Paulone v. Paulone
| Decision Date | 04 November 1994 |
| Citation | 437 Pa.Super. 130,649 A.2d 691 |
| Parties | Teresa S. PAULONE, Appellant (at 1427) v. Daniel J. PAULONE, Appellant (at 1461). |
| Court | Pennsylvania Superior Court |
Robert Raphael, Pittsburgh, for Teresa Paulone.
H. Reginald Belden, Jr., Greensburg, for Daniel Paulone.
Before DEL SOLE, FORD ELLIOTT, and MONTGOMERY, JJ.
Before us are cross-appeals from an order of the Court of Common Pleas of Westmoreland County directing equitable distribution of marital property. The parties' principal dissatisfaction with the trial court's order centers upon Husband's pension plan and profit sharing plan. For the reasons set forth herein, we must reverse and remand.
Husband and Wife were married on June 18, 1980, and separated on or about September 15, 1989. A complaint in divorce was filed by Wife on August 14, 1990. The action was bifurcated and a decree in divorce was entered on August 26, 1992. No children were born of this marriage. Husband is self-employed in a family-owned and operated lumber and home building business. Wife is employed as a teacher. A Master's hearing was conducted on July 15, 1992. In his report filed January 14, 1993, the Master recommended that the assets of the marital estate be divided on an equal basis. Both parties filed exceptions to the report. A hearing was held on July 16, 1993, by the trial court for clarification on the issue of Husband's pension. The trial court adopted the Master's report and recommendation with the exception of the valuation of the pension and profit sharing plans and entered an order dated July 28, 1993. Subsequently, an amended order was entered on August 17, 1993, to correct a typographical error. These timely appeals followed.
On appeal both parties challenge the exercise of the trial court's discretion in its handling of Husband's pension and profit sharing plans. Wife challenges the method of valuation utilized by the trial court, and Husband disputes the method of distribution.
Before addressing the issues presented, we note that in reviewing challenges to an order of equitable distribution, the trial court's decision will stand unless the court abused its discretion in formulating the order. Endy v. Endy, 412 Pa.Super. 398, 403, 603 A.2d 641, 643 (1992). We have stated that an abuse of discretion is not found lightly, but upon a showing of clear and convincing evidence. Miller v. Miller, 421 Pa.Super. 23, 27, 617 A.2d 375, 377 (1992). Under the abuse of discretion standard, the appellate court does not usurp the trial court's duty as factfinder. Id. An abuse of discretion will be found by this court if the trial court failed to follow proper legal procedures or misapplied the law. Liciardello v. Liciardello, 391 Pa.Super. 219, 221-22, 570 A.2d 1062, 1063 (1990).
Accepting the parameters of our review, we turn first to the issue presented by Wife. Wife argues that the trial court abused its discretion by applying a coverture fraction to Husband's pension and profit sharing plans which resulted in an unfair and unequitable valuation of the marital component on the plans. The thrust of Wife's claim is that because Husband's plans are defined contribution plans, the use of a coverture fraction is not required for determining the marital portion for equitable distribution.
Pension plans are generally of two basic types: the defined contribution plan and the defined benefit plan. Recently, in Berrington v. Berrington, 534 Pa. 393, 633 A.2d 589 (1993), our supreme court discussed the two types of pension plans.
A defined benefit plan is one in which the employer promises a certain benefit; a defined contribution plan is one in which the employer promises a certain contribution.
In a defined benefit plan, the benefit which is promised is calculated by a formula defined in the pension plan provisions. The employer pays a specified benefit at retirement. In some defined benefit plans, the employee contributes nothing; in others, the benefits are based, in part, on what the employee contributes. The employer's contribution to the plan, however, varies from year to year based on the amount which is needed at any particular time to pay the benefits which are due. Individual accounts of each employee's contribution, if any, are maintained, but these accounts do not specify an employer contribution.
In a defined contribution plan, however, individual accounts specify not only the employee's contribution, but the employer's as well. The benefits to be paid in the defined contribution plan, however, unlike those in the defined benefit plan, are not fixed, for they depend upon the performance of investments which are made with the contributions.
Id. at 396 n. 1, 633 A.2d at 590 n. 1. Because of the distinct nature of each of these plans, their method of valuation is different as well. As one commentator has explained:
Valuing the defined contribution plan
Defined contribution plans are similar to savings accounts, in the sense that the value of each individual account is indicated by current account statements. The [marital portion subject to equitable distribution] in the employee's retirement account is equal to the value of the account at the date of separation. Valuation becomes a matter of reviewing the latest account statement furnished to the employee by the plan administrator. For example, if the parties separate on January 1, and the latest account statement dated January 1 lists the fair market value of the employee's account as $20,000, that figure is the value of the account for the purpose of disposing of the retirement interest. When separation occurs after the most recent statement, the fair market value of the account can be approximated by determining what additional investments were made on behalf of the account and computing increases, or decreases, in the account. Further information from the plan administrator should be available to make an acceptably accurate determination in this instance.
Valuing the defined benefit plan
It is the defined benefit plan which raises significant valuation problems. Unlike the defined contribution plan, there is no individual account statement which provides the parties with the value of the plan at regular intervals. All we know is that if the employee stays alive and on the job until retirement, he will be entitled to receive a specified monthly payment for the balance of his life.
....
Defined benefit plans are valued by actuarially determining their present value. ... The calculation of a present value requires discounting for mortality, based upon group annuity mortality tables, discounting for interest, and discounting for the probability that the employee will remain with the company to retirement age. All of the various factors can be considered by the actuary in determining the present value of the plan.
Hardie, Pay Now or Later: Alternatives in the Disposition of Retirement Benefits on Divorce, 53 Cal. St. B.J. 106 (1978) (footnotes omitted) (parenthetical added).
Wife argues on appeal that because no present value calculation is necessary for the valuation of a defined contribution plan, then no coverture fraction calculation need be applied to such a benefit. In effect, the value of the marital portion of the plan account is readily ascertainable by simply reviewing the account for the dates and amounts of the contributions.
As to the valuation of the pension benefits involved in the instant case, we agree with Wife that the use of a coverture fraction is unnecessary and unfairly reduces the portion of the pension which should be available for distribution. However, we will not go so far as to direct that the use of the coverture fraction is inapplicable to all defined contribution plans.
We begin our analysis by stating that an exhaustive review of the case law in this Commonwealth reveals that the vast majority of reported decisions deal with the valuation and distribution of defined benefit pension plans, and the coverture fraction calculations are an important part of the analysis in these decisions. The numerator of the...
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