Braderman v. Braderman 488 A.2d 613 (Pennsylvania 1985)

Rhode Island: 511 A.2d 961 (Rhode Island 1986)

South Carolina: Carter v. Carter 286 S.E.2d 139 South Carolina 1982)

South Carolina: Anderson v. Anderson 318 S.E.2d 566 (South Carolina 1984)

South Dakota: Hansen v. Hansen273 N.W.2d 749 (South Dakota 1979)

Tennessee: Cohen v. Cohen 937 S.W.2d 823(Tennessee 1996)

Texas: Cearley v. Cearley 544 S.W..2d (Texas 1976)

Vermont: Victor v. Victor 453 A.2d1115 (Vermont 1982)

Vermont: Milligan v. Milligan 613 A.2d 1281 (Vermont 1992)

Washington: Wilder v. Wilder 534 P.2d 1355 (Washington 1975)

[ Back to top ]

DIVIDING MARITAL OR COMMUNITY PROPERTY

A few states, such as California, take a rather simple approach. Lawmakers in those states believe property should be divided equally because they view marriage as a joint undertaking in which both spouses are presumed to contribute equally to the acquisition and preservation of property. The contributions may be different in nature, but they are treated equally. The wage earner does not receive more property than the homemaker, and vice versa. All marital property will be divided fifty-fifty, unless the husband and wife had a premarital agreement stating otherwise.

The California community property approach saves resources. Husbands and wives do not have to spend time and money arguing about who should get more property since the law of that state already has determined that community property will be divided fifty-fifty. (In California, there still may be issues to dispute, such as: What is and what is not community property? What is the value of a particular piece of community property? For example, if an actress divorces mid-way in production of a film, how does one value her interest in the film?)

Although California may save resources by declaring an automatic fifty-fifty split, it deprives courts of the opportunity to fine-tune property divisions to meet the needs of individual cases. In several other community property states and in all equitable distribution states, courts are allowed to fine-tune property divisions. (That may or may not be an advantage, depending on the cost of fighting over what is "equitable" and one's faith in judges to make fair decisions regarding property.)

"Equitable distribution" means a court divides marital property as it thinks is fair. Like community property states, states applying principles of equitable distribution view marriage as a shared enterprise in which both spouses usually contribute significantly to the acquisition and preservation of property. Unlike the community property approach of California, however, equitable distribution states are not locked into a fifty-fifty split. The division of property could be fifty-fifty, sixty-forty, seventy-thirty, or even all for one spouse and nothing for the other (although that would be very unusual). Under equitable distribution, courts consider a variety of factors and need not weigh the factors equally. That permits more flexibility and more attention to the financial situation of both spouses after the divorce. However, it also makes the resolution of property issues less predictable. Here are some examples of factors that are considered by states applying principles of equitable distribution:

Nonmarital Property. If one spouse has significantly more nonmarital property than the other, that could be a basis for giving more marital property to the less wealthy spouse. As noted, courts are not obliged to give equal amounts of property to each spouse, but if the parties have sufficient assets to leave each party in a comfortable situation after the divorce, courts usually will try to do so.

Earning Power. If one spouse has more earning power than the other, that could be a basis for giving more marital property to the spouse with less earning power. Courts reason that the party with greater earning power can regain money lost in a divorce more easily than the party with less earning power.

Who Earned the Property. That can be a factor in favor of the party who worked hard to acquire or maintain the property. When courts apply this factor to a family business, it is common for a court to award all the interest, or a majority of the interest, in the family business to the spouse who operates the business. In that circumstance, the court not only is considering who earned the property, but also is seeking to disentangle the husband and wife from each other's future financial affairs. If the value of the business is approximately the same as the value of the family home, it is common for the court to give the business to the spouse who primarily operates the business and give the home to the other spouse

Services as a Homemaker. Courts recognize that keeping a home and raising children are work. In addition, those services often enable the spouse who is working outside the home to earn more money. Thus, services as a homemaker are a factor in favor of the homemaker. Some courts also apply a related concept of considering whether one spouse had impaired her or his earning capacity because of working as a homemaker. If a party can show his or her work as a homemaker resulted in missing the opportunity for training or job experience that could have resulted in higher income, that factor can favor giving more property to the homemaker-spouse.

Waste and Dissipation. If a spouse wasted money during the marriage, that could count against him or her when it comes time to divide property. This factor is sometimes labeled "economic fault," and may be considered even by courts that do not consider other kinds of fault. Waste or dissipation could include gambling losses, significant sums of money given to family members (particularly over the protest of the other spouse), and money spent on pursuing romantic relationships outside the marriage. Business losses occasionally are considered waste or dissipation, but more often, they are considered an ordinary risk of doing business for which neither spouse should be penalized (particularly if the business deal would have benefited both parties had it gone better). In some states, before waste or dissipation can be a factor, it must be shown that the waste or dissipation occurred when the marriage was breaking down (a relatively short time before or after one spouse filed for divorce). In other states, waste or dissipation at any time during the marriage could be relevant.

Fault. Non-economic fault, such as spousal abuse or marital infidelity, is considered in some states, but most states do not consider it relevant to property division. In years past (particularly prior to 1965), divorces were based on fault. One needed to show fault by the other party in order to obtain a divorce, and fault was an important consideration in dividing property and setting support. The more modern view is that courts should focus primarily on the economic factors when dividing property and pay less attention to who-did-what-to-whom. Most courts and legislatures concluded that it was too difficult and not worth the time to try to sort out all the transgressions that may have gone on in a marriage, many of which are of a subjective nature.

Duration of Marriage. A long marriage may be a factor in favor of a larger property award to the spouse with less wealth or earning power. The longer the marriage, the more likely a court is to view the husband and wife as equal partners.

Age and Health of Parties. If one spouse has ill health or is significantly older than the other, that factor could favor a larger award to the sicker or older spouse. When the factor is mentioned by a court, it most often is in connection with an older wife whose ability to earn money is diminished by her age and health. The factor can apply to men too, particularly if the man is of an age at which it is not reasonable to assume that he can go out and re-earn a substantial amount of assets if his wife were given a majority of the marital assets. In such a case, an equal division of assets would be more likely.

Tax Consequences. The tax consequences of property division can be considered when dividing property. If, for example, the sale of a house or the sale of stock in a company as part of a divorce will result in payment of capital gains tax, the court can consider that when dividing the property. Perhaps the person who will have to pay the tax may receive some extra property to compensate for the added tax that person will have to pay. Conversely, if a property settlement results in a tax benefit, the person receiving the benefit may receive less property because of that benefit. In order for a court to consider tax consequences, the consequences usually must be immediate and specific. The court generally does not want to speculate about possible tax consequences that may occur several years in the future.

Premarital Agreements. A written premarital agreement, assuming it is valid, can be a trump card in dividing marital property. By entering into a premarital agreement, the wife and husband have agreed to waive their rights to have a court consider the usual cluster of factors in dividing property. Instead, the parties through their agreement have determined in advance how their property should be divided in the event of a divorce.

[ Back to top ]

EQUITABLE DISTRIBUTION STATES

The partnership or shared enterprise theory of marriage, derived from the community property system, is a guiding principle of equitable distribution. A number of courts in equitable distribution jurisdictions routinely acknowledge indebtedness to the community property system. The hallmarks of the system are a broad discretion for trial courts assign to either spouse property acquired during the marriage, irrespective of title, taking into account the circumstances of the particular case and recognizing the value of the contributions of a nonworking spouse or homemaker to the acquisition of that property. The equitable distribution system view marriage as essentially a shared enterprise or a joint undertaking in the nature of a partnership to which both sides contribute - directly and indirectly, financially and nonfinancially - the fruits of which a distributable at divorce.

[ Back to top ]

COMMUNITY PROPERTY STATES

Eight states - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington - follow community property. Five of these states (Arizona, California, Nevada, New Mexico, and Texas) were at one- time Mexican territories. The Spanish influence in that country community property then became law. Idaho and Washington were never under Mexican Rule, but replaced their common law system of marital property by enacting community property statutes during the nineteenth century. Louisiana's civil code derives from both French and Spanish law. In 1984, Wisconsin effectively became the ninth community property state when it enacted the Uniform Marital Property Act. It states that the classification for property distribution of reflected a dual property scheme. The basic principles of community property are consistent among the states, however significant variation exists in both the statutes and case law of these states.

Community property law defines the property owned by either or both spouses as either separate property of the individual spouse or community property, owned in individual equal shares, by both spouses. Following Spanish community property law, the property that a spouse owns at the time of marriage, or acquires after the marriage has ended, is that spouse's separate property. Gifted, devised or descented property remains that spouse's separate property. Today, community property law frequently allows spouse's to contract to hold property as separate property, and to establish separate property by judicial decree.

Property acquired during the marriage is presumed to be community property, and the burden of proving otherwise is placed on the spouse attempting to establish that an asset held by a married person in a community property state is not presumed to have been acquired during the marriage.

Traditionally, property division on divorce in community property states was allocated according to title. Each spouse received his or her separate property and one half of the community property. California, Louisiana and New Mexico remain the only states requiring equal division of community property on divorce. Today, six of the nine community property state have adopted equitable distribution statutes, authorizing a variance from the strict equal division of community property. Arizona, Idaho, Nevada, Texas, and Wisconsin allow the divorce judge to allocate community property in other than equal shares. Washington's statute authorizes equitable division of all property, regardless of its separate or community character.

Common Law Marriage States

Under the common law marriage doctrine, you are considered legally married, despite not having a marriage license, a ceremony, or a marriage certificate, if you meet specific requirements listed in the statutes of the jurisdiction where you live. The benefits of common law marriage include the right to inherit upon the death of one spouse and the right to spousal support and an equitable division of property should the marriage terminate. The jurisdictions that recognize common law marriage and the requirements of each are listed below. In addition, various other states will recognize a common law marriage if it was valid in one of these states and meets these requirements, even though those states do not themselves have statutes providing for common law marriages.

Alabama. In this state, the parties must agree to be husband and wife, they must have the mental capacity to enter into and understand such an agreement, and they must consummate the marital relationship.

Colorado. In order for a common law marriage to exist in Colorado, the relationship must be proven by the cohabitation of the common law spouses and their reputation for being married.

District of Columbia. In the District, a common law marriage is established by the parties' explicit intent to be married and by their cohabitation.

Iowa. A common law marriage is established in Iowa by the parties' intent and agreement to be married, their continuous cohabitation, and their public declarations that they are husband and wife.

Kansas. In Kansas, the man and woman must have the mental capacity to marry, they must agree to be married at the present time, and they must represent to the public that they are married in order for a common law marriage to exist.

New Hampshire. This state recognizes common law marriages only upon the death of one of the spouses. In other words, common law marriages are recognized in New Hampshire for inheritance purposes only.

Montana. In Montana, the parties must have the capacity to consent to marriage, they must agree to be married, they must cohabitate, and they must have a reputation of being married.

Oklahoma. The parties must be competent, agree to enter into a marriage relationship, and cohabitate in order to be considered as having a common law marriage.

Pennsylvania. A common law marriage is established in Pennsylvania by the exchanging of words between a man and a woman indicating an intent to be married at the present time.

Rhode Island. In Rhode Island, a common law marriage exists if a man and woman have a serious intent to be married and engage in conduct that leads to a reasonable belief by others in the community that they are married.

South Carolina. In this state, if a man and woman intend for others to believe they are married, a common law marriage may be established.

Texas. If a man and woman in Texas sign a form provided by the county clerk, agree to be married, cohabitate, and represent to others that they are married, a common law marriage exists. Utah. In Utah, a common law marriage is established if the man and woman are capable of giving consent and getting married, if they cohabitate, and if they have a reputation of being husband and wife.

[ Back to top ]

MILITARY PENSION EVALUATIONS

Congress Enactment of the Uniformed Services Former Spouses Protection Act 10 U.S.C. 1408 (2002), overruled the decision of the United States Supreme Court in McCarty v. McCarty 453 U.S. 210 (1981), that military retirement benefits were not divisible on divorce by state courts. Regardless if a spouse has Regular or Reserve Military Pension Evaluators® at Troyan, can provide a pension evaluation for immediate offset purposes in your state.

[ Back to top ]

PENSIONS

When a couple divorces, they probably focus first on dividing the property that's easy to see--the home, furniture, cars, etc. The property they can't see--their intangible property--is also affected by divorce.

For many families, a pension is the largest asset, after the family home. Even if the pension is earned solely by the efforts of one spouse, the portion of it that was earned during the marriage is still marital property subject to division by the court. (For discussion of how a pension can be considered nonmarital and marital, see the earlier section on "Marital and Community Property,")
Many courts prefer to give full rights to a pension to the party who earned it as long as the other party will have a sufficient amount of income and property from other sources.

If, however, the pension is the primary source of income that a spouse would have and there are no other significant sources of income, the court is likely to divide rights to the pension. The court can divide the pension between the spouses by percentages (i.e., spouse A will receive 60 percent, spouse B 40 percent) or by a fixed cash amount to one spouse with the remainder to the other spouse (i.e., spouse A will get $600 per month, spouse B $400).

Divorced spouses may also be eligible to collect Social Security retirement benefits based on their ex-spouse's work record. As long as the divorced spouse:

• is sixty-two or older
• is unmarried
• was married to the worker for at least ten years and
• is not entitled to benefits on own or other account, that exceed one-half the wage earner's primary benefit amount
  he or she is generally eligible to collect benefits. The wage-earning spouse doesn't have to be retired and actually drawing benefits; he or she just has to eligible for retirement benefits.

The impact of divorce on Social Security retirement benefits is very different from its impact on pension benefits. A worker with a pension is eligible for a certain amount of money in benefits. If a court orders these benefits split between the parties, the worker's share will go down.

With Social Security retirement benefits, the eligibility of a divorced spouse has no effect on the amount the worker is entitled to. He or she will collect that amount whether he has no eligible spouse or ex-spouse or whether he has four ex-spouses all eligible to collect based on his work record.

That's one reason establishing eligibility for a divorced spouse is normally not difficult. It doesn't require a court appearance or even notification to the worker. It simply requires presenting the appropriate documentation to the Social Security Administration. Documentation would normally include proof of

• identity
• each party's age
• Marriage and
• divorce (the divorce must be final; the legal action cannot be a separation or an annulment)

Generally, original documents are best, but certified copies will be acceptable.

A divorced spouse may also be eligible for benefits on the account of a deceased wage earner if the wage earner was eligible for benefits. Requirements are similar to those outlined above, except that the surviving divorced spouse must be at least sixty (or at least fifty and disabled or be caring for a child who is also eligible to receive benefits on the deceased wage earner's account) and the surviving divorced spouse can remarry after age sixty (age fifty if disabled). The amount of the benefit is approximately equal to the wage earner's primary benefit amount. As with retirement benefits, more than one person can collect. Applicants will need the documents outlined above, along with proof of the wage-earner's death and, if applicable, of disability.

TAX TREATMENT IN PENSION EVALUATION

The courts consider the tax consequences of a property division to be a relevant factor in property division. In many states, the statutes either explicitly or as interpreted by the courts require consideration of the tax consequences of a distribution of a pension. In other jurisdictions , appellate courts require similar consideration even when the applicable statue is silent with respect to tax consequences.

Tax consequences are a discretionary issue faced by the courts in factoring the amount subject to equitable distribution and community property division. Pension Evaluators® at Troyan, Inc., can approach this issue if requested. We provide pension evaluations on that recognize the tax impact of retirement benefits on divorce. We can supply you with your states applicable case law on this issue if requested when ordering a pension evaluation. Taxpayers involved in divorce should consider the tax implications of distributing the benefits from retirement plans between the parties. Only if the settlement is qualified will the benefits and the tax liability vest with the transferee spouse. Individual retirement account benefits must be transferred based on a court order or written settlement agreement. In determining asset allocations for property settlements, employee retirement plans are often a taxpayer's most significant asset. Since many jurisdictions treat retirement plans as assets subject to division in divorce settlements, more spouses are including them in divorce proceedings. Case law indicates that an attorney's failure to claim retirement benefits in a divorce settlement may be malpractice (Gorman v. Gorman, 90 Cal. App.3d 454)

[ Back to top ]

SOCIAL SECURITY OFFSETS

RHODE ISLAND SUPREME COURT

Janet M. Schaffner

v.

Richard J. Schaffner

Present: Weisberger, C.J. Lederberg, Bourcier, Flanders, and Goldberg, JJ.

OPINION

Bourcier, Justice. This case came before the Court on the appeal of the defendant, Richard J. Schaffner (Richard), from a Family Court decision pending entry of final judgment of divorce in favor of the plaintiff, Janet M. Schaffner (Janet). Richard challenges the trial justice's method of dividing his pension benefits and the trial justice's decision to defer distribution of those benefits. We affirm both of those determinations.

On June 16, 973, Richard and Janet were married. They had one child of the marriage, Keri, was born on December 16, 1976. Richard was throughout almost all the marriage employed by the federal government at the Social Security Administration. He is, in fact, still employed there. Janet was employed part time when she and Richard were first married, but when Keri was born, Janet's primary care-taking responsibilities prevented her from being continuously employed. She is currently working part time in Massachusetts while taking educational class. At the time the decision in this case was entered, Richard was forty-eight years of age and Janet was forty-one.

When he began his federal employment, Richard voluntarily chose to opt out of the Social Security program and to enroll instead in the Civil Service Retirement pension system (CSRS). By participating in that program, Richard relinquished his right to receive Social Security benefits upon retirement. In return for that relinquishment he received decreased deductions from his paychecks while he continued to work and increased pension benefits upon retirement. That arrangement, he apparently felt at the time, would ultimately benefit both himself and his then-wife, Janet.

The decision pending entry of final judgment of divorce entered by the Family Court provided for equal division of all marital assets, exclusive of the CSRS. It also required Richard to maintain health insurance for Janet's benefit for a period of two years. Furthermore, Janet's request for alimony was denied.¹ The trial justice additionally provided for an equal distribution of Richard's CSRS benefits until such time that Janet would begin to receive her Social Security benefits. When that does occur, Janet's portion of the CSRS benefits will be reduced by one half of her Social Security benefits. The trial justice deferred distribution of the CSRS pension benefits until Richard actually begins receiving them. Richard appealed from both the determination to divide his CSRS benefits equally and the decision to defer distribution of his CSRS benefits.

The equitable distribution of marital assets is within the discretion of the trial justice. Stevenson v. Stevenson, 511 A.2d 961, 964 (R.I. 1986). "In reviewing the findings of a trial court, 'it is not our function to arrive at de novo findings and conclusions of fact based on the evidence presented at trial.' " Moran v. Moran, 612 A.2d 26, 33-34 (R.I. 1992) (quoting Casey v. Casey, 494 A.2d 80, 82 (R.I. 1985)). If the trial justice "did not overlook or misconceive material evidence, and if he [or she] considered all the requisite statutory elements, this court will not disturb the trial court's findings. Cok v. Cok, 479 A.2d 1184, 1189 (R.I. 1984)." Thompson v. Thompson, 642 A.2d 1160, 1162 (R.I. 1994).

Richard's first argument on appeal is that the trial justice should have first deducted from the total amount of his CSRS benefits the amount that he would have received in Social Security benefits had he not decided to opt out of the Social Security system. The trial justice should have then divided the remaining balance between him and Janet. He justifies that reduction argument by asserting that Social Security benefits are not subject to equitable assignment in divorce proceedings, Kirk v. Kirk, 577 A.2d 976 (R.I. 1990), and that he is entitled to that same federally provided protection against equitable assignment because he contributed to the CSRS pension program in lieu of paying into the Social Security system.² Richard claims that his "hypothetical social security benefits" are akin to traditional Social Security benefits and that as a result he should be treated like "any other citizen of the United States."

Richard's argument is without merit. He is being treated like any other citizen who receives pension benefits. Pursuant to Moran, 612 A.2d at 32-;33 and G.L. 1956 §15-;5-;16.1, retirement pension benefits are subject to equitable assignment upon divorce. Richard cannot and should not be treated like those who receive Social Security benefits because he voluntarily chose to opt out of the Social Security system and therefore is not entitled to claim its exemption from equitable assignment in his divorce case. It was his choice and decision to abandon the Social Security program and its exemption. He cannot now reasonably expect this Court to treat him as part of a group to which he does not belong simply because the voluntary decision he made some time ago no longer benefits him. Furthermore, because Janet has no equivalent retirement pension and can expect only a relatively insignificant Social Security benefit upon her retirement, it was certainly proper for the trial justice, in attempting to further his acknowledged goal of making an equitable distribution of the marital estate in this case, to factor in a portion of Richard's CSRS benefits that Richard now attempts to disguise as "hypothetical social security" benefits. Nothing in §15-;5-;16.1 is intended to divest a Family Court trial justice of his or her discretion in choosing and applying the applicable and appropriate guideline set out in that statute and intended to provide for an equitable distribution of the marital estate in a divorce proceeding. The decision in Cornbleth v. Cornbleth, 580 A.2d 369 (Pa.Super. 1990), cited by Richard in support of his position, is inapposite.

In Cornbleth both the husband and the wife had equal retirement pensions. The wife in Cornbleth was, in addition to her pension, eligible to receive Social Security. However, the husband in Cornbleth, like Richard, was ineligible for Social Security because he too had chosen to participate in the CSRS program in lieu of receiving Social Security benefits at retirement. Thus, the wife's receipt of Social Security benefits upset the equitable balance of marital assets between the husband and the wife. Therefore, the Pennsylvania court had to discount the husband's pension by the amount he would have received in Social Security if he had not chosen to participate in the CSRS program because, if the court had not done so, equitable distribution of the marital assets could not be achieved. The Cornbleth court explained that "[o]ne of our goals with regard to equitable distribution must be to treat different individuals with differing circumstances in a fashion so as to equate them to one another as nearly as possible." 580 A.2d at 371. Accordingly, the proposition Cornbleth stands for is not, as asserted by Richard, that hypothetical Social Security benefits must be deducted from CSRS benefits so that both those who receive Social Security benefits and those who do not receive Social Security benefits are treated equally. Cornbleth instead stands for the proposition that marital assets must be divided equitably and that Social Security benefits may be considered, although not actually divided, if in the court's reasoned judgment such consideration would help to achieve a more equitable distribution. That interpretation of Cornbleth is consistent with the decision in McClain v. McClain, 693 A.2d 1355 (Pa.Super. 1997), which was later decided in the same jurisdiction as Cornbleth.

The court in McClaindistinguished the Cornbleth decision because the husband and the wife in McClain were not entitled to comparable pensions as in Cornbleth and the wife in McClain expected only minimal Social Security benefits when she retired. In order to equalize the parties with respect to the marital assets, the court refused to deduct from the husband's CSRS pension benefits an amount equivalent to what the husband would have otherwise received from Social Security. As the court explained, "Clearly, it would be inequitable under the facts of this case to credit Husband with the value of hypothetical social security contributions when Wife, unlike the wives in Cornbleth, Endy [v. Endy, 603 A.2d 641 (Pa. Super. 1992)], and Schneeman [v. Schneeman, 615 A.2d 1369 (Pa. Super. 1992)], has no appreciable social security benefits of her own to balance against such a credit." McClain, 693 A.2d at 1359. That factual distinction made in McClain, which was decided in a jurisdiction where Cornbleth was controlling precedent, and that court's refusal to subtract hypothetical Social Security benefits from the husband's CSRS pension benefits certainly support our conclusion not to subtract hypothetical Social Security benefits from Richard's CSRS pension benefits because in this jurisdiction Cornbleth is at most only persuasive and not of any precedential value.³

Additionally, the New Jersey court in White v. White, 664 A.2d 1297 (N.J.Super. 1995), concluded that in order to distribute the marital assets between the husband and the wife more equitably, an amount representing what the husband hypothetically would have received in Social Security benefits should not be deducted from his CSRS pension benefits before the court distributed them. After distinguishing Cornbleth, the court in Whitefurther explained that "[t]he principal difficulty with an offset in this case is the difference in time when the parties will be eligible for their respective benefits." Id. at 1299. We are confronted with that difficulty as well because Richard and Janet are not of comparable ages (Richard is seven years older than Janet), as were the parties in Cornbleth.

In the situation now before us, discounting Richard's CSRS benefits by the amount that but for his voluntary enrollment in the CSRS program he would have received in Social Security benefits would only achieve an inequitable distribution of marital assets. Unlike the wife in Cornbleth, Janet is not eligible to receive a pension upon retirement. Furthermore, her Social Security benefits are relatively insignificant when compared to Richard's pension or even to what his expert calculated to be his "hypothetical social security benefits." ⁴ Additionally, because she is much younger than Richard, her benefits will commence much later than Richard's benefits. Thus, the only way to provide for equitable distribution of the marital assets is to divide Richard's CSRS benefits equally and to take into account Janet's Social Security benefits when they commence, which is precisely what the Family Court justice has decided. Accordingly, because the marital assets cannot be equitably distributed in any other manner, we affirm the trial justice's marital asset distribution plan.

We also conclude that the trial justice's decision to defer distribution of the pension benefits, as opposed to ordering a present distribution, was the proper decision, given the facts and circumstances of this case. There are three methods of dividing retirement benefits:

The present value method requires the trial court to determine the present value of the pension and compensate the non-pensioned spouse with other assets equal to his or her share in the pension.

"The reserve jurisdiction method allows the trial court to reserve jurisdiction to determine what the non-pensioned spouse will be entitled to once payment of benefits begins.

"Another method of valuation, the deferred distribution method, permits the trial court to determine the non-pensioned spouse's percentage interest in the pension benefits on dissolution of the marriage but to defer distribution of that spouse's share until the pensioned spouse retires." In re Marriage of Kelm, 878 P.2d 34,36 (Colo.App. 1994). (Emphasis added.)

Although the present value method is typically the preferred approach because it "effects a complete severance of the spouses' interests and gives each spouse immediate control of his or her share of the marital property," DuBois v. DuBois, 335 N.W.2d 503, 505 (Minn. 1983), it is not always feasible under the facts of a particular case to award a lump-sum amount. Having insufficient other assets to pay the amount of the present value award is one reason distribution must be deferred. See Krafick v. Krafick, 663 A.2d 365, 374 (Conn. 1995). Another situation in which the present value method is not the preferred distribution method is when " 'no present value can be established [by expert testimony] and the parties are unable to reach agreement' as to the value of the pension. Kikkert v. Kikkert, supra, 177 N.J.Super. at 478, 427 A.2d 76." Krafick, 663 A.2d at 374. Moreover, the deferred distribution method is proper when "the needs of the parties * * * militate against a present cash value method.' " In re Marriage of Kelm, 878 P.2d at 36.

The present value method could not have been feasibly utilized in this case. Although Richard had sufficient assets to pay any present value award of his CSRS benefits, he was clearly indecisive about the age at which he was going to retire. As a result, his expert's calculations regarding the monthly payments Richard was expected to receive upon retirement differed greatly from those of Janet's expert, who naturally picked a younger retirement age than Richard's expert.⁵ Relying on Richard's inability to specify a definite retirement age and the resulting difficulty of determining an exact present value amount for Richard's CSRS pension benefits, the court had no choice but to defer distribution of the pension assets so that an accurate distribution amount could be calculated when the pension benefits actually commence. Accordingly, the distribution of pension assets was properly deferred.

For all the foregoing reasons, having discerned no error of law or abuse of discretion on the trial justice's part, Richard's appeal is denied and dismissed. The final judgment appealed from is affirmed, and the papers in this case are remanded to the Family Court.

NOTICE: This opinion is subject to formal revision before publication in the Rhode Island Reporter. Readers are requested to notify the Technical Secretary, Supreme Court of Rhode Island, 250 Benefit Street, Providence, Rhode Island 02903, at Tel. 222-6588 of any typographical or other formal errors in order that corrections may be made before the opinion is published.

Footnotes

¹ Richard also was not awarded alimony.

² The Federal Social Security Act, 42 U.S.C. §§407, 659(a), and 662(c) would exclude payments received as Social Security benefits from distribution in a division of marital property.

³ In Elhajj v. Elhajj, 605 A.2d 1268 (Pa.Super. 1992), also decided in the same jurisdiction as Cornbleth v. Cornbleth, 580 A.2d (Pa.Super. 1990), the court also distinguished Cornbleth on its facts wherein both the husband and the wife received CSRS pension benefits and neither received Social Security benefits.

"[I]n the present case,unlike Cornbleth, both Husband and Wife are participants in the Civil Service Retirement System. Neither Husband nor Wife pays social security taxes; neither Husband nor Wife is entitled to social security benefits. Hence, we conclude that the trial court has not committed an abuse of discretion by declining to extend the reasoning in Cornbleth to the present case." Elhajj, 605 A.2d at 1276.

Thus, Cornbleth has been distinguished on its face more than once, and our doing so here is certainly not novel.

⁴ Janet's Social Security benefits are estimated to be $319 per month, and Richard's hypothetical Social Security benefits are estimated to be $586.97 per month.

⁵ The experts also differed in regard to the date for determining the discount/interest rate, which difference had only a relatively minimal impact on the experts' final results.

Until 1990, many government pension participants faced an unenviable prospect upon divorce. Participants in state or federal government plans that take the place of Social Security found that their entire pension was thrown into the marital pot. However, if their spouses worked in jobs covered by Social Security, only their company pensions, if any, were considered an asset subject to equitable distribution. Their Social Security was not included in the marital estate because of the federal prohibition against dividing Social Security in a divorce. In Hisquierdo v. Hisquierdo, 439 U.S. 572, 587 (1979), the court ruled that Tier I-essentially Social Security-benefits of the Railroad Road Retirement Board were not subject to direct division.

THE COURTS' VIEW
In an increasing number of cases this decade, courts have concluded that Social Security, while not directly divisible, is an essential property factor when the economic partnership of marriage ends. See Pogonis v. Pogonis, 606 A.2d 1055 (Me. 1992), Knapp v. Knapp, 874 S.W.2d 520 (Mo Ct. App. 1994) and White v. White, 284 N.J. Super. 300, 664 A.2d 1297 (Ch. Div. 1995) for several notable examples.

Cornbleth v. Cornbleth, 397 Pa. Super. 421, 580 A.2d 369 (1990), challenged that prohibition in an innovative way. It introduced the concept of "hypothetical" Social Security benefits. Instead of directly dividing the Social Security of the spouse who worked under covered compensation, it looked at part of the government pension as being in lieu of Social Security and not subject to equitable distribution.Terry Cornbleth, a clinical psychologist, was covered under the Civil Service Retirement System (CSRS) and did not participate in Social Security. Catherine Cornbleth, a professor, also had amassed a pension and Social Security benefits. The inequity, Mr. Cornbleth's counsel argued, stemmed from the sacrosanct nature of the Social Security benefit, which remained beyond the reach of equitable distribution while all of Mr. Cornbleth's pension assets were included in the marital pot. After all, some of Mr. Cornbleth's martial monies went into the Social Security payments for which he would receive no benefit.The use of hypothetical Social Security skirted the problem of directly dividing the Social Security benefit. The Cornbleth court's solution follows: "To facilitate a process of equating CSRS participants and Social Security participants, we believe it will be necessary to compute the present value of a Social Security benefit had the CSRS participant been participating in the Social Security system. This present value should be deducted from the present value of the CSRS pension¼. This process should result in equating, as near as possible, the two classes of individuals for equitable distribution purposes."In practice, a hypothetical offset is calculated by running the individual's earnings history under the CSRS-type pension through Social Security software to determine the accrued benefit he would have had under Social Security. This step is followed by a typical present value computation to determine the amount of the offset against his government Pension. Pennsylvania moved in this direction in the McClain case, McClain v. McClain, Pa. Super. 693 A.2d 1355 (1997). It refined Cornbleth by stating that no Social Security offset should be used when no actual Social Security benefit exists.A number of courts have avoided the obvious fairness problem of hypothetical offsets by factoring in the actual Social Security benefits of the couple. These courts have been careful to point out that Social Security benefits, while not a directly divisible asset, are an important factor in dividing government pensions, which are Social Security substitutes.Clearly, whether hypothetical or actual Social Security offsets are employed, state courts have been careful to note that they are not dividing Social Security but only factoring it in to the totality of circumstances.  The Iowa Supreme Court in Boyer questioned whether the U.S. Supreme Court ruling in Hisquierdo should cause a state domestic relations court to "purge so obvious an economic reality in its assessment." In re Marriage of Boyer, 538 N.W.2d 293, 296 (Iowa 1995), they concluded that differing Social Security entitlements between spouses should enter the division of marital property.Other courts disagree that Social Security can be factored into a divorce even when cloaked in the "totality of circumstances" argument. "Calling a duck a horse does not change the fact it is still a duck," said the Nevada court at 921 in Wolf v. Wolf, 929 P.2d 916 (Nev. 1996). Wolf rejected any consideration of the Social Security benefits of the couple.

[ Back to top ]