Marriage of Skaden, In re

• Decision Date: 19 July 1977
• Docket Number: S.F. 23559
• Parties: , 566 P.2d 249 In re the MARRIAGE OF Gary B. and Heidrun H. SKADEN. Gary B. SKADEN, Respondent, v. Heidrun H. SKADEN, Appellant.
• Court: California Supreme Court

Page 615

139 Cal.Rptr. 615

19 Cal.3d 679, 566 P.2d 249

In re the MARRIAGE OF Gary B. and Heidrun H. SKADEN.

Gary B. SKADEN, Respondent, v. Heidrun H. SKADEN, Appellant.

S.F. 23559.

Supreme Court of California.

July 19, 1977.

Thomas C. Westley, Sacramento, for appellant.

Saulque & Viets and Richard L. Viets, Sacramento, for respondent.

SULLIVAN, Justice. ^*

In In re Marriage of Brown (1976) 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561, this court, overruling a long line of prior decisions originating in French v. French (1941) 17 Cal.2d 775, 112 P.2d 235, held that a spouse's retirement pension rights, whether or not vested, represent a property interest, and that to the extent such rights derive from employment during coverture, they comprise a community asset subject to division in a dissolution proceeding. In the instant case we confront the related question whether vested 'termination benefits' contained in an insurance sales agent's agreement with an insurer also represent such a divisible property interest. We conclude that they do. To implement their division under the particular circumstances of the instant case, we deem it necessary and appropriate to indicate certain guidelines and procedures. We reverse the judgment and remand the cause for further proceedings.

Heidrun and Gary Skaden were married in 1961 and separated in 1973. Starting in 1965 Gary was an insurance sales agent of State Farm Insurance Companies (State Farm) working under the provisions of a contract entitled 'State Farm Agent's Agreement,' which was executed at the commencement of the agency relationship. The agreement provided inter alia that if it were terminated two years or more after its effective date, whether by death of the agent or by written notice of either party, the agent was to receive certain 'termination benefits.' ¹ These benefits consisted in general of specified percentages of net premiums, collected within a five-year period after termination, on policies that were credited to the agent's account on the date of termination. ² Payments were to be made on an installment basis, extending over a five-year period, ³ and were to be subject to specified conditions relating to competitive activities on the part of the terminated agent. ⁴

The trial court found and concluded that the above mentioned termination benefits 'are not divisible community property but merely an expectancy and a continuation of (Gary's) earnings, not presently capable of ascertainment or computation and therefore of no value.' In the interlocutory judgment of dissolution of marriage, entered on June 23, 1975, the court awarded such benefits to Gary 'as his sole and separate property.'

Heidrun appeals from the judgment, contending that the above termination benefits, like the pension rights involved in Brown, represent a form of deferred compensation for services rendered. This compensation, she argues, deriving from the terms of the agent's agreement, constituted a property right subject to division upon or following dissolution to the extent that it was community in character. ⁵ We agree.

Although we are mindful of the risk of imprecision inherent in any comparison of the descriptions of forms of property claimed to be similar, we nevertheless think it illuminating to examine the rights here in question in the light of the terminology used by us in Brown. As we there explained, the use of the term 'vested' has acquired a special meaning in the context of divorce and dissolution. A right which is 'vested' for these purposes, we stated, is one which 'survives the discharge or voluntary termination of the employee.' (15 Cal.3d at p. 842, 126 Cal.Rptr. at p. 635, 544 P.2d at p. 569.) Such a 'vested' right may be either 'matured' or 'immature.' If payment is subject to one or more conditions--e.g., a condition of survival to a specified time--the right is said to be 'vested' but 'immature.' If on the other hand it is subject to no conditions and constitutes an 'unconditional right to immediate payment,' it is said to be 'matured.' (Id.)

We believe that the right to termination benefits involved in the instant case must be considered 'vested' for present purposes. By the terms of the agent's agreement and subject to the conditions there set forth in paragraphs 2 and 3 of Article IV (see fns. 3 and 4, Ante), the right arises two years after the effective date of the agreement--a date long past when the dissolution proceedings were commenced. By the same token, however, the right was 'immature' at that time: no termination of the agent's agreement had occurred, and the post-termination conditions of payment had not been fulfilled. Thus we are here concerned with a 'vested' but 'immature' right.

It is clear in the context of retirement pensions that a 'vested' ⁶ but 'immature' pension right is property subject to division upon dissolution to the extent of its community character. (Brown, supra, 15 Cal.3d at p. 847, 126 Cal.Rptr. 633, 544 P.2d 561; Smith v. Lewis (1975) 13 Cal.3d 349, 355, fn. 4, 118 Cal.Rptr. 621, 530 P.2d 589; In re Marriage of Fithian (1974) 10 Cal.3d 592, 596, fn. 2, 111 Cal.Rptr. 369, 517 P.2d 449.) The fundamental question in this case, therefore, is whether the rights here in question differ in character from vested pension rights to an extent which would justify treating them differently.

Pension benefits, we held in Brown, 'represent a form of deferred compensation for services rendered.' (15 Cal.3d at p. 845, 126 Cal.Rptr. at p. 637, 544 P.2d at p. 571.) '(T)he employee's right to such benefits is a contractual right, derived from the terms of the employment contract,' and as such 'is not an expectancy but a chose in action, a form of property.' (Id.) The benefits involved in the instant case, Heidrun urges, are identical in character, and the right to them, also derived from the terms of the agreement, is likewise not a mere expectancy but a chose in action--and therefore property subject to division upon dissolution. Gary, on the other hand, urges that the benefits here in question are fundamentally different from pension benefits. Rather than being a form of deferred compensation for services rendered, he contends, they represent 'consideration for termination,' the right to which arises only upon termination. Alternatively he seems to argue that the termination benefits constitute consideration for the agent's forebearance from undertaking certain business pursuits After termination as, for example, the competitive activities which are the subject to the conditions set forth in Section IV, paragraph 3 of the agreement. (See fn. 4, Ante.)

We have concluded that Heidrun's position is the correct one. The agreement provides that termination benefits are payable '(i)n the event this Agreement is terminated two years or more after its effective date . . . subject to the conditions set forth in paragraphs 2 and 3 . . .' (quoted in fns. 3 and 4, Ante). Nothing in the agreement suggests that such benefits are 'consideration for termination.' Moreover, termination may occur under the agreement in one of three ways: (1) upon written notice by the agent, (2) upon written notice by the company, or (3) upon the death of the agent. It is difficult to understand how payments made 'in the event' of termination may be characterized as 'consideration' for such termination when that event may be involuntary as, for example, upon the agent's death or the company's written notice, rather than upon the written notice of the agent.

The suggestion that the benefits here in question should be characterized as consideration for the agent's post-termination compliance with conditions set forth in paragraphs 2 and 3 of the agreement is equally devoid of merit. Again the terms of the agreement, which make payment 'subject to' these conditions, nowhere indicate that compliance with them is the 'performance' on the part of the agent for which payment is to be made. If this were so, we would expect the amount of payment to depend directly upon the degree of compliance. Under the terms of the agreement, however, the amount of payment relates directly to the number and character of policies credited to the account of the agent at the time of termination, subject to adjustment according to the extent of the agent's compliance with conditions of the agreement.

As we pointed out in Waite v. Waite (1972) 6 Cal.3d 461, 99 Cal.Rptr. 325, 492 P.2d 13, the fact that the payment of benefits, the right to which has vested, is buejct to a condition whose fulfillment is wholly within the control of the employee spouse does not affect the vested nature of the right or degrade it into an 'expectancy.' (6 Cal.3d at p. 472, 99 Cal.Rptr. 325, 492 P.2d 13; see also Brown, supra, 15 Cal.3d at pp. 844, 846, fn. 8, 126 Cal.Rptr. 633, 544 P.2d 561; In re Marriage of Peterson (1974) 41 Cal.App.3d 642, 650--651, 115 Cal.Rptr. 184.)

We think it clear from the foregoing that the termination benefits contemplated by the subject contract were, like pension benefits, 'a form of deferred compensation for services rendered.' The right to these benefits 'derived from the terms of the employment contract' and under those terms became vested upon the expiration of two years after the date of execution. Manifestly, then, under the cases we have cited (see text accompanying fn. 6, Ante), that right is property subject to division, to the extent of its community character, upon dissolution of the marriage. ⁷ (Civ.Code, § 4800.)

It remains for us to consider the proper method for the division of the termination benefits as marital property. In addressing a similar question in Brown we indicated two basic solutions of this problem: first, a determination by the trial court of the present value of the rights or benefits adjudged to be marital property and an equal division or adjustment of the same (see Phillipson v. Board of Administration (1970) 3 Cal.3d 32,...