Marriage of Lehman, In re

• Decision Date: 28 May 1998
• Docket Number: No. S062850,S062850
• Citation: 18 Cal.4th 169,74 Cal.Rptr.2d 825
• Court: California Supreme Court
• Parties: , 955 P.2d 451, 98 Cal. Daily Op. Serv. 4021, 98 Daily Journal D.A.R. 5539, Pens. Plan Guide (CCH) P 23944G In re the MARRIAGE OF Marietta and Jack R. LEHMAN. Marietta LEHMAN, Respondent, v. Jack R. LEHMAN, Appellant

Page 825

74 Cal.Rptr.2d 825

18 Cal.4th 169, 955 P.2d 451, 98 Cal. Daily Op. Serv. 4021,

98 Daily Journal D.A.R. 5539,

Pens. Plan Guide (CCH) P 23944G

In re the MARRIAGE OF Marietta and Jack R. LEHMAN Marietta LEHMAN, Respondent, v. Jack R. LEHMAN, Appellant.

No. S062850.

Supreme Court of California

May 28, 1998.

Harry L. Styron, Walnut Creek, for Appellant.

Bernard N. Wolf, San Francisco, Whiting & Rubenstein, Whiting, Rubenstein, Fallon & Ross, Walnut Creek, and R. Ann Fallon, Richmond, for Respondent.

Barbara DiFranza, Salinas, and Soma F. Baldwin, Santa Maria, as Amici Curiae on behalf of Respondent.

MOSK, Justice.

We granted review in this cause in order to address an important question relating to the characterization of retirement benefits as community or separate property under a so-called "defined benefit retirement plan," which specifies payments in advance in accordance with a formula that comprises factors such as final compensation, age, length of service, and a per-service-year multiplier: Does a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits under such a plan own a community property interest in the retirement benefits as enhanced? As we shall explain, we conclude that the answer is: Yes.

I

Jack R. Lehman (Husband) was born on September 3, 1940, and Marietta Lehman (Wife) was born on November 13, 1941. On June 15, 1959, he was hired by the Pacific Gas and Electric Company (PG & E). On June 11, 1960, the couple married. On May 1, 1962, he began to participate in PG & E's defined benefit retirement plan, and thereby began to accrue a right to retirement benefits thereunder. On October 29, 1977, the couple separated. On December 19, 1978, they obtained an interlocutory judgment of dissolution of marriage from the superior court, which retained jurisdiction for purposes including the division of the community property interest in his retirement benefits at the time of retirement. On February 23, 1979, they obtained a final judgment of dissolution.

In March 1993, in order to avoid discharging certain employees, PG & E offered an enhanced retirement program, called the "Voluntary Retirement Incentive" (VRI). It described the VRI program as a "management tool" to "reduc[e] costs" by "bring[ing] our workforce in line with the needs of our changing business" through enhancement of retirement benefits by means of "two special improvements to the retirement benefit formula," namely, the crediting of three putative years of service and the waiving of the normal actuarial reduction of 18 percent for early retirement, which is designed to account for more projected payments. It stated that the "decision to participate ... is completely voluntary." For eligibility, it required, among other things, that the employee in question had attained the age of 50, and had accumulated 15 years of service, as of December 31, 1992. Husband met the conditions. He elected to retire early at about 54 1/3 years of age under the VRI program effective January 1, 1995, with enhanced retirement benefits in the amount of $3,059.30 per month -- based on final compensation of $5,360.43 per month, length of service of 35.67 years, including 3 putative years, and a per-service-year multiplier of 1.6 percent. (Without the three-year putative service credit, he would have received enhanced retirement benefits in the amount of $2,802 per month; without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received enhanced retirement benefits in the amount of $2,508.63 per month.) Had he waited to retire early at 55 years of age, without the 3-year putative service credit and without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received retirement benefits in the amount of $2,350.39 per month -- based on (presumed) final compensation of $5,360.43 per month, length of service of 33.42 years, and a per-service-year multiplier of 1.6 percent. Had he waited to retire at 65 years of age, without the 3-year putative service credit and also without any early retirement actuarial reduction (inasmuch as retirement at that age is not early), he would have received retirement benefits in the amount of $3,724.00 per month -- based on (presumed) final compensation of $5,360.43 per month, length of service of 43.42 years, and a per-service-year multiplier of 1.6 percent. By electing to retire early at about 54 1/3 years of age under the VRI program instead of waiting to retire early at 55 years of age, he received enhanced retirement benefits in an amount of $708.91 per month.

After Husband retired, Wife made various motions in the superior court, seeking various orders together with a determination as to characterization that she owned a community property interest in his retirement benefits as enhanced. In response, Husband admitted that she owned such an interest in his retirement benefits, but denied that she owned one in them as enhanced. What was in contest was solely characterization, i.e., whether the enhancement was a community asset in any part, and not apportionment, i.e., to what extent the enhancement, if a community asset at least in some part, belonged to the community and separate estates. Generally following In re Marriage of Gram (1994) 25 Cal.App.4th 859, 30 Cal.Rptr.2d 792 (hereafter sometimes Gram ), which had recently been decided, the superior court issued orders favorable to Wife, including the determination that, by owning a community property interest in Husband's retirement benefits, she owned a community property interest in his retirement benefits as enhanced. As to apportionment, it applied the so-called "time rule." (See, e.g., In re Marriage of Judd (1977) 68 Cal.App.3d 515, 522, 137 Cal.Rptr. 318; In re Marriage of Adams (1976) 64 Cal.App.3d 181, 186, 134 Cal.Rptr. 298.) Under that method, the community property interest in retirement benefits is the percentage representing the fraction whose numerator is the employee spouse's length of service during marriage before separation, here 17.39 years, and whose denominator is the employee spouse's length of service in total, here 32.67 years; the separate property interest is the percentage representing the remainder of 100 percent minus the community property interest percentage. The superior court determined that the community property interest in Husband's retirement benefits as enhanced was 53.23 percent and that the separate property interest therein was 46.77 percent. It proceeded to award Wife, as her share, one-half of the community property interest, here 26.62 percent -- which yielded her an amount of about $814.39 per month, including about $188.71 per month attributable to the enhancement. It declined to follow Gram to the extent that Gram suggested that it had to add any putative years credited to the employee spouse's service to the denominator of the time-rule fraction.

On Husband's appeal, the Court of Appeal affirmed. Husband claimed that the superior court erred in its determination as to characterization that, by owning a community property interest in his retirement benefits, Wife owned a community property interest in his retirement benefits as enhanced. Reviewing the ultimate question, as it appears, independently, the Court of Appeal concluded that the superior court was correct in its characterization. In this regard, it agreed with Gram. At the same time, it disagreed with the then recent decision in In re Marriage of Frahm (1996) 45 Cal.App.4th 536, 53 Cal.Rptr.2d 31 (hereafter sometimes Frahm ), which it read to be in conflict. Neither Husband nor Wife claimed that the superior court erred in its determination as to apportionment of Husband's retirement benefits as enhanced between community and separate property interests through its application of the time rule. Hence, the Court of Appeal did not address the point.

On Husband's petition, we granted review. We now affirm.

II

The question before us is one of characterization of retirement benefits as community or separate property under a defined benefit retirement plan, specifically, whether a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits under such a plan owns a community property interest in the latter's retirement benefits as enhanced.

A

Generally, all property acquired by a spouse during marriage before separation is community property. (See Fam.Code, §§ 760, 771.)

Under the leading case of In re Marriage of Brown (1976) 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561 (hereafter sometimes Brown ), and its progeny, such property may include the right to retirement benefits accrued by the employee spouse as deferred compensation for services rendered. (Id. at pp. 841-842, 126 Cal.Rptr. 633, 544 P.2d 561.) This is the case whether or not the right to retirement benefits is "vested" in the sense of "surviv[ing] ... discharge or voluntary termination," and whether or not it is "matured" in the sense of amounting to an "unconditional" entitlement "to immediate payment." (Id. at p. 842, 126 Cal.Rptr. 633, 544 P.2d 561.) What is determinative is not any "abstract terminology" of this sort (id. at p. 851, 126 Cal.Rptr. 633, 544 P.2d 561), but rather a single concrete fact -- time. The right to retirement benefits "represent[s] a property interest; to the extent that such [a] right[ ] derive[s] from employment" during marriage before separation, it "comprise[s] a community asset...." (Id. at p. 842, 126 Cal.Rptr. 633, 544 P.2d 561.) "Throughout our decisions we have always recognized that the community owns all [such] rights attributable to employment during marriage" before separation. (Id. at p. 844, 126 Cal.Rptr. 633, 544 P.2d 561.)

The right to retirement benefits is a right to "draw[ ] from [a] stream of income that ... begins to flow" on retirement, as that stream is then defined. (...