Bailey v. Bailey

• Decision Date: 06 February 1998
• Citation: 708 So.2d 354
• Parties: 97-1178 La
• Court: Louisiana Supreme Court

Page 354

708 So.2d 354

97-1178 La. 2/6/98

Sherrie Jean Eddlemon BAILEY v. James Marvin BAILEY.

No. 97-C-1178.

Supreme Court of Louisiana.

Feb. 6, 1998.

Rehearing Denied April 3, 1998.

David E. Stone, Alexandria, for Applicant.

Field Vernon Gremillion, III, Alexandria, for Respondent.

[97-1178 La. 1] LEMMON, Justice. ^*

This is an action to partition community property. The asset at issue at this stage of the proceeding is a retirement account in the name of James Bailey, an employee of the State of Louisiana and a member of the Louisiana State Employees Retirement System (LASERS). The funds in the account were credited by LASERS over a maximum period of three years as part of a deferred retirement plan in accordance with La.Rev.Stat. 11:447-451, the Deferred Retirement Option Plan (DROP) for eligible members of LASERS which allowed payment of earned retirement benefits into a DROP account based on fictitious retirement while the employee continued to work.

At the beginning of, and during part but not all of, the three-year period that LASERS credited funds into the account, Bailey was married to Sherrie Eddlemon Bailey. The principal issue in this court is whether the spouse of a state employee [97-1178 La. 2] in LASERS' DROP program is entitled to any portion of the DROP account that is attributable to funds credited by LASERS after the termination of the community.

Facts

In July 1977, James Bailey married Sherrie Bailey. Mr. Bailey had been a member of LASERS since 1963. In October 1993, Mr. Bailey opted to participate in LASERS' DROP program, and LASERS credited funds monthly into his DROP account, as described hereinafter, for a period of three years. In the meantime, James and Sherrie Bailey divorced, and the community of acquets and gains formerly existing between the parties was terminated retroactive to January 28, 1994.

At the partition trial, the parties stipulated that Mrs. Bailey was entitled, as of the date Mr. Bailey entered the DROP program, to one-half of 53.65 percent of Mr. Bailey's regular retirement benefits under the formula set forth in Sims v. Sims, 358 So.2d 919 (La.1978), as the non-employee spouse's share of the pension rights attributable to the employee spouse's employment during the existence of the community.

The trial court rendered a judgment partitioning the community property. As to Mr. Bailey's DROP account, the judgment divided the account into two components: (1) that portion attributable to funds credited by LASERS to the account between the date Mr. Bailey entered the DROP program and January 28, 1994, the date the community was terminated; and (2) that portion attributable to funds credited by LASERS to the account after the termination of the community. The judge classified the first portion as community property and awarded Mrs. [97-1178 La. 3] Bailey one-half of 53.65 percent of that amount. The judge further classified the second portion as Mr. Bailey's separate property.

In an unpublished opinion, the court of appeal affirmed. The court noted that while an employee's entitlement to optional participation in the DROP program is contingent upon past years of service, the program "contemplates that an employee continue working for three years." Slip opinion p. 4. Hence the court concluded that the trial court correctly characterized the disputed portion of Mr. Bailey's DROP account as "earned" after the termination of the community and therefore his separate property.

The dissenting judge reasoned that since an employee's right to participate in the DROP program is based entirely on past participation in the retirement system, the majority improperly focused on the employee's employment while in the DROP program. For purposes of the DROP program, the dissenting judge observed, the employee became a retiree and was entitled to receive retirement benefits at the time he entered the DROP program, and not when he completed the three years in the program. Thus the DROP account was an asset attributable to the employee's employment before the termination of the community, although a portion of the funds were credited to the account after the termination.

On Mrs. Bailey's application, we granted certiorari primarily to consider the res nova question of whether an employee spouse's DROP account, to the extent attributable to funds credited by LASERS after the termination of the community, constitutes the separate property of the employee spouse, or is apportionable between community property and separate property in accordance with the Sims formula. 97-1178 (La.6/30/97); 696 So.2d 996.

[97-1178 La. 4] Deferred Retirement Option Plan

The DROP program is described by LASERS in its publication to members as follows:

DROP is an optional method of retiring from the Louisiana State Employees' Retirement System (LASERS).... When an employee enters DROP, his status in LASERS changes from active member to retiree, even though he continues working at his regular job. The employee can participate in DROP for up to three years. During his DROP participation, he accumulates money in an individual account based on what he would have received as a monthly retirement benefit. He also continues to earn his regular salary. He can withdraw the money from his DROP account after he ends state employment-either as a lump sum or a series of payments spread out over time.

La.Rev.Stat. 11:447-451 authorize a state employee who is eligible for retirement to participate in the deferred retirement option plan, "[i]n lieu of terminating employment and accepting a retirement allowance." La.Rev.Stat. 11:447 A. Under DROP, an eligible state employee may enroll in the plan and is thereafter "considered by the system to be in a retired status" for the period he or she participates in the program. La.Rev.Stat. 11:448 A. Although the employee continues to work, payments are credited monthly into the employee's DROP account in the amount of the retirement benefits that the employee was eligible to receive if he or she had retired. La.Rev.Stat. 11:448 C. The base amount of the employee's eventual monthly retirement benefits is fixed as of the time he or she enters the DROP program. La.Rev.Stat. 11:448 B. The employee does not receive the funds credited into the account until he or she actually retires, La.Rev.Stat. 11:450 A, but neither does the employee receive any service credit in the calculation of the eventual monthly retirement benefits for the years that the employee continues to work while in the DROP program. La.Rev.Stat. 11:448 B.

As far as LASERS is concerned, the employee is retired and is credited in the DROP account with the amount of retirement benefits that would be due; as far as the employer is concerned, the employee continues to work and receives the [97-1178 La. 5] salary for work performed; and as far as the employee is concerned, he or she receives the salary for the work performed and receives credit in the DROP account (which is not available to the employee until sometime in the future) for the retirement benefits that would have been paid had he or she retired, but is ineligible during the DROP period for accruing additional credits toward the calculation of either the base retirement benefits or the possible supplemental benefits earnable upon employment after the DROP period ends.

After the period of participation in the DROP program, the employee, if he or she elects to remain in service, begins accruing additional service credit in the calculation of his or her eventual monthly retirement benefits, but such additional credit is in the nature of a supplemental pension, in addition to the base benefits that were fixed at the time the employee entered the DROP program. La.Rev.Stat. 11:450 D.

Parties' Position

Neither party disputes that the portion of the DROP account attributable to funds credited by LASERS to the account before the termination of the community is apportionable in accordance with the Sims formula. The parties differ as to the portion of the DROP account attributable to funds credited by LASERS to the account after the termination. Mr. Bailey contends that since the funds were credited by LASERS only if he continued to work, such credits are a form of incentive earnings and are thus his separate property. Mrs. Bailey, on the other hand, contends that the entirety of the DROP account is a retirement benefit attributable to her former husband's employment prior to or during the existence of the community and that she is entitled to her Sims formula percentage of the entirety of the DROP account.

[97-1178 La. 6] Community Property Status of DROP Account

The employment and retirement contributions that gave rise to Mr. Bailey's right to have funds credited to the DROP account occurred prior to and during the existence of the community, and not after the termination. ¹ It follows then that the right to receive the funds in the DROP account, at least the portion attributable to Mr. Bailey's labor and efforts and retirement contributions during the existence of the community prior to entering the DROP program, ² constitutes a community asset.

This court addressed the interplay between ordinary retirement plans and community property rights in two seminal cases: T.L. James & Co. v. Montgomery, 332 So.2d 834 (La.1975), and Sims v. Sims, 358 So.2d 919 (La.1978).

In T.L. James, we recognized that deferred compensation earned during the existence of the community accrues to the benefit of both spouses. In Sims, we articulated the following principle:

[A]t the dissolution of the community, the non-employed spouse is entitled to judgment recognizing that spouse's interest in proceeds from a retirement annuity ... when they become payable with the spouse's interest to be recognized as one-half of any payments to be made, insofar as they are attributable to the other spouse's contributions or employment during the existence of the community.

[97-1178 La. 7]...