COPELAND V. COPELAND, 1978-NMSC-011, 91
N.M. 409, 575 P.2d 99 (S. Ct. 1978)
Marjorie J. COPELAND,
Petitioner-Appellant,
vs.
Lee Roy COPELAND, Jr., Respondent-Appellee.
SUPREME COURT OF NEW MEXICO
1978-NMSC-011, 91 N.M. 409, 575 P.2d 99
James E. Thomson, Santa Fe, for
appellant.
Branch & Coleman, Arthur H. Coleman,
Rhonda P. Backinoff, Albuquerque, for appellee.
McMANUS, C.J., wrote the opinion. EASLEY
and FEDERICI, JJ., concur.
{*410} McMANUS, Chief
Justice.
{1} This suit was filed in
the District Court of Santa Fe County for dissolution of marriage. The case was
tried before the court without a jury, and judgment was entered granting
dissolution of the marriage. The assets and debts of the parties were divided
and no alimony granted to petitioner-appellant (wife). The wife appeals.
{2} The primary question in
this appeal concerns the disposition of retirement or pension benefits in a
divorce proceeding. This subject has only been addressed once in this state. In
LeClert v. LeClert,
80 N.M. 235,
453 P.2d 755 {*411}
(1969) this Court held that retirement plans are a form of employee
compensation and if acquired during coverture are community property subject to
division. In
LeClert, supra, the question of "vesting" or
"maturing" of benefits was not directly in issue since the husband
had already been ordered to retire although he had not actually retired at the
date of the proceedings. In the instant case, the appellee needed to complete
only nine additional months of state employment to be eligible for a
twenty-five year retirement benefit under the State PERA plan although he would
not reach sixty (retirement age) for another seven years. The issues to be
resolved are (1) when are retirement benefits sufficiently vested to be subject
to division in a divorce proceeding and (2) how should such benefits be
apportioned to reach a just and equitable result.
{3} The leading case in this
area of division of pension benefits has been
French v. French, 17
Cal.2d 775, 112 P.2d 235 (1941) (discussed in
LeClert, supra) which held
that a nonvested pension right is not property, but a mere expectancy and not a
community asset subject to division upon divorce. This case has been followed,
and then limited and distinguished for thirty-five years in California and
other community property states. In 1976, however, the California Supreme Court
reconsidered the holding of
French v. French, supra, and expressly
overruled that case and the line of cases which followed. In
In re Marriage
of Brown, 15 Cal.3d 838, 126 Cal. Rptr. 633, 544 P.2d 561 (1976) the court
held that nonvested pension rights are not an expectancy but are a contingent
interest in property subject to division. This result was compelled by the
inequitable division of property when a marriage of substantial length breaks
up and the major asset is a pension plan which has been acquired during the
marriage but has not yet matured, i.e., is not subject to immediate
disbursement. In
In re Marriage of Brown, supra, the husband had worked
twenty-three years and could opt to retire after twenty-five years or wait
until he was sixty-three. The court stated:
The present case illustrates the point. Robert's pension
rights, a valuable asset built up by 24 years of community effort, under the French
rule would escape division by the court as a community asset solely because
dissolution occurred two years before the vesting date. If, as is entirely
likely, Robert continues to work for General Telephone Company for the
additional two years needed to acquire a vested right, he will then enjoy as
his separate property an annuity created predominantly through community's
effort. This "potentially whimsical result," * * cannot be reconciled
with the fundamental principle that property attributable to community earnings
must be divided equally when the community is dissolved.
15 Cal.3d at 847-848, 126 Cal. Rptr. at 638-639, 544 P.2d at
566-567.
{4} A similar result was
reached the year before by Washington's highest court in
Wilder v. Wilder,
85 Wash.2d 364, 534 P.2d 1355 (1975). That case held that a nonvested,
unmatured pension right was a contingent right subject to division upon
dissolution of the community which the trial court must consider. Texas has
also followed this line of reasoning and adopted this approach in
Cearley v.
Cearley, 544 S.W.2d 661 (Tex. 1976).
See also, DeRevere v. DeRevere,
5 Wash. App. 741, 491 P.2d 249 (1971).
{5} In the past a plan was
"vested" only when all of the requirements of the retirement plan had
been met and the employee was eligible to receive the benefits. These recent
cases have made the distinction between the terms "vesting" and
"maturing." The term "vesting" means acquiring a right to
benefits or to a benefit plan as a part of the compensation of an employee
which is not subject to unilateral forfeiture or recision by the employer
without terminating the employment relationship. If the employer can revoke all
benefits without the consent of the employee and without having to account for
contributions made to the plan (while the employee retains his job), then the
employee's interest cannot be said to constitute a property right
{*412} because the benefits rest upon the whim
of the employer. A plan is "vested" when it is not subject to a
condition of forfeiture when the employee terminates employment before
retirement.
In re Marriage of Brown, supra. This includes both
contributory and non-contributory plans. A retirement right that has
"vested" is a property right. As such it is entitled to
constitutional protection as for example against taking without due process of
law in violation of both the federal and New Mexico constitutions. When the
requirements of vesting have once been met, no longer may the employer unilaterally
terminate, diminish or alter the vested rights.
{6} On the other hand, a
pension plan "matures" when the employee is entitled to receive the
benefits which he has earned through the years and is eligible to retire. This
was the situation in
LeClert v. LeClert, supra.
{7} In the present case, we
need not reach the question of the disposition of a "nonvested"
pension plan. The husband's right to PERA benefits was clearly vested at the
date of the proceedings. The husband had twenty-four years and three months
service as a state employee. He could have terminated his employment at that
time with the state and still have been entitled to collect some pension
benefits when he met the eligibility requirement of reaching age sixty.
1 Alternatively, he could have retired
after twenty-five years and collected retirement benefits. Of course, had he
continued to work until age sixty and then retired, his benefits would have
increased. Therefore, his benefits were "vested" but
"unmatured." Here the trial court considered the amount the community
contributed to be only the "vested" portion subject to division.
Because the benefits were subject to divestment (except for the contributed
portion) by death, the trial court assumed that such future benefits could not
be considered in the total assets of the community.
{8} This trend toward
considering unmatured pension benefits as community property subject to
division upon dissolution of the community is based upon sound reasoning and
equitable considerations. Permitting the husband to keep his full benefits
simply because he still had nine months to work before he was eligible to
retire would work a great injustice. There was testimony that based on the
husband's current income, if he retired at sixty he could expect to receive
around $200,000 from retirement benefits. The $15,000 community contribution
from the husband's salary in no way takes into account the value of the pension
plan. The value of the retirement benefit plan is property subject to division.
The question now becomes how to value the unmatured pension plan for division.
{9} The parties both cite
Everson
v. Everson, 24 Ariz. App. 239, 537 P.2d 624 (1975) and
In re Marriage of
Pope, 544 P.2d 639 (Colo. App.1975) for the proposition that it is the
amount of community contributions which is to be divided. In both cases the
court determined that only that portion of the plan was "vested" and
therefore subject to division. In
Everson v. Everson, supra, the $16,000
was the husband's "vested" interest which he would have received if
he retired at age sixty-five, quit, died or was disabled. Here, the husband
will be entitled to more than $15,000 (although not in a lump sum) upon
retirement. In
In re Marriage of Pope, supra, the only sum deemed
"vested" (there, meaning not subject to divestment by death,
termination or disability) was the
{*413} contributed
portion. Apparently the Colorado court did not consider the
"nonvested" or the "unmatured" portion of the pension plan
community property subject to division.
{10} As was pointed out in
Phillipson
v. Board of Admin., Pub. Emp. Retire. Sys., 3 Cal.3d 32, 48, 89 Cal. Rptr.
61, 72, 473 P.2d 765, 776 (1970):
The actuarial value of the a life pension usually far exceeds
the amount of the employee's accumulated contributions plus interest. The
withdrawal of these contributions for an employee with lengthy service results
in the destruction of the additional value without benefit to the withdrawer.
In that case the husband had absconded with all the community
property and so the court awarded the entire pension to the wife. The court
also stated that it could control the form of the benefits selected and that
the wife did not have to withdraw the accumulated funds. The cases are in
agreement that at the time of the divorce the court must place a value on the
pension rights and include it in the entire assets, then make a distribution of
the assets equitably. See, Hutchins v. Hutchins, 71 Mich. App. 361, 248
N.W.2d 272 (1976). But how shall this be done? In considering a nonvested
pension plan, the court in Wilder v. Wilder, supra, said:
We think the proper rule is that the court must consider all
the circumstances and evaluate the probability that the party who has a contingent
right to a pension will eventually enjoy that pension. The length of time
remaining before eligibility matures is a factor for the court to consider;
also, the other options open to the person and the likelihood that he may * * *
decide to pursue some other career and abandon his pension rights. Also, the
court must take account of the community's investment in the pension system and
determine whether, in the event the party entitled to the pension decides to
abandon his rights, the community's contribution should nevertheless be
considered an asset under his control and be balanced against other assets
awarded to the other party. There can be no set rule for determining every case
and as in all other cases of property distribution, the trial court must
exercise a wise and sound discretion.
85 Wash.2d at 369, 534 P.2d at 1358.
{11} The court went on to
affirm the trial court's judgment whereby the husband was ordered to pay the
wife a certain sum each month either out of the pension to which he would be
entitled in one year or out of his salary if he elected not to retire. In
Ramsey
v. Ramsey, 96 Idaho 672, 535 P.2d 53 (1975) the husband had retired from
the military and was receiving his pension. The trial court awarded a
percentage of his monthly benefits but the supreme court held that the wife's
interest should be reduced to immediate possession. The court said that a
determination should be made upon remand of the present value of the husband's
retirement pay based upon his life expectancy and discounted for present value.
This is generally done on the basis of actuarial tables. In
In re Marriage
of Brown, supra, the appellate court also advised the trial court to take
account of the possibility of death or termination of employment and to
evaluate those risks when determining the present value of nonvested, unmatured
pension rights. In this present case the wife contends that the present value
of the husband's retirement benefits was $70,000.
{12} Some courts have felt
that it is better to leave the risk apportioned between the two parties and to
award either a specified amount or a certain percentage of the benefit to the
nonretiring spouse if, when and as the benefits are paid. The administration of
this type of award would be more complex but the court in
In re Marriage of
Brown, supra, held that an administrative burden was not sufficient
justification for refusing to divide the benefits in this manner, because it
takes into account all of the contingencies. The administration of an ongoing
payment type of award should not be an onerous burden though, because alimony
and child support payments have
{*414} been
adequately handled in this manner. Such an "if, when and as received"
payment award has been approved in the cases in various jurisdictions.
See,
In re Marriage of Brown, supra; Cearley v. Cearley, supra; Miser v. Miser,
475 S.W.2d 597 (Tex. Civ. App.1971);
DeRevere v. DeRevere, supra; Pinkowski
v. Pinkowski, 67 Wis.2d 176, 226 N.W.2d 518 (1975).
{13} It would appear that a
flexible approach to this problem is needed. The trial court should make a
determination of the present value of the unmatured pension benefits with a
division of assets which includes this amount, or divide the pension on a
"pay as it comes in" system. This way, if the community has
sufficient assets to cover the value of the pension, an immediate division
would make a final disposition; but, if the pension is the only valuable asset
of the community and the employee spouse could not afford to deliver either
goods or property worth the other spouse's interest, then the trial court may
award the non-employee spouse his/her portion as the benefits are paid. The
wife made a similar request during these divorce proceedings.
{14} The wife also appeals
from a denial of alimony. Since the trial court must reconsider the division of
the property pursuant to this opinion, the question of alimony is not in order
until the extent of property awarded to each party is determined.
Hughes v.
Hughes,
91 N.M. 339,
573 P.2d 1194 (1978).
{15} This case is remanded to
the District Court of Santa Fe County so that it may proceed to equitably
divide the community property in light of this decision.
{16} Appellant is awarded
attorney's fees in the amount of $750.00.
EASLEY and FEDERICI, JJ., concur.
1
The trial court in the findings of fact concluded:
18. Under the rules and regulations of the P.E.R.A., were
Respondent to resign at present from State employment, he would be entitled to
now withdraw from P.E.R.A. only the $15,704.29 which he has paid in, without
interest or any other sum.
This finding is incorrect both legally and factually.
Section 5-5-14, N.M.S.A. 1953 (Repl. 1974) was effective 1971 and provides for
a deferred retirement annuity when an employee has five years or more of
contributing services. As long as the husband did not withdraw his
contributions, he would still be entitled to retirement benefits if he quit
under this section. This option should also be considered upon remand in
determining the value of the benefits.