Hare v. Hodgins, s. 90-C-2405

CourtSupreme Court of Louisiana
Citation586 So.2d 118
Docket NumberNos. 90-C-2405,90-C-2445,s. 90-C-2405
PartiesAudrey Coogan Hodgins HARE v. Norman F. HODGINS.
Decision Date09 September 1991

Philip R. Riegel, Jr., New Orleans, for plaintiff.

Floyd J. Reed, Reed & Reed, New Orleans, for defendant.

DENNIS, Justice.

We granted certiorari to decide whether the court of appeal correctly partitioned a divorced couple's community property interest in the employee spouse's defined benefits pension after it matured in 1988. The trial court divided the community interest by awarding the non-employee spouse a fixed percentage of the pensioner's retirement payments. The court of appeal amended, restoring full pension payments to the retiree spouse, and relegating the non-employee spouse to a lump sum representing her share of the unmatured pension as of the date in 1975 when the community was terminated. Hare v. Hodgins, 567 So.2d 670 (La.App. 5th Cir.1990). We vacate the partition decree and remand for further proceedings by the trial court consistent with this opinion.

The appeals court erred in basing its distribution to the non-employee spouse upon a valuation of the pension right as of the termination of the community in 1975. Procedurally, a court partitioning community property is required to value the assets as of the time of trial on the merits. La.R.S. 9:2801(4)(a). Moreover, and perhaps more important, the appellate decision is in conflict with substantive law in several respects. The termination of the community does not have the effect of freezing the value of each spouse's undivided interest in the community assets. Each spouse continues to be a co-owner of the assets until they are partitioned and, as such, is entitled to benefit from any appreciation in their value. In the present case, because the pension right ascribable to the community was not partitioned prior to its maturity in 1988, each spouse is entitled to a distribution based on the actual value of the fully matured pension. Consequently, it is incorrect to base the 1988 partition on the much lower valuation as of 1975 when the pension right was subject to contingencies that might have prevented its maturity.

On the other hand, the trial court did not err or abuse its discretion by choosing a fixed percentage approach to partition the community interest in the pension right, but its application of that method, without any adjustment, may have overstated the part of the pension attributable to the community. If substantial post-community increases in the pension benefits were due to the employee spouse's individual meritorious efforts or achievement, and not related to prior contributions ascribable to the community, the percentage of the pension asset recognized as community property should be decreased accordingly.

We see no error in the trial court's overruling defendants' exceptions of prescription and res judicata, or in the court of appeal's affirmance of that ruling. The judgments below will therefore be affirmed to the extent that they overruled the exceptions of prescription and res judicata, but the partition decree will be vacated and the case will be remanded for a determination of whether the fixed percentage should be adjusted in light of the principles set forth in this opinion.

FACTS AND PROCEEDINGS BELOW

Norman Hodgins and Audrey Coogan were married June 2, 1951. Some five years later, on June 1, 1956, Norman began employment with Pan American Life Insurance Company, where he remained until his retirement on February 29, 1988. After a 24-year marriage Norman and Audrey obtained a separation from bed and board which effectively terminated the community in 1975. The parties voluntarily partitioned some of their community assets in 1977 prior to their final divorce in 1978. The act of partition did not allocate the relative entitlements of the parties in pension benefits earned as a result of Norman's participation in Pan American Life's Employees' Retirement Benefit Plan. This asset apparently escaped the attention of both counsel in preparing the conventional partition instrument. Following his retirement Norman began to draw $4,037.76 per month in retirement payments on March 1, 1988.

Audrey brought the action in the present case to partition the community interest in the pension benefits on March 23, 1988. The trial court overruled exceptions of prescription and res judicata filed by Norman. On the merits, the trial court followed a fixed percentage method and awarded Audrey a certain fraction of all Norman's past and future retirement payments. The fixed percentage awarded Audrey was based on the community or marital fraction rule under which the community's percentage of the pension benefits is assumed to be the same as that percentage of the employee spouse's creditable employment which occurred during the existence of the community.

Norman appealed. The court of appeal affirmed the procedural rulings, reversed the partition decree and substituted its own partition judgment awarding the pension to Norman and granting Audrey a lump sum based on the "Termination of Employment" provisions of the retirement plan. Under the plan, if Norman had chosen to terminate his employment at the time of the termination of the community in 1975, he would have been entitled to "a paid-up Deferred Annuity Contract payable at age 65." The court accepted the calculation of the value of such an annuity in 1975 by Norman's actuary witness and awarded Audrey one-half of that amount, $15,219, with legal interest from 1975 until paid. Hare v. Hodgins, 567 So.2d 670 (La.App. 5th Cir.1990).

We granted the applications of the parties for writs. Hare v. Hodgins, 571 So.2d 638 (La.1990). After considering the arguments and briefs, we conclude that the court of appeal correctly reviewed and disposed of the prescription and res judicata issues. Accordingly, the court of appeal's judgment will be affirmed to this extent for the reasons assigned in its opinion. Therefore, in this review we will deal only with the question of whether the classification, valuation and distribution of the couple's interests in the pension complied with law and equity.

1. Classifying Pension Rights As Community or Separate Property

Before an asset can be classified as community or separate, it must first be identified as "property." K. Spaht and L. Hargrave, Matrimonial Regimes, 16 Civil Law Treatise Sec. 2.1 (1989 & Supp.1991) [hereinafter "Spaht & Hargrave"]. This court decided in T.L. James & Co., Inc. v. Montgomery, 332 So.2d 834 (La.1976) that an employee's contractual pension right is not a gratuity but a property interest earned by him.

To the extent that the right derives from the spouse's employment during the existence of the marriage, it is a community asset subject to division upon dissolution of the marriage. La.Civ.Code art. 2338; Sims v. Sims, 358 So.2d 919 (La.1978); T.L. James & Co., Inc. v. Montgomery, 332 So.2d 834 (La.1976). Consequently, when the community is terminated, the employee's spouse is entitled to be recognized as the owner of one-half of the value attributable to the pension or deferred compensation right earned during the existence of the community. La.Civil Code art. 2336; La.R.S. 9:2801 (1991); Sims, supra at 923-24; T.L. James & Co., supra; see generally, Messersmith v. Messersmith, 229 La. 495, 86 So.2d 169 (1956); Moon v. Moon, 345 So.2d 168 (La.App. 3d Cir.) writ denied, 347 So.2d 250 (1977); Swope v. Mitchell, 324 So.2d 461 (La.App. 3d Cir.1975); Lynch v. Lawrence, 293 So.2d 598 (La.App. 4th Cir.) writ denied, 295 So.2d 809, 814 (1974); Laffitte v. Laffitte, 253 So.2d 120 (La.App. 2d Cir.1971). Correlatively, if part of the employee's pension right was earned before or after the existence of the community, that part of the pension right must be classified as the employee's separate property (or as property of a different marital regime) and separated from the community property interest to be divided. La.R.S. 9:2801 (1991); T.L. James & Co., Inc. v. Montgomery, supra.

As a general principle, a court partitioning a community asset is required to classify the property for this purpose as of the date of the termination of the community. La.Civ.Code arts. 2338-2341; La.R.S. 9:2801 (1991); K. Spaht & L. Hargrave, supra, Secs. 7.25, 7.26. In the case of a pension right earned partly during and partly not during the community, however, the process of classification begins at the termination of the community and continues until a partition of that asset is effected. Because the community interest in the pension right is an incorporeal that may accrue or appreciate over time, or fluctuate in proportion to the employee spouse's separate property interest in the pension, the community and separate fractions of the pension cannot be separated and classified definitively until the partition.

2. Valuating and Dividing The Pension Right

The general rules provided by law for partitioning community property are, of course, applicable to dividing a community pension right. Each spouse owns a present undivided one-half interest in the community property. La.Civ.Code art. 2336. When the spouses are unable to agree upon an equal partition of community property, either spouse may bring an action to effect such a partition. La.Civ.Code arts. 807, 1289 and 1308; La.R.S. 9:2801. See also 1 M. Planiol, Traite Elementaire De Droit Civil, Nos. 2497 et seq. (11th ed. La.St.L.Inst. trans. 1959). In allocating the community assets and liabilities, the court may divide a particular asset or liability equally or unequally or may allocate it in its entirety to one of the spouses. The court must consider the nature and source of the asset or liability, the economic condition of each spouse, and any other circumstances that the court deems relevant. La.R.S. 9:2801(4)(c).

The court is required to divide the community assets and liabilities so that each spouse receives property of an equal net value....

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