Herald v. Review

• Decision Date: 20 March 2014
• Docket Number: SC S061362).,CA A146603,(CC 090666375
• Parties: In the Matter of the MARRIAGE OF James R. HERALD, Petitioner on Review, and Dixie L. STEADMAN, aka Dixie Lee Steadman, Respondent on Review.
• Court: Oregon Supreme Court

355 Or. 104

322 P.3d 546

In the Matter of the MARRIAGE OF James R. HERALD, Petitioner on Review, and Dixie L. STEADMAN, aka Dixie Lee Steadman, Respondent on Review.

(CC 090666375; CA A146603; SC S061362).

Supreme Court of Oregon,

En Banc.

Argued and submitted Jan. 13, 2014.

Decided March 20, 2014.

On review from the Court of Appeals.^*

James R. Herald, Portland, argued the cause and filed the brief on his own behalf.

Helen C. Tompkins, Law Office of Helen C. Tompkins, PC, Lake Oswego, argued the cause and filed the brief for respondent on review.

BREWER, J.

In Swan and Swan, 301 Or. 167, 176, 720 P.2d 747 (1986), this court, applying preemption principles, stated that it violated federal law for “ [f]amily courts, in making a division of property, [to] consider Social Security benefits.” The question presented in this case—where one spouse is a Social Security participant and the other is not—is whether federal law forbids a division of property by which the value of retirement benefits belonging to the nonparticipating spouse is reduced by the present value of hypothetical Social Security benefits to which that spouse would have been entitled if she had been a Social Security participant. Because we conclude that the trial court did not violate federal law by “considering” Social Security benefits in that way, we affirm. In doing so, we clarify our above-quoted statement in Swan, recognizing that it was too sweeping.

The pertinent facts are few and straightforward. The parties were married for 21 years. At the time of trial, husband was 51 and wife was 53. Husband is a practicing attorney with the Army Corps of Engineers. Wife works at the Bonneville Power Administration. Both parties are beneficiaries of federal retirement benefits. Because wife is eligible for Civil Service Retirement System (CSRS) benefits, she is not eligible for Social Security benefits based on her own employment. Husband's civilian federal employment is under the Federal Employees Retirement System (FERS) and is subject to Social Security taxes. Thus, husband likely will receive a Social Security benefit based on his employment, and wife likely will not receive a Social Security benefit based on her employment.

After a trial, the trial court issued a general judgment that dissolved the parties' marriage and, among other provisions, divided their property. At the time of judgment, the parties had essentially identical annual incomes, and, if both retire at age 62, wife will have accumulated a CSRS annuity of 80 percent of her highest pay, and husband will have accumulated a FERS annuity of 24 percent of his highest pay.

The court undertook to evenly divide the parties' property, including their retirement accounts, with a proviso. The court concluded that it would be unjust for husband to receive half of the value of wife's CSRS pension at her retirement and, at the same time, enjoy his own full share of Social Security benefits. The evidence showed that, if wife had used marital assets to pay into the Social Security system during the parties' marriage, she likely would have received a monthly Social Security benefit of $391.41, if she retired at age 62. Based on that evidence, the court provided in the judgment that, when wife reaches 62, husband's portion of wife's monthly CSRS annuity benefit will be reduced by that amount.¹

Husband appealed, assigning error to the trial court's reduction of his share of wife's CSRS benefit in furtherance of the court's effort to make a just and proper division of the parties' property. The Court of Appeals affirmed. Herald v. Steadman, 256 Or.App. 354, 303 P.3d 341 (2013). We allowed review to address husband's argument that the trial court's action violated the federal preemption principle that this court applied in Swan. For the reasons that follow, we affirm the judgment of the trial court and the decision of the Court of Appeals.

In this case, as in many others, the parties' retirement benefits were only part—albeit a substantial part—of their overall financial resources. Under ORS 107.105(1)(f), which we set out and discuss in greater detail below, the trial court ultimately was charged with effecting a property division that was “just and proper in all the circumstances.” Unless it committed a legal error in the process, the court's ultimate determination as to what overall property division was just and proper in all the circumstances was committed to its discretion. Kunze and Kunze, 337 Or. 122, 136, 92 P.3d 100 (2004). We observe at the outset that husband does not challenge the trial court's exercise of the discretionary aspect of its authority. Rather, as discussed, husband asserts that the court's treatment of wife's CSRS benefits violated federal law. We review that narrow issue for legal error.

Section 407(a) of the Social Security Act prohibits a beneficiary from transferring or assigning Social Security benefits to another, and it prohibits the use of legal process to reach such benefits:

“The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

42 USC § 407(a). In Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979), the United States Supreme Court held that, in a dissolution action, a wife did not have a community property interest in her husband's anticipated Railroad Retirement benefits. In so holding, the Court noted similarities between Railroad Retirement benefits and benefits under the Social Security Act, including the fact that the laws providing for both types of benefits specifically prohibited the assignment or transfer of those benefits through garnishment, attachment, or other legal process. The Court noted that Congress, “[c]oncerned about recipients who were evading support obligations and thereby throwing children and divorced spouses on the public dole,” enacted an exception for reaching Social Security benefits to satisfy a legal obligation for child support or alimony. Id., 439 U.S. at 576, 99 S.Ct. 802.² However, the Court emphasized that the statute also provided that “ ‘alimony * * * does not include any payment or transfer of property or its value by an individual to his spouse or former spouse in compliance with any community property settlement, equitable distribution of property, or other division of property between spouses or former spouses.’ ” Id. at 577, 99 S.Ct. 802,quotingPub L No 95–30, Tit V, § 501(d), 91 Stat 160 (1977).

The Court concluded that Congress had settled on a delicate statutory balance in which it had fixed an amount that it deemed appropriate to support an employee's later years and to encourage the employee to retire. Id. at 585, 99 S.Ct. 802. According to the Court, in deciding how finite public funds were to be allocated, Congress had chosen not to allow diminution of that fixed amount by a spouse for whom the fund was not designated. Id. The Court also noted that the Social Security Act provides a specific—and limited—way for divorced persons to obtain a share of a former spouse's benefits. Id. at 590, 99 S.Ct. 802.See42 USC § 402(b)(1)(A) through (D) and (c)(1)(A) through (D) (2000).³

The Court in Hisquierdo specifically rejected the wife's argument that, even if a direct assignment of her former husband's railroad retirement benefit would violate the statutory benefit scheme, she still should be entitled to an offsetting award of presently available community property to compensate her for her interest in the anticipated benefit. The court explained: “An offsetting award, however, would upset the statutory balance and impair petitioner's economic security just as surely as would a regular deduction from his benefit check.” Id. at 588, 99 S.Ct. 802.

It was against that backdrop that this court decided Swan. In that case, the trial court assigned values to both spouses' anticipated Social Security benefits in effecting an overall division of their property, and the Court of Appeals affirmed. On review, this court reversed. Relying on the Court's analysis in Hisquierdo, this court held that any property division based on a valuation of Social Security benefits was improper. Swan, 301 Or. at 176, 720 P.2d 747. In so concluding, this court relied on 42 USC section 407(a), as well as section 659(a), which permits attachment of benefits for “alimony,” and section 662(c), which expressly excludes property distributions from alimony. This court ultimately concluded:

“Because the antiassignment provisions of 45 USC § 231(m) are legally indistinguishable from the antiassignment provisions of 42 USC § 407(a), we have no hesitancy in concluding that the Hisquierdo rule applies here.”

Swan, 301 Or. at 176, 720 P.2d 747. This court also inferred that, by excluding support (but not property) awards from the reach of the antiassignment statute, Congress had manifested its intent to prohibit state courts from considering Social Security benefits in dividing marital property. Id. at 176–77, 720 P.2d 747.

In this case, the Court of Appeals distinguished Swan:

“The holding in Swan is that a court is not to consider ‘the value of any Social Security benefits' in making a property division. 301 Or. at 171 (emphasis added); see id. (‘[W]e hold that it was error to consider the value of any Social Security benefits in making a property division under ORS 107.105(1)(f).’); id. at 176 (‘We hold that the value of Social Security 21 benefits of either spouse may not be considered in the division of property.’). Here, the trial court did not refer to the value of husband's Social Security benefits. To be sure, the trial court's approach to dividing the parties' retirement assets was triggered by the fact that husband is...