Gemma v. Gemma

• Decision Date: 23 August 1989
• Docket Number: No. 18821,18821
• Parties: Joseph J. GEMMA, Jr. Appellant, v. Lois Tafline GEMMA, Respondent.
• Court: Nevada Supreme Court

Page 429

778 P.2d 429

105 Nev. 458

Joseph J. GEMMA, Jr. Appellant, v. Lois Tafline GEMMA, Respondent.

No. 18821.

Supreme Court of Nevada.

Aug. 23, 1989.

Joseph and Daniel Foley Associates, Las Vegas, for appellant.

Albright, Stoddard, Warnick & Albright, Las Vegas, for respondent.

OPINION

ROSE, Justice:

The district court determined in this divorce action that the respondent Lois Gemma had a community property interest in her husband's, appellant Joseph Gemma, Jr., police retirement pension even though his pension rights had not vested, and that she could elect to receive pension benefits when appellant was first eligible to retire. Appellant objects to a nonvested pension interest being considered community property; and if it is, he opposes his former wife's ability to receive her share of benefits beginning when he is first eligible to retire. We reject appellant's contentions

and hold that a nonvested pension interest acquired during marriage is community property and that it is not error to permit the nonemployee spouse to elect to receive those benefits when the employed spouse is first eligible to retire.

FACTS

On January 2, 1980, appellant Joseph Gemma (Joseph) joined the Las Vegas Metropolitan Police Department. As a member of the department, Joseph is a participant in the Public Employees Retirement System of the State of Nevada.

Joseph and the respondent Lois Tafline Gemma (Lois) were married on May 9, 1981, in Las Vegas and on May 6, 1986, the parties entered into a property settlement agreement which disposed of all community property interests, except any interest Lois might have in Joseph's retirement plan. Any future interests in the other party's income or benefits ceased on the date of the agreement.

On January 8, 1988, the district court entered the divorce decree and divided the community property. The district court determined the parties' interest in Joseph's Public Employees Retirement System account to be a community asset and it equally divided the benefits accrued during marriage between the parties. ¹

At the time of divorce, Joseph had reached the top salary level that a patrolman could achieve and the only pay increases he could expect were contractual raises agreed to by the Police Association and his employer. If no such raises were negotiated, Joseph's only pay increases would result from advancement in rank or promotions based on merit, application, testing, and acceptance.

Joseph's Public Employee Retirement benefits will become vested after ten years of service, or on January 2, 1990. See NRS 286.6793. As a police officer, Joseph is eligible to retire at age 50 if he has at least twenty years of service, or at age 55, if he has at least ten years of service. See NRS 286.510. A member whose pension is vested under the Public Employees Retirement System may retire before his eligible retirement date; however, in such event, his retirement benefit will be reduced by .5 percent for each month that the member is under the appropriate retirement age.

LEGAL DISCUSSION

Retirement benefits earned during a marriage are community property. Walsh v. Walsh, 103 Nev. 287, 738 P.2d 117 (1987). This is so even though the retirement benefits are not vested. In re Marriage of Gillmore, 29 Cal.3d 418, 174 Cal.Rptr. 493, 629 P.2d 1 (1981); Laing v. Laing, 741 P.2d 649 (Alaska 1987); Van Loan v. Van Loan, 116 Ariz. 272, 569 P.2d 214 (1977). Most retirement benefits are in the form of a pension and the types of pension plans vary widely. The fair division of this community asset is often not an easy task to accomplish, especially when the pension benefit has not vested and the parties have not been married for a lengthy period of time.

The district court allocated Joseph's pension by granting Lois one half of the pension benefits earned during the marriage. It accomplished this by holding that Lois was entitled to one half "of the amount of Mr. Gemma's eventual pension plan benefit multiplied by a fraction, the numerator of which is the number of months during which the parties were married, the denominator being Mr. Gemma's number of months of time in service on the police force."

Joseph objects because his retirement benefits will be based on his highest salary for thirty-six consecutive months during his career, and this period will, in all probability, be when he is at or near the end of his employment and substantially after the divorce. He asserts that a calculation based on his highest salary during the marriage would be more appropriate.

There are two general approaches used by courts in dividing defined pension benefits. The first is to determine the present value of the pension and award half to each spouse. This approach has the advantage of ending the parties' involvement with each other and finalizing the divorce immediately in all respects. Its drawbacks, however, are numerous. First, there might not be sufficient property owned by the employee spouse to cash out or make periodic payments to the nonemployee spouse. Second, the employee spouse is required to pay the community property interest in the pension plan immediately upon divorce, but he or she may not remain employed to actually enjoy the full benefits of the retirement pension or live until the time of vesting. Third, the nonemployee spouse may receive much less if the present value in the pension is substantially less than the actual vested value upon retirement. And fourth, it is often difficult to ascertain a pension's present value.

The second approach is the method used by the district court and is generally known as the "time rule." In re Marriage of Brown, 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561 (1976); Berry v. Meadows, 103 N.M. 761, 713 P.2d 1017 (1986); Laing v. Laing, supra; Woodard v. Woodard, 656 P.2d 431 (Utah 1982). Under this approach, a court declares the nonemployee spouse's nonvested community property interest and directs when the interest shall be paid. This is occasionally accompanied by the court retaining jurisdiction until the benefits are vested and retirement payments begin. Objections to this method of division echo Joseph's assertions of error in this case. Cases that adopt the "time rule" answer the objections Joseph now puts forth by indicating that early contributions to the pension plan, while smaller, are invested and earned more interest, that the emphasis should be on the qualitative nature of the community interest as opposed to the quantitative interest, and that the early working periods are the building blocks to upward mobility and hopefully an increased salary.

The "time rule" approach is susceptible to formulation at the time of divorce, but payment of benefits are deferred. While no method is perfect, the advantages of the "time rule" clearly outweigh any other method of pension division. This method also divides the community property interest in the pension equally in accordance with NRS 123.225.

One complaint that Joseph asserts can be addressed by the district court retaining jurisdiction and hearing any claim of unfairness that might arise when the pension benefits are to begin. Joseph argues that he may substantially improve his pay by extraordinary effort in the future. Since this...