Bishop v. Bishop

• Decision Date: 01 March 1994
• Docket Number: No. 9329DC288,9329DC288
• Parties: Nancy BISHOP v. Harry H. BISHOP, Sr.
• Court: North Carolina Court of Appeals

Page 591

440 S.E.2d 591

113 N.C.App. 725

Nancy BISHOP v. Harry H. BISHOP, Sr.

No. 9329DC288.

Court of Appeals of North Carolina.

March 1, 1994.

Averette & Barton by Donald H. Barton, Brevard, for plaintiff-appellant.

Law Office of Paul B. Welch, III by Paul B. Welch, III and Susan Fosmire Reid and Jack H. Potts, Brevard, for defendant-appellee.

GREENE, Judge.

Nancy Bishop (plaintiff) appeals from the entry of an order of equitable distribution.

Prior to the hearing on equitable distribution in this case, plaintiff and Harry H. Bishop, Sr. (defendant), resolved many of the equitable distribution issues by consent. At the hearing, the trial court was asked to classify, value, and distribute three assets: defendant's military retirement, defendant's DuPont retirement, and defendant's DuPont incentive plan. The trial court concluded that the DuPont retirement plan was a marital asset and that the military retirement was defendant's separate property. The trial court further concluded that an equal division of the marital property was equitable and entered the following order:

2. The Defendant's DuPont retirement account shall be and remain the property of the defendant.

3. The Defendant is ordered to pay to the Plaintiff the sum of $7,785 not later than the closing date on the sale of the marital home, or not later than January 20, 1993, whichever date arrives first. That sum shall bear interest at the legal rate from the date of the filing of this Order to the date of payment.

In support of the conclusions and the order, the trial court entered the following relevant findings of fact:

1. The parties ... separated on December 26, 1990....

2. Defendant is a white male who was 48 years old on DOS [date of separation].... The valuations given below require that an estimate be made of Defendant's lifespan after DOS, and for that purpose, the Court has made use of the 1991 Statistical Abstract of the U.S., 1991 edition, which indicates the average remaining lifespan for a 48 year old white American male to be thirty years. Acknowledging that different tables give different figures, from 27 years (N.C.General Statutes) to 34 years (I.R.S. tables), the Court prefers the Statistical Abstract tables because they give more reliable figures when the race and gender are known.

3. In addition to needing an estimate of Defendant's lifespan, the valuations given below require an interest rate. Although the rate for multi-year certificates of deposit on DOS was 7.6%, the trend in rates at that time was downward. For that reason, the Court finds the figure of 7.5% to be appropriate for the calculations used in arriving at the valuations given below.

4. Defendant was a member of the U.S. Air Force for 141 months, of which 108 were during the parties' marriage. He receives a monthly check from the U.S. Government, purporting to be for service-related disability. The amount of the check was $464 on the DOS; it has since been raised somewhat, but using the $464 figure, and the life span and interest rate noted above, the Court finds that the DOS value of Defendant's military disability income was $66,360. The Court calculated this value using the "Present Worth of 1 Per Period" column in the financial tables in the AmJur Desk Book.

5. Defendant is employed by DuPont. He began work there during the parties' marriage....

6. DuPont maintains a defined benefit retirement plan, in which Defendant was fully vested on DOS[.] In valuing this asset, the Court has assumed:

(a) That Defendant ceased working for DuPont on DOS, without penalty.

(b) That Defendant begins drawing his pension at age 65 (in August, 2007), which is the earliest date on which he can do so without suffering a substantial reduction in monthly payments.

Granting these two assumptions, Defendant's pension from DuPont will be $477 per month, beginning in August, 2007. The Court has used that figure and date, combined with the lifespan and interest rate mentioned above, and (again using the AmJur financial tables) has calculated the value of the right to receive $477 per month for thirteen years, which is $47,445. The Court has then calculated the value on DOS of the right to receive $47,445 in August of 2007. That latter value, $13,724, is the value of Defendant's pension on DOS. The Court notes that if instead of assumption (a), it is assumed that Defendant continued to work for DuPont to age 65, then his retirement income would be $958 per month, and the value of that pension on DOS would be $27,563, instead of the figure found above.

Evidence in the record shows that the DuPont pension plan is "entirely noncontributory on the part of employees and no identifiable contributions by DuPont are made on behalf of individual employees or allocated to, or set aside for any specific individual. Plan benefits are payable only in the form of a life annuity, generally for the life of the employee." On the date of separation, 26 December 1990, defendant's DuPont pension was vested. If defendant had terminated his employment with DuPont on 26 December 1990, he would have been entitled to a life-time monthly pension payment of $477 at age sixty-five or beginning in August 2007. Under the DuPont plan defendant was entitled to "retire and receive a reduced pension ... as early as 30 July 1992 or at age 50." Had defendant terminated his employment on 26 December 1990 and elected early retirement at age fifty he would have received a life-time monthly pension payment of $120. There was also evidence that defendant, a member of the United States Air Force for 141 months, was receiving from the Defense Finance and Accounting Service a $481 monthly retirement check "based on Service related disability retirement."

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The issues presented are whether (I) the DuPont pension was correctly valued, and (II) the defendant's military income is marital property.

I

In North Carolina, pursuant to N.C.Gen.Stat. § 50-20, pensions, retirement benefits, and other deferred compensation rights (hereinafter referred to as pensions), must, like other assets, be classified and valued. If the pension is classified as marital property it must be distributed between the parties to the marriage. N.C.G.S. § 50-20(a) (Supp.1993). If the pension is classified as separate property it must be considered as a distributional factor in distributing the marital property. N.C.G.S. § 50-20(c)(5) (Supp.1993).

Classification

A "vested" pension "acquired by either spouse ... during the course of the marriage and before the date of the separation" is marital property. N.C.G.S. § 50-20(b) (Supp.1993). A formula known as the coverture fraction is used to determine the portion of the employee-spouse's pension which was acquired during the marriage. N.C.G.S. § 50-20(b)(3); 3 William M. Troyan et al., Valuation & Distribution of Marital Property § 45.06 (1987) (hereinafter Troyan ). The numerator of the coverture fraction represents the total number of years of marriage, up to the date of separation, which occurred "simultaneously with the employment which earned the vested pension." N.C.G.S. § 50-20(b)(3) (Supp.1993). The denominator represents the total years of employment during which the pension accrued. Troyan § 45.06. A pension which is not vested on the date of separation is classified as the separate property of the employee-spouse. N.C.G.S. § 50-20(b)(2).

Valuation

The method for valuing a pension depends on whether the pension is a defined benefit plan or a defined contribution plan. These are the two most common of the funded pension programs. Troyan § 45.06. A defined contribution plan is a pension "plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account." 26 U.S.C.A. § 414(i) (Supp.1993). A defined benefit plan is defined by the Internal Revenue Code as "any plan which is not a defined contribution plan." 26 U.S.C.A. § 414(j). The benefit under such a plan is generally determined "without reference to contributions and is based on factors such as years of service and compensation received." Seifert v. Seifert, 82 N.C.App. 329, 333, 346 S.E.2d 504, 506 (1986), aff'd, 319 N.C. 367, 354 S.E.2d 506 (1987).

Valuing a defined contribution plan merely requires determining the value of the employee-spouse's account in existence on the date of separation. Troyan § 45.06. Valuing a defined benefit plan on the other hand is "fraught with uncertainties." Lawrence J. Golden, Equitable Distribution of Property § 7.13, at 228 (1983) (hereinafter Golden ).

First, whether benefits are received at all is contingent on the employee serving the requisite number of years with the employer and on the plan being solvent. The total amount of such benefits will depend on how long the employee survives after retirement. Further ... future dollars must be translated into present value.

Id. Nonetheless, methods for valuing defined benefit plans have been developed by accountants and actuaries and accepted by the courts. See Troyan § 45.23; Golden § 7.13; Barth H. Goldberg, Valuation of Divorce Assets § 9.5 (1984). Having reviewed these methods and the methods presently utilized by some of our district court judges, see Clarence E. Horton, Jr., Principles of Valuation in North Carolina Equitable Distribution Actions, Institute of Government, Special Series No. 10 (April 1993 Rev.), and believing that consistency in valuation methods is important, we adopt the following method for evaluating defined benefit pension plans.

First, the trial court must calculate the amount of monthly pension payment the employee, assuming he retired on the date of separation, will be entitled to receive at the later of the earliest retirement age or the date of separation. This calculation must...