Peterson v. Peterson (In re Peterson)

• Decision Date: 11 January 2016
• Docket Number: B259322
• Citation: 243 Cal.App.4th 923,197 Cal.Rptr.3d 588
• Court: California Court of Appeals Court of Appeals
• Parties: In re MARRIAGE OF John and Annette PETERSON. John Peterson, Respondent, v. Annette Peterson, Appellant.

243 Cal.App.4th 923

197 Cal.Rptr.3d 588

In re MARRIAGE OF John and Annette PETERSON.

John Peterson, Respondent,

v.Annette Peterson, Appellant.

B259322

Court of Appeal, Second District, Division 4, California.

Filed January 11, 2016

Law Office of James T. Neavitt, James T. Neavitt, Valencia, Cecilia Jimenez and Andrew L. Fowler, Grass Valley, for Appellant.

Brian M. Moore, Calabasas, for Respondent.

COLLINS, J.

INTRODUCTION

The parties present a legal question that has divided states across the country: When one spouse contributes to Social Security, which according to federal law is a spouse's separate property, and the other spouse participates in a state or local pension plan in lieu of Social Security, which according to state law is community property, how should a state court divide the parties' retirement benefits?

The trial court held that because the husband's Social Security benefits are separate property and the wife's county retirement benefits are community property, the Social Security benefits may not be considered and the county benefits must be divided equally between the parties. We agree and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

John and Annette Peterson were married on March 12, 1994, and they separated on February 17, 2010. John¹ is an attorney who works in private practice. Throughout the marriage, John contributed to Social Security through mandatory payroll deductions.

Annette, also an attorney, began working for the County of Los Angeles as a Deputy District Attorney in September 1994, and remained employed with the County throughout the marriage. Through her employment Annette became a member of the Los Angeles County Employees Retirement Association (LACERA) Plan E, which is a defined-benefit retirement plan. LACERA members do not contribute to the plan; only the County, Annette's employer, contributes. The amount of a LACERA member's benefits is determined by the member's age at retirement, amount of service credits, and final compensation. Annette began accumulating LACERA service credits as soon as she began working for the County. At the time of trial, she had more than 14 years of service credits under LACERA's Plan E.

LACERA members are barred from contributing to Social Security. Under the Windfall Elimination Provision of the Social Security Act, 42 U.S.C. § 415(a)(7), and the Government Pension Offset, 20 C.F.R. § 404.408a(a), Annette is barred from receiving Social Security benefits, both individually and as the spouse of someone who contributed to Social Security.

Annette and John separated on February 17, 2010 and filed for divorce. They entered into stipulated judgments regarding the custody of their children and division of the community estate, with the exception of their retirement benefits. They agreed that under existing law, John's Social Security is separate property and Annette's LACERA benefits are community property.

As a result of this classification, John is entitled to keep 100 percent of his Social Security benefits and half of Annette's LACERA benefits, while Annette is entitled to none of John's Social Security benefits and only half of her LACERA benefits. Annette argued below that the trial court should fashion an equitable division of the LACERA benefits to account for this disparity, while John argued that the trial court was compelled by federal law and Family Code section 2550² to divide the LACERA benefits equally.

The court below conducted a short trial to address how to divide the retirement benefits. Annette stated that the present value of her LACERA benefits is approximately $210,000 to $216,000, and the present value of John's Social Security benefits is $228,000. Annette also used an online calculator available from the Social Security website³ to estimate the amount of Social Security benefits she would be entitled to receive had she participated in Social Security. She also presented evidence showing the amounts John and his employer contributed to his Social Security during the marriage. John does not dispute these facts.

In its order following trial, the court acknowledged the parties' agreement that John's Social Security benefits are separate property and Annette's LACERA benefits are community property. The trial court rejected Annette's argument that the court should fashion an equitable division of the LACERA benefits by either (a) requiring John to reimburse the community estate for the amount of Social Security contributions withheld from John's pay, and then dividing the assets, (b) allocating a portion of the LACERA benefits to Annette as separate property based on the present value of the Social Security benefits Annette would have accumulated had she been a Social Security participant, or (c) considering the present value of John's Social Security benefits when dividing the LACERA benefits to ensure the parties received roughly equal retirement benefits. The court held that considering John's Social Security benefits in dividing the LACERA benefits would amount to a "setoff" of John's Social Security, which is barred by federal law. Relying on Hisquierdo v. Hisquierdo (1979) 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1 (Hisquierdo ) and In re Marriage of Cohen (1980) 105 Cal.App.3d 836, 843, 164 Cal.Rptr. 672 (Cohen ), the trial court concluded that because John's Social Security benefits were his separate property and the LACERA benefits were community property, the "LACERA retirement benefits accumulated during marriage are subject to the mandate for equal division of Section 2550." The court added, "Thus, whether the result is inequitable or not, this court cannot adjust the division of [Annette's] LACERA benefits or deviate from the requirement of equal division."

Annette timely appealed.

STANDARD OF REVIEW

Because the parties have reached stipulated judgments as to the marital estate aside from the parties' retirement benefits, the only question before the court is how to divide the retirement benefits. Annette urges us to find that the trial court may divide the LACERA benefits in a manner that is not technically equal, in order to account for John's separate Social Security benefits. Because Annette has presented a question of law based on undisputed facts, we exercise de novo review. (In re Marriage of Siegel (2015) 239 Cal.App.4th 944, 953, 191 Cal.Rptr.3d 330 ; Estate of Wilson (2012) 211 Cal.App.4th 1284, 1290, 150 Cal.Rptr.3d 699 ["The applicability of a statutory standard to undisputed facts and questions of statutory interpretation are questions of law that are reviewed de novo."].)

DISCUSSION

Annette asks us to consider equitable ways to divide the parties' retirement benefits so that John does not receive 150 percent of the parties' collective retirement (all of the Social Security and half of the LACERA benefits) while Annette receives no Social Security and just half of the LACERA benefits. She suggests three alternative remedies, as she did in the court below. First, Annette argues that the Social Security withholdings from John's income should be reimbursed to the community and divided along with the LACERA benefits. Second, Annette suggests that a portion of the LACERA benefits, equal to what she would have contributed to Social Security had she been a participant, be attributed to her as her separate property, just as John's Social Security is John's separate property. Third, Annette suggests that we order the trial court to determine the value of John's Social Security benefits as of the date of separation, assign an equal value of the LACERA benefits to Annette as separate property, and divide the remainder as a community asset.

John, on the other hand, argues that California and federal law are clear: Social Security is separate property under federal law, non-Social Security pensions are community property under California law, and California law requires community assets to be divided equally. As a result, John argues, his Social Security withholdings and benefits should not be considered, and the LACERA benefits should be divided equally. We agree that existing law compels this result, and affirm.

A. Pension benefits are community property under California law

In California, pension benefits are viewed as "a form of deferred compensation for services rendered," and "an employee acquires a property right to pension benefits when he enters upon the performance of his employment contract." (In re Marriage of Brown (1976) 15 Cal.3d 838, 845, 126 Cal.Rptr. 633, 544 P.2d 561.) "[I]f the right to retirement benefits accrues, in some part, during marriage before separation, it is a community asset and is therefore owned by the community in which the nonemployee spouse as well as the employee spouse owns an interest." (In re Marriage of Lehman (1998) 18 Cal.4th 169, 179, 74 Cal.Rptr.2d 825, 955 P.2d 451.)

Non-financial contributions to pension benefits, such as the service credits Annette has accumulated under LACERA Plan E, are also community assets. "The service credit (and the pension component of the retirement allowance) are more correctly described as " ‘a form of deferred compensation for services rendered.’ " (In re Marriage of Skaden (1977) 19 Cal.3d 679, 686, 139 Cal.Rptr. 615, 566 P.2d 249.)" (In re Marriage of Sonne (2010) 48 Cal.4th 118, 125, 105 Cal.Rptr.3d 414, 225 P.3d 546.) "To the extent that such a right derives from service during marriage before separation, it is a community asset." (In re Marriage of Green (2013) 56 Cal.4th 1130, 1134, 158 Cal.Rptr.3d 247, 302 P.3d 562.)

The parties agree that under existing law, Annette's LACERA benefits that accumulated during the marriage are a community asset.

B. Social Security benefits are separate property under federal law

1. Social security is separate property under federal law

Although retirement benefits are generally community property under California law, federal law mandates that Social Security is separate property. "The supremacy clause of the United States...