Marriage of Milhan, In re

• Decision Date: 17 July 1980
• Citation: 27 Cal.3d 765,166 Cal.Rptr. 533,613 P.2d 812
• Court: California Supreme Court
• Parties: , 613 P.2d 812 In re the MARRIAGE OF Mary Lee and Harry Lloyd MILHAN. Mary Lee MILHAN, Appellant, v. Harry Lloyd MILHAN, Appellant. L.A. 31191.

Page 533

166 Cal.Rptr. 533

27 Cal.3d 765, 613 P.2d 812

In re the MARRIAGE OF Mary Lee and Harry Lloyd MILHAN Mary Lee MILHAN, Appellant, v. Harry Lloyd MILHAN, Appellant.

L.A. 31191.

Supreme Court of California.

July 17, 1980.

Cavalletto, Webster, Mullen & McCaughey and Jeffrey C. Nelson, Santa Barbara, for appellant wife.

Gertrude D. Chern, Santa Maria, as amicus curiae for appellant wife.

Price, Postel & Parma, Gary R. Ricks and J. Terry Schwartz, Santa Barbara, for appellant husband.

Allen R. McMahon and Loretta H. Hellen, Sacramento, as amici curiae for appellant husband.

BIRD, Chief Justice.

The principal issue in this dissolution action is whether the Supreme Court in Hisquierdo v. Hisquierdo (1979) 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1, implicitly held that community property states could not apply their laws in dividing as part of the community a husband's military pension, insurance policy, and disability pay which he received in lieu of retirement.

I

Following his graduation from the United States Naval Academy in 1944, Mr. Milhan married Mrs. Milhan. The Milhans' marriage was dissolved in 1970, five years after Mr. Milhan retired from the Navy and began receiving retirement pay. In 1972, Mr. Milhan was awarded as separate property his retirement pension and two military insurance policies which had been purchased with community funds.

This court reversed that judgment in In re Marriage of Milhan (1974) 13 Cal.3d 129, 117 Cal.Rptr. 809, 528 P.2d 1145, certiorari denied (1975) 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467. (Milhan I.) Relying on In re Marriage of Fithian (1974) 10 Cal.3d 592, 111 Cal.Rptr. 369, 517 P.2d 449, certiorari denied (1974) 419 U.S. 825, 95 S.Ct. 41, 42 L.Ed.2d 48, this court held that Congress had not preempted the application of California community property law to federal military pensions. The court also rejected the claim that Wissner v. Wissner (1950) 338 U.S. 655, 70 S.Ct. 398, 94 L.Ed. 424 required California to classify military insurance policies as separate property. A federal interest was recognized in protecting a serviceman's right to specify the beneficiary of a military insurance policy. However, California courts could nonetheless evaluate "the community interest in a military life policy and award() the insured's spouse an equivalent amount in other property available for disposition. (Fn. omitted.)" (Milhan I, supra, 13 Cal.3d at p. 133, 117 Cal.Rptr. at p. 811, 528 P.2d at p. 1147.)

This court issued its remittitur, and a hearing was held by the trial court. Mr. Milhan testified that he had elected to receive $106 disability compensation from the Veterans' Administration in lieu of an equal amount of retirement pay. The trial court awarded Mrs. Milhan half of Mr. Milhan's retirement pay, as well as a sum equivalent to half of the cash surrender value of the military insurance policies at the time of trial. Mrs. Milhan was also awarded restitution for one-half of the retirement pay received by Mr. Milhan after May 2, 1972. ¹ Mr. Milhan's Veterans' Administration disability pay was not included in the judgment.

Relying on the post-Milhan I decision in Hisquierdo v. Hisquierdo, supra, 439 U.S 572, 99 S.Ct. 802, 59 L.Ed.2d 1, ² Mr. Milhan appealed contending that the award to Mrs. Milhan of pension funds and of property equivalent to her community property interest in the military insurance policies was error. He also claimed the court erred when it awarded interest and attorneys' fees and refused certain credits against the award of back pay. ³ Mrs. Milhan cross-appealed, attacking the trial court's failure to award her a community property share in the Veterans' Administration disability pay received by Mr. Milhan in lieu of retirement pay, and the court's failure to divide the retirement pay from the date of trial in 1970. ⁴

II

In Hisquierdo v. Hisquierdo, supra, 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1, the Supreme Court considered whether the supremacy clause ⁵ precludes state courts from applying community property law to pensions payable under the federal Railroad Retirement Act of 1974. (45 U.S.C. § 231 et seq.) The court found that benefits under the act were provided to "support . . . (former) employees() (in thei) old age and to encourage . . . employee(s) to retire." (Hisquierdo, supra, 439 U.S. at p. 585, 99 S.Ct. at p. 810.) Application of state community property law, the court reasoned, would frustrate the congressional objective in two ways. First, the reduction of benefits would discourage the employee from retiring. Second, state law would encourage divorced employees to "keep working, because (their) former spouse(s) (have) no community property claim to salary earned after the marital community is dissolved." (Ibid.) Accordingly, the court held that 45 United States Code section 231m precludes both the division of railroad pensions as community property and the award of an equivalent amount of other property to the nonemployee spouse. ⁶

The Supreme Court has long recognized that the " 'whole subject of the domestic relations of husband and wife . . . belongs to the laws of the States and not to the laws of the United States.' " (Hisquierdo, supra, 439 U.S. at p. 581, 99 S.Ct. at p. 808 (citation omitted); see also Reppy, Community and Separate Interests in Pensions and Social Security Benefits After Marriage of Brown and ERISA (1978) 25 UCLA L.Rev. 417, 483-485.) Accordingly, federal preemption will apply only where " 'positively required by direct enactment' " (Hisquierdo, supra, 439 U.S. at p. 581, 99 S.Ct. at p. 808, citation omitted), and only insofar as necessary to protect specific federal interests. "State family and family-property law must do 'major damage' to 'clear and substantial' federal interests before the Supremacy Clause will demand that state law be overridden." (Id. Citation omitted.) "The pertinent questions are whether the right as asserted conflicts with the express terms of federal law and whether its consequences sufficiently injure the objectives of the federal program to require nonrecognition." (Hisquierdo, supra, 439 U.S. at p. 583, 99 S.Ct. at p. 809.)

Mr. Milhan contends that Hisquierdo, supra, 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1, governs the assets divided by the trial court in this case. Specifically, he claims that neither military retirement pay nor disability pay received in lieu thereof may be divided as community property. Further, California courts may not award an equivalent amount from other property to compensate for a community property interest in military insurance policies. In effect, Mr. Milhan contends that Hisquierdo implicitly disapproved this court's holdings in In re Marriage of Fithian, supra, 10 Cal.3d 592, 111 Cal.Rptr. 369, 517 P.2d 449; ⁷ In re Marriage of Stenquist (1978) 21 Cal.3d 779, 148 Cal.Rptr. 9, 582 P.2d 96, and Milhan I, supra, 13 Cal.3d 129, 117 Cal.Rptr. 809, 528 P.2d 1145. However, the principles which required preemption in Hisquierdo yield a different result when applied to the facts of this case.

In Fithian, this court found that "California community property law (does not) interfere() in any way with the administration or goals of the federal military retirement pay system . . . ." (Fithian, supra, 10 Cal.3d at p. 604, 111 Cal.Rptr. at p. 377, 517 P.2d at p. 457.) Accordingly, the court held that state law was not preempted. Nothing in Hisquierdo conflicts with this conclusion. Military retirement pay was enacted, inter alia, to "provide (servicemen) with an incentive to remain in the armed services . . . ." (Id., at p. 599, 111 Cal.Rptr. at p. 373, 517 P.2d at p. 453. Emphasis added.) The federal interest which required preemption in Hisquierdo an incentive for pension holders to retire does not exist in the military retirement system. ⁸

Hisquierdo is also consistent with this court's conclusion in Fithian that Congress did not intend "to preserve the benefits of the (military retirement) system as the separate property of the recipient." (Fithian, supra, 10 Cal.3d at p. 599, 111 Cal.Rptr. at p. 373, 517 P.2d at p. 453). The Supreme Court's finding of congressional intent to preempt community property laws applicable to railroad retirement pensions rested on two principal grounds. Neither applies to military pensions.

First, Hisquierdo relied on the statutory immunity of railroad pensions from taxation, attachment, garnishment, assignment, and other "legal process." (45 U.S.C. § 23lm.) This statute also prohibits the "anticipation" of railroad pension benefits. (Id.) Counsel have not cited, nor has independent research revealed, any federal statute which similarly shields military pensions. Thus, Congress has not " 'positively' " and " 'by direct enactment' " precluded California courts from applying community property rules to such pensions. (Hisquierdo, supra, 439 U.S. at p. 581, 99 S.Ct. at p. 808, quoting Wetmore v. Markoe (1904) 196 U.S. 68, 77, 25 S.Ct. 172, 175, 49 L.Ed. 390). ⁹

Second, Hisquierdo relied on the provision of a separate benefit for spouses which is terminated on dissolution of marriage. (45 U.S.C. § 231d(c)(3).) The court stated: "Congress carefully targeted the benefits created by the Railroad Retirement Act. It even embodied a community concept to an extent. The Act provides a benefit for a spouse, but the spouse need not have worked for a carrier. The spouse's sole contribution is to the marital community that supports the employee who has made railroad employment a career. Congress purposefully abandoned that theory, however, in allocating benefits upon absolute divorce. In direct language the spouse is cut off . . . ." (Hisquierdo, supra, 439 U.S. at p. 584, 99 S.Ct. at p. 810.) The court further emphasized that "(d)ifferent considerations might well apply where Congress has remained silent on the subject of benefits for spouses, particularly when the pension program is a private one which...