Marriage of Brown, In re

• Decision Date: 16 January 1976
• Court: California Supreme Court
• Parties: , 544 P.2d 561, 94 A.L.R.3d 164 In re the MARRIAGE OF Gloria Loucille and Robert William BROWN. Gloria Loucille BROWN, Appellant, v. Robert William BROWN, Respondent. L.A. 30463.

Page 633

126 Cal.Rptr. 633

15 Cal.3d 838, 544 P.2d 561, 94 A.L.R.3d 164

In re the MARRIAGE OF Gloria Loucille and Robert William BROWN Gloria Loucille BROWN, Appellant, v. Robert William BROWN, Respondent.

L.A. 30463.

Supreme Court of California In Bank.

Jan. 16, 1976.

Sidney W. Jones, Ontario, for appellant.

Gertrude D. Chern, Santa Maria, as amicus curiae on behalf of appellant.

Robert G. Beloud and Jay G. Vickers, Upland, for respondent.

Frederick S. Brown as amicus curiae on behalf of respondent.

TOBRINER, Justice.

Since French v. French (1941) 17 Cal.2d 775, 778, 112 P.2d 235, California courts have held that nonvested pension rights are not property, but a mere expectancy, and thus not a community asset subject to division upon dissolution of a marriage. Two years ago we granted a hearing in In re Marriage of Wilson (1974) 10 Cal.3d 851, 112 Cal.Rptr. 405, 519 P.2d 165, to reconsider 'the current viability of the rule of French v. French' (10 Cal.3d at p. 853, 112 Cal.Rptr. at p. 406, 519 P.2d at p. 166), but upon examination of the record in Wilson we discovered that the French issue had been waived by the nonemployee spouse. Properly raised in the present case by appellant Gloria Brown, the issue of division of nonvested pension rights upon dissolution of a marriage again confronts this court.

Upon reconsideration of this issue, we have concluded that French v. French should be overruled and that the subsequent decisions which rely on that precedent should be disapproved. As we shall explain, the French rule cannot stand because nonvested pension rights are not an expectancy but a contingent interest in property; furthermore, the French rule compels and inequitable division of rights acquired through community effort. Pension rights, whether or not vested, represent a property interest; to the extent that such rights derive from employment during coverture, they comprise a community asset subject to division in a dissolution proceeding.

Before we turn to the facts of this appeal we must devote a few words to terminology. Some decisions that discuss pension rights, but do not involve division of marital property, describe a pension right as 'vested' if the employer cannot unilaterally repudiate that right without terminating the employment relationship. (See Strumsky v. San Diego County Employees Retirement Ass'n (1974) 11 Cal.3d 28, 45, 112 Cal.Rptr. 805, 520 P.2d 29; Kern v. City of Long Beach (1947) 29 Cal.2d 848, 855, 179 P.2d 799; Dryden v. Board of Pension Commrs. (1936) 6 Cal.2d 575, 579, 59 P.2d 104.) As we explain later, we believe that these decisions correctly define the point at which a pension right becomes a property interest. In divorce and dissolution cases following French v. French, however, the term 'vested' has acquired a special meaning; it refers to a pension right which is not subject to a condition of forfeiture if the employment relationship terminates before retirement. ¹ We shall use the term 'vested' in this latter sense as defining a pension right which survives the discharge or voluntary termination of the employee.

As so defined, a vested pension right must be distinguished from a 'matured' or unconditional right to immediate payment. Depending upon the provisions of the retirement program, an employee's right may vest after a term of service even though it does not mature until he reaches retirement age and elects to retire. Such vested but immature rights are frequently subject to the condition, among others, that the employee survive until retirement. ²

The issue in the present case concerns the nonvested pension rights of respondent Robert Brown. General Telephone Company, Robert's employer, maintains a noncontributory pension plan in which the rights of the employees depend upon their accumulation of 'points,' based upon a combination of the years of service and the age of the employee. Under this plan, an employee who is discharged before he accumulates 78 points forfeits his rights; an employee with 78 points can opt for early retirement at a lower pension, or continue to work until age 63 and retire at an increased pension.

Gloria and Robert Brown married on July 29, 1950. When they separated in November of 1973, Robert had accumulated 72 points under the pension plan, a substantial portion of which is attributable to his work during the period when the parties were married and living together. ³ If he continues to work for General Telephone, Robert will accumulate 78 points on November 30, 1976. If he retires then, he will receive a monthly pension of $310.94; if he continues his employment until normal retirement age his pension will be $485 a month.

Relying on the French rule, the trial court held that since Robert had not yet acquired a 'vested' right to the retirement pension, the value of his pension rights did not become community property subject to division by the court. It divided the remaining property, awarding Gloria the larger share but directing her to pay $1,742 to Robert to equalize the value received by each spouse. The court also awarded Gloria alimony of $75 per month. Gloria ap peals from the portion of the interlocutory judgment that declares that Robert's pension rights are not community property and thus not subject to division by the court. ⁴

As we have stated, the fundamental theoretical error which led to the inequitable division of marital property in the present case stems from the seminal decision of French v. French, supra, 17 Cal.2d 775, 112 P.2d 235. Mrs. French claimed a community interest in the prospective retirement pay of her husband, an enlisted man in the Fleet Reserve. The court noted that 'under the applicable statutes the (husband) will not be entitled to such pay until he completes a service of 14 years in the Fleet Reserve and complies with all the requirements of that service.' (P. 778, 112 P.2d p. 236.) It concluded that 'At the present time, his right to retirement pay is an expectancy which is not subject to division as community property.' (Ibid.)

In 1962 the Court of Appeal in Williamson v. Williamson, 203 Cal.App.2d 8, 21 Cal.Rptr. 164, explained the French rule, asserting that '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.' (203 Cal.App.2d at p. 11, 21 Cal.Rptr. at p. 167.)

Subsequent cases, however, have limited the sweep of French, holding that a vested pension is community property even though it has not matured (In re Marriage of Martin (1975) 50 Cal.App.3d 581, 584, 123 Cal.Rptr. 634; In re Marriage of Ward (1975) 50 Cal.App.3d 150, 123 Cal.Rptr. 234; In re Marriage of Bruegl (1975) 47 Cal.App.3d 201, 205, fn. 4, 120 Cal.Rptr. 597; Bensing v. Bensing, supra, 25 Cal.App.3d 889, 893, 102 Cal.Rptr. 255), or is subject to conditions within the employee's control (Waite v. Waite (1972) 6 Cal.3d 461, 472, 99 Cal.Rptr. 325, 492 P.2d 13; In re Marriage of Peterson (1974) 41 Cal.App.3d 642, 650--651, 115 Cal.Rptr. 184.) But although we have frequently reiterated the French rule in dictum (see, e.g., Marriage of Jones (1975) 13 Cal.3d 457, 461, 119 Cal.Rptr. 108, 531 P.2d 420; In re Marriage of Fithian (1974) 10 Cal.3d 592, 596, 111 Cal.Rptr. 369, 517 P.2d 449; Phillipson v. Board of Administration (1970) 3 Cal.3d 32, 40--41, 89 Cal.Rptr. 61, 473 P.2d 765; cf. Smith v. Lewis (1975) 13 Cal.3d 349, 355, 118 Cal.Rptr. 621, 530 P.2d 589), we have not previously had occasion to reexamine the merits of that rule.

Throughout our decisions we have always recognized that the community owns all pension rights attributable to employment during the marriage. (See Phillipson v. Board of Administration, supra, 3 Cal.3d 32, 39, 89 Cal.Rptr. 61, 473 P.2d 765; French v. French, supra, 17 Cal.2d 775, 778, 112 P.2d 235; Marriage of Ward, supra, 50 Cal.App.3d 150, 153, 123 Cal.Rptr. 234.) The French rule, however, rests on the theory that nonvested pension rights may be community, but that they are not property; classified as mere expectancies, such rights are not assets subject to division on dissolution of the marriage.

We have concluded, however, that the French court's characterization of nonvested pension rights as expectancies errs. ⁵ The term expectancy describes the interest of a person who merely foresees that he might receive a future beneficence, such as the interest of an heir apparent (Civ.Code, § 700; see Estate of Perkins (1943) 21 Cal.2d 561, 569, 134 P.2d 231), or of a beneficiary designated by a living insured who has a right to change the beneficiary (see Morrison v. Mutual L. Ins. of N.Y. (1940) 15 Cal.2d 579, 583, 103 P.2d 963; Mayfield v. Fidelity & Casualty Co. (1936) 16 Cal.App.2d 611, 619, 61 P.2d 83). ⁶ As these examples demonstrate, the defining characteristic of an expectancy is that its holder has no Enforceable right to his beneficence.

Although some jurisdictions classify retirement pensions as gratuities, it has long been settled that under California law such benefits 'do not derive from the beneficence of the employer, but are properly part of the consideration earned by the employee.' (In re Marriage of Fithian, supra, 10 Cal.3d 592, 596, 111 Cal.Rptr. 369, 371, 517 P.2d 449, 451.) Since pension benefits represent a form of deferred compensation for services rendered (In re Marriage of Jones, supra, 13 Cal.3d 457, 461, 119 Cal.Rptr. 108, 531 P.2d 420), the employee's right to such benefits is a contractual right, derived from the terms of the employment contract. Since a contractual right is not an expectancy but a chose in action, a form of property (see Civ.Code, § 953; Everts v. Will. S. Fawcett Co. (1937) 24 Cal.App.2d 213, 215, 74 P.2d 815), we held in Dryden v. Board of Pension Commrs., supra, 6 Cal.2d 575, 579, 59 P.2d 104, than an employee acquires a property right to pension benefits when he enters upon the performance...