Lykins v. Lykins

Decision Date17 November 2000
Docket NumberNo. 1999-CA-000927-MR.,No. 1999-CA-000094-MR.,1999-CA-000094-MR.,1999-CA-000927-MR.
Citation34 S.W.3d 816
PartiesRonald Lee LYKINS, Appellant, v. Martha Ann LYKINS, Appellee.
CourtKentucky Court of Appeals

W. Stokes Harris, Jr., Lexington, for Appellant.

Michael Davidson, Lexington, for Appellee.

Before JOHNSON, SCHRODER and TACKETT, Judges.

OPINION

JOHNSON, Judge:

These are the consolidated appeals of Ronald Lee Lykins from an order of the Fayette Circuit Court entered on December 11, 1998, and the final judgment entered on March 24, 1999, which dissolved his marriage to Martha Ann Lykins and resolved the disputes arising from their marital relationship. Ronald has raised three issues for our review, one of which presents an issue of first impression, that is whether payments received under the Voluntary Separation Incentive (VSI) program1 are subject to equitable division under KRS2 403.190. After a review of the record and the applicable legal authorities, we discern no error in the trial court's determination that the VSI payments constitute marital property, nor any error with respect to the other rulings challenged in this appeal. Therefore, we affirm.

The parties were married in 1982, and separated in January 1997. They sold the marital residence and divided the proceeds of the sale, as well as their personal property, prior to the final hearing before the trial court. The parties' child, Leigha, was 13 years old at the time of their separation. Ronald and Martha each had a child from their prior marriages: Martha's child, Rachel, who was two-years-old at the time of the Lykins' marriage, lived with the parties throughout her minority; Ronald's son, Aaron, lived with the parties for four years. The decree of dissolution approved of the parties' division of property; provided for the parties to share joint custody of Leigha; provided that Ronald would provide support for Leigha calculated by using his current income from nursing and not an imputed income; and provided that Ronald would pay Martha the sum of $300 per month for two years in rehabilitative maintenance, if Martha enrolled in a Master's level program to enhance her undergraduate degree in psychology. Additional facts and rulings of the trial court will be recited as they relate to the arguments presented.

The primary issue in this appeal concerns the trial court's characterization of certain payments to which Ronald has become entitled as a result of his voluntary separation from the military in 1992. When the parties married in 1982, Ronald was a member of the United States Army and remained so until September 1992. Ronald, who held various positions in the military, including helicopter pilot and instructor, spent six and ½ years in the military prior to his marriage to Martha, and had a total tenure of 16 years in the military at the time of his voluntary resignation. There is no question that in 1991 the federal government wanted to reduce the size of the military forces and passed legislation to entice personnel, with between six and 20 years of active military service, to voluntarily resign rather than "run the risk of being involuntarily separated due to reductions in the size of the United States military".3 Pursuant to legislation creating the VSI program and the Special Separation Benefit (SSB) program,4 eligible personnel can choose to receive either an annuity "for the period equal to twice the number of years of service,"5 in exchange for remaining in the inactive reserve (VSI), or a lump-sum payment (SSB), for remaining in the active reserves for three years.

When he separated from the military, Ronald opted for the VSI plan which entitled him to receive $18,102.536 a year for thirty-four (34) years, commencing in September 1992. Both parties enjoyed the VSI benefits until their marital separation at which time Ronald insisted the payments were his separate property. Martha contended that the percentage of the payments attributable to the years Ronald was in the military during the marriage constituted marital property subject to division. Ronald moved for a summary judgment on the issue of the nature of the asset. On December 12, 1998, the trial court entered the first of the two orders from which Ronald has appealed and concluded that the payments constituted marital property, subject to Ronald's non-marital component.7 In the final judgment Ronald was awarded a portion of the VSI payments representing his pre-marital years of military service as his non-marital property. The remaining VSI payments were divided equally, resulting in an award to Martha of 30.13% of the "after-tax" VSI payments to be paid within five days after Ronald's receipt of the annual payment.

In his brief, Ronald contends that the trial court erred in its determination that any of the VSI payments constituted marital property. He insists that the trial court "ignored the statutory realities of VSI," and "failed to justify [its] ruling." Ronald criticizes the trial court for "ignor[ing] th[e] reasoning from our neighboring state" articulated in McClure v. McClure,8 and its comparison of VSI payments to severance pay, an analogy he opines, which "apparently eluded the trial court." Martha, not surprisingly, argues that the trial court was not in error and that its decision "is firmly backed by legislative history, eight other Courts and equity."

The beginning point in our examination of the trial court's characterization of any asset is KRS 403.190(2), which defines marital property as "all property acquired by either spouse subsequent to the marriage," except property acquired by gift, bequest, devise or descent and other exceptions not relevant to the matter sub judice. In general, property is "presumed to be marital,"9 and the trial court has "wide discretion" in the division of marital assets.10 However, assets obtained during the marriage which represent loss of post-dissolution earnings do not constitute marital property subject to division.11 Thus, the issue is whether the VSI payments are, as Ronald contends, in the nature of severance and intended to compensate him for future lost earnings, or whether they are in the nature of deferred compensation or pension benefits, earned during the marriage and subject to division.

Ronald relies on McClure, supra, in support of his argument that VSI payments are paid in lieu of future income. McClure held:

Given the Congressional intent behind the VSI program, VSI payments are more closely analogous to severance benefits than retirement benefits .... Like severance payments, VSI benefits attempt to compensate a separated service member for future lost wages.... The mere fact that the amount of the payments is determined according to the number of years of service does not necessarily render these payments compensation for past services. Rather, severance pay is frequently calculated according to the number of years of employment. Although severance pay received during the marriage is marital property to the same extent that wages paid during the marriage are marital property, severance payments intended to compensate for wages lost after the divorce cannot be characterized as marital property [citations omitted].12

As Martha points out, the view of the Ohio intermediate appellate court has gathered little acceptance. Indeed, most other jurisdictions that have examined the issue of the nature of either VSI payments or SSB payments have determined that they are "the functional equivalent of retired pay,"13 or "payment in lieu of retirement benefits,"14 and therefore constitute either marital, or community, property depending on the jurisdiction.15 The analogy in Blair v. Blair,16 likening incentive payments to early retirement, is typical of the rationale reached by the majority of the cases our research has revealed:

Like retirement, [husband's] eligibility for the SSB program was based on the number of years he served in active duty.... As with retirement pay, [his] separation pay was calculated according to the number of years he was in active service.... [He] could have remained on active duty for five more years and received retirement pay. Instead, he chose voluntary separation from the military and received his compensation at an earlier date. For the reasons we have stated, we characterize separation pay received under the Special Separation Benefits program ... as an election for early retirement [citations omitted].

We are persuaded by the reasoning in these cases which have held, contrary to McClure, that the benefits for voluntary separation from the military are more closely akin to early retirement benefits than severance pay. Clearly, the manner in which the payments are calculated has the indicia of pension benefits, that is, a formula based on years of service and the level of pay at the time of separation from active duty. Further, as recognized in several jurisdictions, the payments are recouped by the government if the service member later becomes entitled to retirement benefits.17

That the separating officer must "repay" the benefits received under the SSB and VSI programs in order to receive retired pay (if he or she later becomes eligible to receive it), is strong evidence that SSB and VSI payments are a form of retired pay in the first instance. Specifically, if these benefits were intended to compensate for lost future income, they would not be subject to recoupment from retired pay.

. . .

Thus the payments received pursuant to the SSB and VSI programs cannot be likened to severance pay or, more specifically, compensation for lost future income. This makes practical sense. Because the benefits are received at the election of the separating member, the member accepts the risks associated with the transition into civilian life and may have already planned ahead for those risks by securing post-discharge employment in advance.18

While McClure predicates its holding on what it perceives to be...

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