Herring v. Blakeley, A-10031

• Decision Date: 06 January 1965
• Docket Number: No. A-10031,A-10031
• Citation: 385 S.W.2d 843
• Parties: Ellen Davis HERRING et al., Petitioners, v. James Alex BLAKELEY, Respondent.
• Court: Texas Supreme Court

Page 843

385 S.W.2d 843

Ellen Davis HERRING et al., Petitioners, v. James Alex BLAKELEY, Respondent.

No. A-10031.

Supreme Court of Texas.

Jan. 6, 1965.

Rehearing Denied Feb. 3, 1965.

Andrew J. MacMaster, Bradford & Pritchard, Dallas, for petitioners.

Jay S. Fichtner, Harvey L. Davis, Dallas, for respondent.

SMITH, Justice.

This declaratory judgment suit presents to the Court the primary question of whether or not a profit-sharing plan and trust agreement and a retirement annuity plan (the particulars will be given later), are property, and, if so, shall such property be classed as community property.

In the beginning, we deem it necessary to identify the parties to this suit, and to give a complete factual background in order to fully understand why it is important that the nature of the two plans be determined.

James Alex Blakeley in his capacity as Trustee under the will of James E. Herring, deceased, filed this suit alleging that Ellen Davis Herring, a feme sole, Ferris McKool, Receiver, Pacific Finance Corporation, Marathon Insurance Company, a subsidiary of P. F. C., United California Bank, and the John Hancock Mutual Life Insurance Company were necessary parties defendant.

In September, 1948, James E. and Ellen Davis Herring were husband and wife, and such relationship continued until the marital ties were broken by a judgment of divorce. Although the judgment of divorce bears the date of August 18, 1960, it was stipulated in the trial of this case that the judgment was actually entered on August 2, 1960. We construe this stipulation to mean that judgment was rendered on August 2, 1960. It was also stipulated that Ellen Davis Herring received no property at the time of the divorce. However, James E. Herring filed an inventory in which he listed both the profit-sharing plan and the annuity as assets, but specifically noted that no funds would be available from these plans until his employment terminated. Thereafter, the trial court in the divorce case appointed Ferris McKool as Receiver of the community property. As Receiver, McKool was made a party in this declaratory judgment suit.

James E. Herring, as an employee of Marathon, from and after 1951, was a qualified participant in a 'PF Employee's Profit-Sharing Plan and Trust Agreement,' which was created by Pacific, and the funds under this plan were contributed entirely by Pacific and Marathon.

In 1952 Herring, as an employee of Marathon, was issued and became the holder of a certificate issued by the John Hancock Mutual Life Insurance Company by virtue of its group annuity contract with Pacific. Under the provisions of the certificate, Herring would be entitled to a retirement annuity based on his contributions and the contributions of his employer toward the purchase of the annuity.

Under both of these plans the employee had the unrestricted right to designate a beneficiary to receive certain death benefits. Under the terms of both plans, Herring had the authority to change the beneficiary at will. The profit-sharing plan would pay to this designated beneficiary a cash lump sum equal to the amount credited to the deceased employee's profit-sharing account. Under the annuity contract the beneficiary would be paid the contributions made by the employee with interest thereon.

On August 17, 1960, James Herring changed the death beneficiary of the profit-sharing plan from Ellen Herring to Respondent, James Alex Blakeley, Trustee. Blakeley was also named trustee of the residuary estate of James Herring by the latter's will. The residuary trust was primarily for the benefit of the minor children of James and Ellen Herring. On September 21, 1960, Herring made the same change with respect to the annuity. When Herring died ten months after the divorce, the death benefits from the profit-sharing plan amounted to $11,623.86 and from the annuity contract, $2,285.48. Blakeley claimed the benefits of both plans as the deceased employee's designated beneficiary.

Blakeley by this suit sought a declaratory judgmet that (1) death benefits payable under the profit-sharing plan and the retirement annuity contract were not community property of Ellen Davis Herring and decedent, James Herring; (2) Ferris McKool, Receiver, who was appointed by the Court in the divorce proceedings, had no claim to the funds; and (3) Plaintiff Blakeley recover judgment against the United California Bank and John Hancock Mutual Life Insurance Company for the death benefits of the plans. The defendants filed an answer, cross action and third-party action requesting the court to award the funds to Ferris McKool, Receiver, or one-half of them to Ellen Davis Herring. John Hancock Mutual Life Insurance Company filed an interpleader. The funds from both plans were paid into the registry of the court and all parties to the proceedings were dismissed, except James Alex Blakeley, Trustee, Ellen Davis Herring and Ferris McKool, Receiver. Blakeley later filed a motion for summary judgment, claiming all the funds as the designated beneficiary under the will of James E. Herring, deceased. Ferris McKool and Ellen Davis Herring also filed a motion for summary judgment, claiming that the funds were community property at the time of the divorce of James and Ellen Herring some ten months prior to the death of James E. Herring. They claimed that the funds should be paid to McKool as Receiver for the community property, or in the alternative, one-half of the funds should be paid to Ellen Davis Herring as her share of the community estate. We point out that each motion for summary judgment prayed for a declaratory judgment.

The trial court's summary judgment in favor of Ferris McKool, Receiver, and Ellen Davis Herring was reversed by the Court of Civil Appeals and that court rendered judgment in favor of James Alex Blakeley, Trustee. , 374 S.W.2d 677.

We have concluded that the employee's interest in both plans was community property, and that as of the date of the divorce, Ellen Davis Herring is entitled to one-half of the value of these plans for the reasons now to be stated.

The profit-sharing plan contains a formula by which an employee's account vests in the employee. The amount thus vested is paid to the employee when he terminates his employment. ¹ Under this formula the profit-sharing account was fully vested in Herring at the time of the divorce. The ownership of this account was unconditional. The contract simply provided that when Herring should terminate his employment, whether voluntarily or otherwise, he would be entitled to the full sum credited to his profit-sharing account. ² The employee's vested interest in the plan has all the attributes of property, and we hold that it was property at the time of the divorce.

For the same reasons the annuity contract was also property at the time of the divorce. The value of the annuity contract could also be drawn by the employee when his employment was terminated.

The final question is: Was this property part of the community estate at the time of the divorce? It is undisputed that the profit-sharing plan came into existence during the marriage; that all contributions to James Herring's account in the plan were made during the marriage; and that James' account fully vested in him during the marriage. As to the group retirement annuity contract, it is undisputed that James Herring became a group member during the marriage; and that all contributions by James toward the purchase of the annuity were made with community funds. We hold that James Herring's vested interest in the profit-sharing plan and his interest in the retirement annuity contract were community property at the time of the divorce.

Property acquired by the husband during marriage is community property unless acquired by gift, devise or descent. See Articles 4613, and 4619, Vernon's Annotated Civil Statutes. Both of these plans were acquired during the marriage. There is no contention that either was acquired by devise or descent. The following stipulation entered by these parties in the trial court negatives any implication that either plan was a gift to James Herring from his employer:

'That during the marriage of said parties, James Edward Herring was employed by Marathon Insurance Company, a wholly owned subsidiary of Pacific Finance Corporation, and as part of his compensation, he acquired certain rights in a profit sharing plan with said Company and a retirement annuity agreement with John Hancock Mutual Life Insurance Company.' (Emphasis added.)

Even without this stipulation we do not...