McDermott v. McDermott, 86-151

• Decision Date: 19 August 1988
• Docket Number: No. 86-151,86-151
• Citation: 552 A.2d 786,150 Vt. 258
• Court: Vermont Supreme Court
• Parties: Maurice J. McDERMOTT, Jr. v. Merle W. McDERMOTT.

Page 786

552 A.2d 786

150 Vt. 258

Maurice J. McDERMOTT, Jr. v. Merle W. McDERMOTT.

No. 86-151.

Supreme Court of Vermont.

Aug. 19, 1988.

McKee, Giuliani & Cleveland, Montpelier, for plaintiff-appellant.

George E. Rice, Jr. and Jess T. Schwidde, Montpelier, for defendant-appellee.

Before ALLEN, C.J., PECK and GIBSON, JJ., BARNEY, C.J. (Ret.) and KEYSER, J. (Ret.), Specially Assigned.

KEYSER, Justice (Ret.), Specially Assigned.

Plaintiff husband appeals the superior court's property disposition in the underlying divorce action, contending that the court erred in assessing the value of his retirement pension. We reverse and remand.

The parties were married on April 20, 1957, and reared six daughters over the next twenty-eight years. Plaintiff worked as a postal employee during the marriage, and defendant provided day care services. The parties separated on February 2, 1985, and plaintiff filed his complaint on February 6 of that year. At the time of trial, the parties owned a residence with a net equity of $52,000 and a camp with a net equity of $18,500. The only other significant asset was plaintiff's pension fund, in which plaintiff's rights had vested but not yet matured.

The parties agree that their assets, including the pension fund, are marital property and should be divided equally, but they disagree as to the proper method of computing the pension's present value. If, for example, plaintiff had retired as of the date of the divorce hearing, then he would have been entitled to receive a lump sum of $18,500. On the other hand, if he had terminated his employment on the date of the hearing but then waited until March of 1989 (when plaintiff's pension rights would mature) to begin drawing benefits, then the pension would be worth between $36,000 and $66,000 in today's dollars, depending upon the interest rate used in the calculations. Finally, defendant produced expert testimony at trial that the pension's present value was $166,900, based on the following assumptions: that plaintiff would continue to work until March of 1989, that he would retire at age fifty-five, that the interest rate on a comparable annuity would be seven percent, and that this rate should be reduced by a three to four percent cost of living factor. The court adopted the expert's $166,900 figure and awarded defendant $62,000, amortized over a twenty year period, as well as the marital residence.

On appeal, plaintiff argues that the court erred, as a matter of law, in considering his post-divorce employment for purposes of determining the present value of his pension rights. Although we reject this argument in principle, we find error in the method used by the lower court to compute the present value of the benefits attributable to the marriage.

As a threshold matter, we emphasize the parties' agreement that plaintiff's pension rights constitute marital property. Those courts holding retirement pensions to be marital assets have reasoned that such benefits are, in the words of one court, "received in lieu of higher compensation which would otherwise have enhanced either marital assets or the marital standard of living...." Majauskas v. Majauskas, 61 N.Y.2d 481, 491-92, 463 N.E.2d 15, 20-21, 474 N.Y.S.2d 699, 705 (1984). Retirement pension rights are "the result of direct or indirect efforts expended by one or both parties to the marriage.... Each spouse [has] the same expectation of future enjoyment with the knowledge that the pensioner need only survive to receive it." Kikkert v. Kikkert, 177 N.J.Super. 471, 476-77, 427 A.2d 76, 79, aff'd, 88 N.J. 4, 438 A.2d 317 (1981). Here, for example, plaintiff can greatly enhance the value of the pension by continuing his post-divorce employment until March of 1989, but some of the power to produce this effect was acquired during the twenty-eight years of marriage.

Because deferral of benefits is the keynote of most retirement pension plans, disposition of such assets upon divorce is particularly problematic. The courts have used two basic methods to accomplish this task in cases where pension rights are vested but not yet matured: (1) the immediate offset method, and (2) the deferred distribution or reserved jurisdiction method. Braderman v. Braderman, 339 Pa.Super. 185, 197-98, 488 A.2d 613, 619 (1985); Note, Vested But Unmatured Pensions as Marital Property: Inherent Valuation, Allocation and Distribution Problems in Equitable Distributions, 14 Rutgers L.J. 175, 188-89 (1982).

Under the immediate offset approach, the pension benefits are assigned a present value and distributed along with the other marital assets. Braderman, 339 Pa.Super. at 197-98, 488 A.2d at 619. The term "offset" denotes the common practice of awarding the undivided pension rights to the employee and awarding other marital property to the employee's spouse. This method is appropriate where other assets are of significant value and where the value of the pension can be assessed without excessive speculation. In this context, the present value of pension rights "is the sum which a person would take now in return for giving up the right to receive an unknown number of monthly checks in the future. The present value is discounted by various actuarial calculations to reflect contingencies affecting the eventual payout, including discounts for mortality, inflation, interest, probability of vesting and probability of continued employment." DuBois v. DuBois, 335 N.W.2d 503, 506 (Minn.1983). Such estimations are very difficult and can be too conjectural in certain cases. Bloomer v. Bloomer, 84 Wis.2d 124, 135, 267 N.W.2d 235, 241 (1978)....