Kruger v. Kruger

• Decision Date: 23 February 1976
• Citation: 354 A.2d 340,139 N.J.Super. 413
• Parties: Barbara W. KRUGER, Plaintiff-Respondent and Cross-Appellant, v. Richard O. KRUGER, Defendant-Appellant and Cross-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 413

139 N.J.Super. 413

354 A.2d 340

Barbara W. KRUGER, Plaintiff-Respondent and Cross-Appellant, v. Richard O. KRUGER, Defendant-Appellant and Cross-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Nov. 5, 1975.

Decided Feb. 23, 1976.

Neil Braun, Short Hills, for appellant Richard Kruger (Rudd & Ackerman, Short Hills, attorneys).

William E. Ozzard, Somerville, for respondent and cross-appellant Barbara Kruger (Ozzard, Rizzolo, Klein, Mauro & Savo, Somerville, attorneys).

Before Judges KOLOVSKY, BISCHOFF and BOTTER.

The opinion of the court was delivered by

BISCHOFF, J.A.D.

In this divorce action defendant has appealed from the adjudication of certain financial aspects of the marital dissolution, also complaining that the judgment of divorce failed to contain a provision awarding him a divorce on the grounds of extreme cruelty despite the fact that the trial judge's written opinion expressed the intention to grant a divorce to both parties. N.J.S.A. 2A:34--7. Plaintiff has cross-appealed, contending that she should have been awarded a larger share of the distributable assets.

The parties were married on May 6, 1950 and three children were born to them. Two children were of age at the time of the divorce; the third was 16 years old. All three resided with plaintiff in the former marital home. Custody of the youngest daughter was awarded to plaintiff.

The judgment for divorce contained a number of provisions adjudicating the financial claims of the parties. The principal issue on this appeal concerns the treatment of defendant's future military retirement pay and disability benefits. At the time of trial the defendant was receiving such benefits. The trial judge ruled that such funds were distributable assets of the marriage. The distributable portion earned during marriage was determined to be 213/343rds of the total benefits, corresponding to the number of months when defendant was both married and in military service compared with the total number of months he was in the military, starting in July 1939 to his retirement in February 1968. The judge ordered defendant to pay a third of 213/343rds of the total of such benefits to plaintiff 'forthwith upon receipt of each payment by him.'

No alimony was awarded to the wife, but defendant was ordered to pay $30 a week for the support of the minor child. Paragraph B of the divorce judgment states the reason given by the trial judge in his written opinion for this determination, namely:

It is to be noted that these determinations as to alimony and child support are based upon the fact that defendant is presently unemployed and his income consists only of the retirement and disability benefits.

In deciding that defendant's retirement pay (designated in the statute as 'retired pay,' 10 U.S.C.A. § 6323) was subject to equitable distribution, the trial judge relied on decisions in community property states cited in Tucker v. Tucker, 121 N.J.Super. 539, 298 A.2d 91 (Ch.Div.1972). The judge cited Mora v. Mora, 429 S.W.2d 660 (Tex.Civ.App.1968), as setting forth the rationale for treating an interest in a military retirement plan as an earned property right which is distributable to the extent acquired during marriage. In Mora the court reasoned that retirement and pension plans represent 'a mode of employee compensation' which is an earned property right. Id. at 662. In Tucker, supra, 121 N.J.Super. at 549, 298 A.2d at 96, the court quoted the following holding from Williamson v. Williamson, 203 Cal.App.2d 8, 11, 21 Cal.Rptr. 164, 167 (D.Ct.App.1962) ¹:

Pensions become community property, subject to division in a divorce, when and to the extent that the party is Certain to receive some payment or recovery of funds. To the extent that payment is, at the time of the divorce, subject to conditions which may or may not occur, the pension is an expectancy, not subject to division as community property.

The trial judge below concluded:

The retirement and disability benefits now vested in defendant constitute assets acquired by him during the marriage and, for the present purposes, are of the same nature as other assets acquired with the earnings derived from his employment. Accordingly, these benefits constitute an asset subject to distribution, to the extent earned during the marriage.

The practical consequences of treating pension or retirement payments as distributable property or as income are numerous and variable. If these payments are considered distributable property, a spouse who remarries would normally continue to receive a share of such payments. If they are treated as income, however, remarriage would cut off the right to a share as alimony. As distributable property, a spouse would receive only a portion of those future payments which are deemed earned during the marriage interval. Here the trial judge determined that approximately 62% Of pension and disability payments were earned during the marriage. However, if these payments were treated as income when received, the entire sum would be available for alimony purposes.

For federal income tax purposes, pension payments are treated as income taxable to the recipient when received. 26 U.S.C.A. § 61(a)(11); 26 U.S.C.A. § 402 Et seq. Thus, if pension payments are distributable property, the entire income tax on that sum could be assessed against the recipient, but no tax would be assessed against the spouse who receives a portion as distributable property. However, if pension payments are treated as income under our divorce laws, that portion which is awarded to a spouse as alimony could be deducted from the pensioner's gross income, 26 U.S.C.A. § 215(a), and would be taxable to the spouse receiving a share as alimony. 26 U.S.C.A. § 71(a)(1).

Putting aside these practical consequences for now, we may consider the issue by examining the nature of such payments conceptually. Pension payments are no longer considered a gratuity for faithful service; they are to some extent a 'recompense for past services.' Salz v. State House Comm'n, 18 N.J. 106, 111--112, 112 A.2d 716 (1955). Such payments are obviously designed to support an employee during his years of declining working ability. In Salz the court said that

* * * (a) public pension * * * is akin to wages and salaries in that it is payable in stated installments for the maintenance of the servant after his productive years have ended * * *. (at 111--112, 112 A.2d at 719).

Logically, therefore, it can be argued that the right to such payments should be treated as property 'acquired' during the marriage 'legally and beneficially' within the meaning of N.J.S.A. 2A:34--23. ²

Although at the time of trial no effort was made to determine the specific source of the pension funds to be received, we have been advised by supplemental material that no part of defendant's salary was deducted and retained to fund the retired pay or disability benefits. Pension plans, and the rights of employees to withdraw contributions or otherwise receive payments, may vary widely. In the case at hand defendant has no right to a lump sum payment, and we are told that such payments will terminate at the time of his death. However, both payments are subject to increase by Congressional action.

While the cases of Pellegrino v. Pellegrino, 134 N.J.Super. 512, 342 A.2d 226 (App.Div.1975); Scherzer v. Scherzer, 136 N.J.Super. 397, 346 A.2d 434 (App.Div.1975) and White v. White, 136 N.J.Super. 552, 347 A.2d 360 (App.Div.1975), deal generally with the problem of equitable distribution as it pertains to specific pension plans, they do not involve the precise issue now before us.

The case of In the Marriage of Fithian, 10 Cal.3d 592, 111 Cal.Rptr. 369, 517 P.2d 449 (Sup.Ct.), Cert. den. 419 U.S. 825, 95 S.Ct. 41, 42 L.Ed.2d 48, reh. den. 419 U.S. 1060, 95 S.Ct. 644, 42 L.Ed.2d 657 (1974), was decided under principles of community property law ³, but its holding and reasoning are persuasive. There the court affirmed a ruling that since the husband had been married for 16 years of his 22 years of military service, 71% Of his military pay to which he had become entitled constituted community property so that one-half thereof (or 35 1/2% Of the total pay) belonged to the wife. The court said:

Underlying the community treatment of retirement benefits is the concept that they do not derive from the beneficence of the employer, but are properly part of the consideration earned by the employee. Thus whether an employee is required to make contributions to the retirement fund is irrelevant to the ultimate characterization of the benefits as community property (citations omitted). Furthermore, the principle that retirement benefits are community property has been held to apply whether the source of the retirement fund lies in a state, federal, military, or private employment relationship. (citations omitted) The conclusion follows that husband's federal military retirement pay must be considered community property in accordance with established principles of California law. Although the retirement fund was noncontributory, husband's rights to the benefits vested during marriage and constituted an integral part of his compensation for service in the military. (at 371, 517 P.2d at 451.)

* * * retirement pay is awarded in return for services previously rendered and therefore is divisible as community property to the extent the serviceman was married while on active duty. * * * (at 377, 517 P.2d at 457.)

The majority of the reported cases involving this issue have been from community property states and the foregoing represents the prevailing view. Ramsey v. Ramsey, 96 Idaho 672, 535 P.2d 53 (Sup.Ct.1975); Wilder v. Wilder, 85 Wash.2d 364, 534 P.2d 1335 (Sup.Ct.1975); Payne v. Payne, 82 Wash.2d 573, 512 P.2d 736 (Sup.Ct.1973); Otto v. otto, 80 N.M. 331, 455 P.2d 642 (Sup.Ct.1969); In re Marriage of Wilson, 10 Cal.3d 851, 112 Cal.Rptr. 405, 519 P.2d 165 (Sup.Ct.197...