Professor Pamela George
RETIREMENT BENEFIT SUMMARY
I. Retirement Benefits - Generally
As noted in your text, retirement benefits often represent a couple's most valuable asset. This area of marital property has been ever changing; in fact, unmatured retirement benefits were not even considered as divisible marital property until 1976. This summary tracks the evolution of recognition, valuation, and division of retirement benefits.
II. Cearley v. Cearley 544 S.W.2d (Tex. 1976).
The trial court in Cearley ordered that if and when the husband received his retirement benefits, wife should receive one-half of 18, (representing the years they had been married and he had been employed) over the number of years of active service until retirement. This decision of the trial court was reversed by the court of appeals because they found that a trial court was without authority to order division of a husband's prospective military retirement benefits because no vested interest had been acquired therein at the time of the divorce judgment. Nonetheless, the Texas Supreme Court found that military retirement pensions earned during the marriage were community property. (In studying this case, pay special attention to how the California courts had dealt with this issue of retirement benefits). The Texas Supreme Court flatly rejected the argument that retirement benefits were a mere expectancy because husband had not retired prior to divorce and that the rights were subject to forfeiture by death or dishonorable discharge prior to his retirement. The Court held that the benefits were community property even though they had not matured and were not at the time of divorce subject to possession and enjoyment. Simply put, community rights may exist in interests that cannot be reduced to possession at the time of dissolution of the marriage, such as remainder or reversion rights. The Court further held that the trial court properly settled the matter in the divorce judgment by awarding "if, as and when" the retirement benefits reach maturity, thus taking into account the contingency.
III. Taggart v. Taggart, 552 S.W.2d 422 (Tex. 1977).
In this case, the divorce benefits were not divided upon divorce; but rather, were addressed in a post-divorce action that focused on the retirement benefits as omitted property. Based upon the Cearley decision, the court held that wife owned as part of her community estate a share in the contingent right to military retirement benefits even though the right had not matured at the time of divorce; however, the court held that the trial did not make the correct computation of wife's fractional interest. The trial court used 20 years as the denominator in computing Ann Taggart's half interest in the husband's retirement benefits. However, at the end of 20 years, the husband was not entitled to receive any retirement benefits because he had to serve an additional 10 years in fleet reserve. Thus, the denominator to determine the community interest should have been the 30 years that he had to serve. Thus, the correct computation of Ann Taggart's vested interest is that she was entitled only to:
½ x 246 (months married and in service x value of retirement pay
360 (months in service to date of retirement
The 246 represents the months that Ann was married to George while he was serving in the military. The 360 months represent his entire military service. This holding with regard to the computation of retirement benefits is still good today if the employed party is retired at date of divorce; however, if there is to be retirement in the future, a new case, as will be discussed below - Berry v. Berry, 647 S.W.2d 945 (Tex. 1983) - provides the formula.
An interesting note is Justice Yarbourgh's dissent in this case, expressing concern about the effect recognizing retirement benefits as omitted property will have in other cases.
IV. Berry v. Berry, 647 S.W.2d 945 (Tex. 1983).
The issue in this case is the proper formula to use when dividing retirement benefits that have not matured as of date of divorce. The pertinent facts in this case include the following:
Mr. and Mrs. Berry were married on November 11, 1939. On May 22, 1940, Mr. Berry was employed by Southwestern Bell Telephone Company. The couple was divorced on September 13, 1966. The decree of divorce did not mention the distribution of retirement benefits; thus, they were omitted. Mr. Berry continued working for Southwestern Bell until his retirement in June, 1978. After retirement, Mrs. Berry brought suit to collect her share of the retirement benefits.
The Southwestern Bell retirement benefit plan is a defined benefit plan. The formulas used in these plans vary from company to company, but Mr. Berry's retirement benefit was based upon the highest salary paid over a consecutive 60 month period which was multiplied by a factor obtained from total length of service. During the trial, the district staff manager for employee benefits for Southwestern Bell testified. He testified that as of the date of trial, Mr. Berry was being paid benefits in the amount of $946.34 a month. However, he testified assuming that had Mr. Berry been eligible to retire on September 13, 1966, the date of divorce - the retirement benefits would have amounted to $221.21. Based upon that, wife was entitled to receive $110.60 of each month's retirement benefit paid to Mr. Berry.
½ x 26 x $221.21 = $110.60
The court of appeals reversed the trial court's judgment and instead, using Taggart, determined that wife should be awarded one-half of 26/38 x $946.34, the amount Mr. Berry received at retirement. Thus, the court of appeals determined that Mrs. Berry should receive $323.74.
½ x 26 x $946.34 = $323.74
Upon appeal to the Texas Supreme Court, the Supreme Court sided with the trial court, determining that all monies which Mr. Berry earned after the divorce were in fact his separate property and could not be divided with or awarded to Mrs. Berry. Because the monies earned after divorce were his separate property, the community fraction could not use those years of service after the divorce. Thus, the denominator and the value of the plan froze at date of divorce, and a fiction was imposed to obtain the value of the retirement benefits at divorce date. In this case, the Court specifically stated that they are not to be understood as overruling Taggart v. Taggart insofar as that, and other opinions, approve an apportionment formula for determining the extent of community interest in retirement benefits. That is, when the retirement benefits are already being received. However, they note that when the value of such benefits is in issue, the benefits are to be apportioned to the spouses based upon the value of the community interest at the time of the divorce.
V. May v. May, 716 S.W.2d 705 (Tex. App. - Corpus Christi, 1986, no writ).
The case of May v. May perhaps presents the most well-analyzed application of the Berry formula. Although the formulas won't be set out within this summary, the following should be considered in your study. On page 500 of the text, which encompasses the May case, at the top of the page is set out the trial court's formula in determining wife's share of the benefits. Specifically, the trial court considered:
(months the parties married and in the plan)
X (the amount of monthly benefit the employee to receive on divorce)*
(the months in the plan at date of retirement)
*if the employed spouse had in fact been eligible to retire at that time
As you can see, in the trial court's formula, they were limiting wife's interest at date of retirement, thereby decreasing her interest by increasing the denominator; however, the court also decreased the value of the plan by limiting it to date of divorce. In considering the propriety of this formula, the appellate court reviewed all other possible retirement value formulas.
On page 501 is set forth the Taggart formula, which extends the denominator to date of retirement, but at the same time values the benefit at date of retirement. You might, in your study, take the formula set out on page 501 and put it under the Taggart case in your outline.
At the top of page 502, the court sets forth the Berry formula which uses a date of divorce denominator and, being consistent, uses a retirement benefit value as of date of divorce. You might want to take the formula set forth at the very top of page 502 and put it under the Berry case.
The last formula we see on page 502 is a hypothetical, considering outcome if Berry had used the Taggart formula. We see if such had been used, Mrs. Berry would have been entitled to almost three times as much as she was entitled to under the formula finally approved by the Texas Supreme Court.
Finally, on page 503, we see what Mrs. Berry would have been awarded if the Berry court had used the formula adopted by the trial court in May v. May. We see that using a date of retirement denominator and a date of divorce value, Mrs. Berry would receive the least under any formula. The court rejects this and finds that the formula used by the trial court in May was wrong and instead the formula that should have been used is the Berry formula. The proper May formula, using Berry, is set forth on page 504. We see that the denominator is controlled by date of divorce, as is the value of the plan. This is what we now use for valuing and apportioning defined benefit plans.
Another interesting point in this case deals with a second retirement plan that husband received under his employment with the Air National Guard. The trial court ordered that husband pay to wife a lump sum in return for his exclusive rights in the plan. Husband complains that these benefits should have been divided according to the Berry formula and paid "if, as and when." However, the Court finds that the trial court was well within its discretion to award the entirety of the benefits to husband and to offset by a lump-sum payment to wife. This is simply an exercise of the trial court's discretion.
VI. Pelzig v. Berkebile, 931 S.W.2d 398 (Tex. App. - Corpus Christi 1996, no writ).
Although this version of the case includes the court's analysis of the reimbursement plan, we will go straight to the analysis regarding the retirement accounts. In this cause, Berkebile contributed to two retirement accounts. The accounts were funded by contributions from Berkebile supplemented by corresponding contribution from his employer. Thus, unlike Berry, these were not defined benefit plans; rather, these were defined contribution plans. At date of marriage the accounts held $31,912.27. What is in issue is the value of the benefits at date of divorce, and the formula to be used in dividing the benefits into separate and community property. The court reiterates the holdings in May and Berry, that the value of retirement benefits are determined as of day of divorce. In this case, the value was an issue of credibility and the determination of the trial court was affirmed. However, there remained the issue of the trial court's approach of dividing the benefits into separate and community property.
In this case, husband's benefits were not controlled by his length of service, but by the amount of money he put into the plan. The court found that simply subtracting the pre-marriage sum from the sum available at divorce would yield community property. Thus, the court found that only $31,912.00 represents separate property; any additional contributions and interest, be it on separate or community contributions, were deemed to be community. This is a very harsh case when considering a party's retirement plan; that is, one's separate property cannot increase at all in a defined contribution plan. If husband had placed this money in a simple stock account, increases in value of that stock would have remained his separate property.
However, do not ignore a more recent case - the case of Lipsey v. Lipsey 983 S.W.2d 345 (Tex. App. -Fort Worth, 1998, no pet.). In the Lipsey case, the husband challenged the trial court's characterization of undistributed income in a retirement trust created prior to marriage as community property. The appellate court reversed the trial court judgment and looked at this retirement plan in the nature of a trust. Specifically, the appellate court found that husband created the plan with his separate property prior to marriage and that he received no distributions from the plan at anytime during his marriage. The court found, by definition, the undistributed plan income had not been distributed to husband and he had no right to compel such a distribution. Therefore he had not acquired the property. Since the husband did not actually acquire the undistributed plan income during the marriage, such income, though earned during the marriage, remained a part of the trust estate and was not subject to division. Furthermore, citing trust cases, the court stated that undistributed income to which a beneficiary has no right to compel distribution is not community property.
The Lipsey case perhaps can be used to mellow the harsh results in such cases as Pelzig v. Berkebile.
VII. Humble v. Humble, 805 S.W.2d 558 (Tex. App. - Beaumont 1991, writ denied).
In this case, the court was dealing with a defined benefit plan, just as was considered in Berry v. Berry. However, Mrs. Humble was married to Mr. Humble during his highest wage earning years, and yet, under the Berry formula, these high earning years were considered of no more value than the years at the first of his employment. By using the Berry formula, Mrs. Humble received only 13.5% of the benefits, when, in the last ten years during marriage, Mr. Humble's pay and benefits had increased fourfold.
To truly understand the inequities of the Berry case go back to your notes from class to work through the formula that establishes that inequity.
VIII. Grier v. Grier, 731 S.W.2d 931 (Tex. 1987).
In this case, the trial court awarded wife a portion of husband's benefits valued as if he had been a lieutenant colonel. The court of appeals, however, determined that his retirement benefits should be valued by his rank at date of divorce - that of major. The wife argued, before the Texas Supreme Court, that the court of appeals erred in awarding the benefits based on rank of major rather than on the higher lieutenant colonel. The Supreme Court disagreed with wife.
Citing the case of Berry v. Berry, the Court determined that benefits are to be apportioned based on the value of the community interest at time of divorce. The Court goes on to note that at time of divorce husband, in Grier, was a major, even though he was on the promotion list. Specifically, the court held that the valuation of the community's interest is to be based on retirement pay which corresponds to the rank actually held by the service spouse on the date of divorce.
Justice Mauzy, in his dissent, notes that once an officer has been selected and approved for promotion by the President with the advice and consent of the Senate, and his name is subsequently published in the applicable military circular, the signing of his commission is a matter of routine, and the actual receipt of the commission is assured, absent disciplinary action for an egregious act, such as moral misconduct or felony charges. Thus, Mauzy viewed husband's promotion as having been earned during the marriage and argued, in his dissent, that retirement benefits should have been based on the rank of lieutenant colonel.
IX. Conn v. Trow, 715 S.W.2d 152 (Tex. App. - Texarkana 1986, no writ).
In the divorce decree, wife was divested of any title and interest in any and all proceeds from husband's retirement plan through his employer, the University of Texas Health Science Center in San Antonio. However, husband did not remove wife as the beneficiary after the divorce. After husband's death, wife sued the insurance company contending that as beneficiary she was entitled to get death benefits. The one issue on appeal was whether the divorce decree prevented wife's recovery of the death benefits. The court of appeals held that yes, she was so prohibited. The court found that the clear and express language of the decree required that it be construed to cover all proceeds including death benefits; simply put, wife had contracted away her rights. This situation is now foreclosed by statute.