Bowman v. Bowman

• Decision Date: 13 August 1985
• Citation: 217 Cal.Rptr. 174,171 Cal.App.3d 148
• Court: California Court of Appeals
• Parties: Celia BOWMAN, Plaintiff & Appellant, v. Mary D. BOWMAN, et al., Defendants and Respondents. G001539.

Page 174

217 Cal.Rptr. 174

171 Cal.App.3d 148

Celia BOWMAN, Plaintiff & Appellant, v. Mary D. BOWMAN, et al., Defendants and Respondents.

G001539.

Court of Appeal, Fourth District, Division 3, California.

Aug. 13, 1985.

[171 Cal.App.3d 150] James Ensign, Orange, for plaintiff and appellant.

Linda A. Chapin, Newport Beach, for defendant and respondent Mary D. Bowman.

OPINION

SONENSHINE, Acting Presiding Justice.

Celia Bowman appeals the court's order dismissing her complaint and entering judgment for Mary Bowman pursuant to Code of Civil Procedure section 437c. We are asked to decide whether the court erred in applying the terminable interest rule to defeat Celia's community interest in her deceased former husband's employment pension plan benefits. We also consider whether In re Marriage of Lorenz (1983) 146 Cal.App.3d 464, 194 Cal.Rptr. 237 precludes her from collecting any of the term life insurance proceeds. We hold the terminable interest rule is inapplicable to a private pension plan which is nonrestrictive in its choice of beneficiaries. And we find the trial court erred in concluding Celia had no community property interest in a life insurance policy partially funded with community funds.

Our inquiry does not end with these determinations. Mary has also alleged there were many other reasons prohibiting Celia from collecting any of her community interest in either proceeds. She renews these arguments on appeal. Some of these can be decided as a matter of law and those we address. The others, however, require factual determinations, and with those we proceed only as a guide to the trial court.

I FACTS

Rudy and Celia were married on November 7, 1949. Rudy was employed in 1956 as a pilot for Pan American World Airways. He was still working for Pan Am at the time of his death on December 21, 1981. ¹ Rudy's home life was not so stable. He and Celia separated and in 1968 divorced. Rudy and Celia's interlocutory judgment of divorce did not mention or award Rudy's pension plans or term life insurance. Rudy remarried but that marriage also ended ² and in 1979, Rudy married Mary.

The underlying lawsuit involves Celia's and Mary's respective rights to his pension plans and life insurance. He left everything to Mary. Celia filed a complaint against Mary, Pan Am's pilot plan and Travelers, the group life insurer. She claimed because the plans and the life insurance were not divided at the time of their divorce she was entitled to a portion of the proceeds. She also sought declaratory relief. The trial court found Mary, as a matter of law, was entitled to receive all of the pension benefits and the insurance proceeds.

II

PENSION PLANS

(A) Terminable Interest Rule

Rudy was a participant in a defined benefit plan and a defined contribution plan. The plans were established on July 1, 1955, and each provides benefits to beneficiaries designated by the employee. The amount paid pursuant to the benefit plan is determined by the length of service and the employee's salary. Rudy's beneficiaries receive $1,879.70 per month.

The amount paid under the contribution plan is based on the accumulated value of the employee's and employer's contributions. ³ Rudy had elected to receive a lump sum payment which amounted to $123,030.81.

The trial court, relying on the terminable interest rule, found Celia had no right to either of these benefits. She argues the court erred in relying on this judicially created rule established by our Supreme Court in Benson v. City of Los Angeles (1963) 60 Cal.2d 355, 33 Cal.Rptr. 257, 384 P.2d 649 and Waite v. Waite (1972) 6 Cal.3d 461, 99 Cal.Rptr. 325, 492 P.2d 13. Celia is correct; neither Benson nor Waite are applicable.

"Risking oversimplification, the first aspect of the [terminable interest] rule postulates that the community interest in accrued benefits does not extend to pension benefits payable following the death of the employee spouse. Thus, the nonemployee spouse may not claim pension benefits earned or accrued during marriage if the employee spouse designates a third party to receive them after his death.... [p] A second aspect of the Terminable Interest Doctrine postulates that the nonemployee spouse's interest in pension benefits terminates upon the death of the nonemployee spouse, so that the nonemployee spouse may not bequeath these benefits by will...." (Culhane, Terminable Interest Doctrine (1984) 14 Sw.U.L.Rev., 613, 615-616, fns. omitted.)

The genesis of the rule appeared in Packer v. Board of Retirement (1950) 35 Cal.2d 212, 217 P.2d 660. There a policeman's widow sued to compel payment of a pension. She alleged under previous provisions of her husband's plan she would have been entitled to a pension at his death. As a vested third party beneficiary, she complained the deletion of those provisions was improper.

The court, however, could "find no reason for departing from the decisions which have stated that the wife of a public employee does not acquire a vested interest in a pension until it becomes payable to her. A different rule, in fact, would remove a considerable amount of the flexibility necessary for operation of pension systems, because it would mean that provisions benefiting any third person would be frozen into the law with respect to all employees then in service and that these interests could not be removed regardless of the consent of the employee and regardless of whether the employee was given other pension benefits which might be of greater value to him than the one sought to be eliminated. Thus, although all pension rights are earned by the employee and are part of his compensation, the rule urged by petitioner could operate to the disadvantage of the employee by making it impossible or impracticable for the governmental body to substitute a new system, designed to meet changing conditions, which would furnish a greater total benefit to the employee than he formerly had. [p] It appears, therefore, that both the cases and the policy underlying pensions for public employees indicate that any one or more of the various benefits offered, including interests created for third persons, may be wholly eliminated prior to the time they become payable, provided, of course, the employee retains the right to a substantial pension. Accordingly, it must be held that petitioner did not obtain a separate, vested right...." (Id., at pp. 217-218, 217 P.2d 660.)

The rule was developed in Benson v. City of Los Angeles, supra, 60 Cal.2d 355, 33 Cal.Rptr. 257, 384 P.2d 649. Both the first and second wives filed claims with the city for widow's pension benefits. The first Mrs. Benson claimed she had a community property interest in the benefits. The second wife based her claim on the fact she was the widow.

The Supreme Court acknowledged at the time of Mr. Benson and the first Mrs. Benson's separation, "the [trial] court found that the parties were possessed of a community property interest in the pension, [but] no division of such interest was made." (Id., at p. 358, 33 Cal.Rptr. 257, 384 P.2d 649.) For several reasons, the Supreme Court denied the first Mrs. Benson recovery. The "community possessed only such an interest ... as [husband's] employment contract provided." (Id., at p. 360, 33 Cal.Rptr. 257, 384 P.2d 649.) The pension was payable only to his widow; the first Mrs. Benson did not qualify. The court stated "that upon a division of the community estate she could ... have participated therein. Undoubtedly she had an interest which she could have asserted in the payments to [husband] during his lifetime, had she sought to do so. But after [his] death the only right remaining was to enforce the city's covenant to make payments to the 'widow.' " (Id., at p. 360, 33 Cal.Rptr. 257, 384 P.2d 649.) Public policy considerations sanctioned such a result. "[T]o vest interests not subject to control by the employee would impose such inflexibility upon public employment that the purpose of providing for retirement would be defeated. Such purpose is said to be to induce competent persons to enter and remain in public service." (Id., at p. 361, 33 Cal.Rptr. 257, 384 P.2d 649.)

In Waite, the Supreme Court was asked to decide whether at the time of a dissolution a judge's retirement could be made payable to the judge's spouse " 'or her [or his] devisee or heirs.' " (Waite v. Waite, supra, 6 Cal.3d 461, 466, 99 Cal.Rptr. 325, 492 P.2d 13.) The Supreme Court concluded the spouse's interest in the plan did not survive the judge's death. Again, the court emphasized the fact this was a public plan and focused on the terms of the plan. "[T]he state has established here a pension plan in which pension benefits terminate with the death of the employee or, under optional programs, with the death of his [or her] surviving spouse. [Citations.] The state contributes no benefits to the employee's estate, his heirs, or his legatees. [p] The state's concern, then, lies in provision for the subsistence of the employee and his spouse, not in the extension of benefits to such persons or organizations the spouse may select as the objects of her bounty. Once the spouse dies, of course, her need for subsistence ends, and the state's interest in her sustenance reaches a coincident completion. When this termination occurs, the state's concern narrows to the sustenance of the retired employee; its pension payments must necessarily be directed to that sole objective." (Id., at p. 473, fn. omitted, 99 Cal.Rptr. 325, 492 P.2d 13.) ⁴

Many courts have been critical of the terminable interest rule. ⁵ However, because we find it inapposite to our fact situation, we need not decide its continuing validity.

The reason for the rule was to prohibit interference with the contractual mandates and policy considerations of public employment retirement plans. We see no purpose to be served in extending this rationale "to cut off the nonemployee spouse's community property rights in private, i.e.,...