DATES SERVICES RENDERED KEY TO MILITARY/CIVILIAN RETIREMENT AS SEPARATE PROPERTY

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An interesting case was recently decided regarding retirement credits involving military and civilian work.  In reversing the trial court, in this case, California’s Supreme Court held that four (4) years of additional retirement credits, which Husband was eligible for through premarital military service, are his separate property, minus the funds used to reimburse the community for funding the purchase of those credits.  The key to the court opinion in the case of In re Marriage of Green (2013) 56 Cal.4th 1130, 158 Cal.Rptr.3d) was the dates those services were rendered.

The facts of the case were determined as follows:  Prior to the parties being married, Husband served in the U.S. Air Force from July 1982 through May of 1986.  In June of 1989, he began working as a firefighter for a regional fire authority in Dublin, California.  This made him eligible to participate in CalPERS, the California Public Employees’ Retirement System, which in turn made him eligible to purchase up to four years of service credit toward his retirement benefits because of his military service.

Husband married Wife in May of 1992.  In 1997, the regional fire district Husband worked for merged with the Alameda County Fire Department, and Husband continued working for the newly created department.  He also continued his participation with CalPERS.  In August of 2002, Husband exercised his right to purchase four years of credit based on his military service, which he elected to pay through twice-monthly payroll deductions of $92.44, until July 2017.  Those deductions accrued to a total of $11,462 in community funds at the time the couple separated on October 1, 2007.

Wife filed for divorce in March of 2008.  At trial, a major issue for the court was whether it should characterize Husband’s military service credit as community property or separate property.  The trial court determined the credit to be Husband’s separate property, but it also ordered him to pay $6,699 to Wife for half of the community property payroll deductions made to purchase the credit, plus 6% interest thereon.  Wife appealed the trial court’s decision.

California’s First District Appellate Court reversed the trial court’s ruling.  It found that the service credit was community property due to the fact it had been purchased during the marriage using community funds.  The California Supreme Court granted review and reversed the First District.

In reaching its decision, the California Supreme Court considered many cases dealing with facts that differed from those in this case.  In their opinion, the justices noted that the rule to be applied to all these different legal and factual scenarios was derived from Hogoboom & King, California Practice Guide: Family Law as follows:  “Pension and retirement benefits are a form of employment compensation and thus tantamount to ‘earnings.’  As such, regardless of when the benefits ‘vest’ or are received, they are characterized in accordance with the employee’s marital status at the time the services were rendered; i.e., the benefits are community property to the extent attributable to employment during marriage.”

The key to this decision, obviously, is that retirement benefits in California are to be characterized according to the employee spouse’s marital status at the time the underlying services were rendered.

SPOUSAL SUPPORT AND YOUR RETIREMENT

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When it comes to dealing with retirement issues regarding spousal support, it could be crucial to understand what the case of In the Marriage of Olsen (1993) 14 Cal.App.4th 1 stands for.  In Olsen, the California Appellate Court stated that the trial courts have broad discretion to consider unwithdrawn retirement contributions and accruals as available for the setting of spousal support.

However, the justices in Olsen admonished that the trial court must give consideration to the dual but possibly conflicting public policies of awarding spousal support where appropriate and of encouraging citizens to save for their retirement.  The Olsen court concluded that trial courts possess broad discretion when setting or modifying permanent spousal support about whether to consider as income contributions to individual retirement plans and accruals not withdrawn.  The Olsen court stated it is easy to foresee cases where contributions and accruals are best not considered as income available to pay permanent spousal support.

In the case of In Re Marriage of Reynolds (1998) 63 Cal.App.4th 1373, the court held that a payor husband who had reached the retirement age of 65 and was between 59½ and 70½ during which time he could withdraw funds from his IRA without penalty, could only consider investment income, not investment principal, as available to pay spousal support.

COURT HAS DISCRETION RE DIVIDING COMMUNITY RETIREMENT PLANS

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Retirement plans and the community benefits to be derived therefrom are covered under California Family Code §2610.  According to the code, with some exceptions, in a dissolution action the court shall make “whatever orders are necessary or appropriate” to ensure that each party receives the party’s full community property share in any retirement plan, whether public or private, including all survivor and death benefits.  This might include the court ordering one party to elect a survivor benefit annuity or other similar election for the benefit of the other party, as specified by the court, in any case in which a retirement plan provides for such an election, “provided that no court shall order a retirement plan to provide increased benefits determined on the basis of actuarial value.”

HUSBAND’S RETIREMENT INCOME SUBJECT TO SPOUSAL SUPPORT

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In California courts have ruled that it is okay to consider a husband’s retirement income when awarding spousal support, even though the retirement income was awarded to a party in the division of property.  In Irmo White (1987) 192 Cal.App.3d 1022, the court determined that a claim for support is not a claim to an ownership interest, but is a claim that monthly pension benefits “constitute income to (a party) which must be considered when assessing ability to pay spousal support.”

In White, the husband had been awarded the pension, while the wife was awarded the house.  In reaching its decision regarding husband’s pension, the court determined that any division of community property should be considered to be distinct from the ordering of support.

Because the division of community property is premised on absolute ownership of community assets by both parties, each must receive a respective full share.  In contrast, an award of spousal support is “broadly discretionary,” and it is based on considerations of equity in which the trial court needs to consider such factors as the needs and incomes of both parties.