Seifert v. Seifert, 8612DC2

• Decision Date: 05 August 1986
• Docket Number: No. 8612DC2,8612DC2
• Citation: 82 N.C.App. 329,346 S.E.2d 504
• Parties: Margie S. SEIFERT v. Paul J. SEIFERT.
• Court: North Carolina Court of Appeals

Page 504

346 S.E.2d 504

82 N.C.App. 329

Margie S. SEIFERT v. Paul J. SEIFERT.

No. 8612DC2.

Court of Appeals of North Carolina.

Aug. 5, 1986.

McLeod, Senter & Winesette by William L. Senter, Fayetteville, for plaintiff-appellant.

Blackwell, Swaringen & Russ by John Blackwell, Jr. and Margaret R. Russ, Fayetteville, for defendant-appellee.

EAGLES, Judge.

By her two assignments of error, plaintiff contends that the trial court erred in valuing and distributing defendant's military pension and retirement benefits. Plaintiff's primary argument is that the trial court erred in valuing defendant's pension as of the date of separation. Specifically, plaintiff argues that the trial court erred in using defendant's base pay at the time of separation in calculating the amount of retirement income to be designated as marital property and in refusing to allow into evidence defendant's base pay at the date of trial.

The division of marital property under G.S. 50-20 is a matter within the sound discretion of the trial court and "where matters are left to the discretion of the trial court, appellate review is limited to a determination of whether there was a clear abuse of discretion. [Citations omitted.] A trial court may be reversed for abuse of discretion only upon a showing that its actions are manifestly unsupported by reason." White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985). We have carefully reviewed the evidence of record and reluctantly conclude that the trial court erred and abused its discretion in its order of valuation and distribution of defendant's vested military pension and retirement benefits.

Our equitable distribution statutes, G.S. 50-20 and -21, provide for the equitable distribution of the marital property following a decree of absolute divorce. G.S. 50-20(a)(1) defines marital property as including "all vested pensions and retirement rights, including military pensions eligible under the federal Uniformed Services Former Spouses' Protection Act." The rights of the parties to an equitable distribution of the marital property vest at the time the action for divorce is filed, G.S. 50-20(k); however, if the divorce is granted on the ground of one year separation, the marital property must be valued as of the date of separation. G.S. 50-21(b). The plaintiff and defendant here were divorced on the ground of one year separation. G.S. 50-6. Therefore, defendant's vested military pension and retirement benefits must be valued as of the date of separation.

Most pension and retirement plans can be described as falling within two categories: defined contribution plans and defined benefit plans. B. Goldberg, Valuation of Divorce Assets Section 9.2 (1984). A defined contribution pension is essentially an annuity funded by periodic contributions. At retirement the funds purchase an annuity for the rest of the employee's life or an actuarily reduced pension for the lives of the employee and spouse. 2 Valuation & Distribution of Marital Property Section 23.02[b] (J. McCahey ed. 1985). A defined contribution pension may be nominally funded by the employee, the employer or both. Realistically, the employee funds his own pension whether he or his employer is the nominal payor because the burden of the employer's contribution is passed directly to the employee in the form of reduced wages. Id. at Section 23.02[a]. Accordingly, pensions are characterized as "deferred compensation," for without the pension it is assumed that the employee would have received a commensurately greater salary during his working years. Id.

In a defined benefit plan the employee's pension is determined without reference to contributions and is based on factors such as years of service and compensation received. Goldberg, supra. Some plans combine both defined contribution and benefit elements. For example, federal and many state civil service pensions are often nominally funded by both employer and employee. If the employee terminates employment before retirement, he receives a refund of his contribution. If he remains until retirement, he receives benefits based on his preretirement salary. 2 Valuation and Distribution of Marital Property Section 23.02[b] (J. McCahey ed. 1985).

Defendant's military pension and benefits fall within the category of defined benefit plans. The military retirement system is noncontributory, funded by annual appropriations from Congress and administered by the Department of Defense. McCarty v. McCarty, 453 U.S. 210, 101 S.Ct. 2728, 69 L.Ed.2d 589 (1981). Vesting does not occur until a member has served a minimum prescribed period, currently twenty years for a commissioned officer, 10 U.S.C. Section 3911 and 30 years for an enlisted member, 10 U.S.C. Section 3917. Military retirement pay commences at the time of retirement with the amount calculated on the basis of years served and rank achieved by a statutorily provided formula: (basic pay, based on the retired grade and years of service of the member) X (2 1/2%) X (the number of years of creditable service). 10 U.S.C. Section 3991. See McCarty, supra. At twenty years service the eligible retiree is entitled to at least 50% of his basic pay. (Excluding special pay and allowances). However, 75% of basic pay is the maximum amount permitted--the percentage attained upon completion of 30 years service (30 years X 2 1/2%)--regardless of the number of years served. 10 U.S.C. Section 3991. See McCarty, supra n. 7. If a member terminates his service before twenty years the entitlement to retirement pay is forfeited. Military retirement pay terminates at the retiree's death and does not pass to his heirs. However, a retiree may designate a beneficiary to receive any arrearages due but unpaid at his death. McCarty, supra. 10 U.S.C. Section 2771.

In applying our equitable distribution statutes the trial court must follow a three-step procedure, (1) classification, (2) evaluation and (3) distribution. Cable v. Cable, 76 N.C.App. 134, 331 S.E.2d 765, disc. rev. denied, 315 N.C. 182, 337 S.E.2d 856 (1985). For many divorcing couples pension and retirement benefits comprise a major portion of the marital property. 2 Valuation and Distribution of Marital Property at Section 23.02. We recognize that trial courts are faced with a complex task in valuing and distributing pension and retirement benefits between former spouses. G.S. 50-20(b)(3) provides some guidance with respect to distributive awards of these assets, but the division of marital property is a function left largely to the sound discretion of the trial court. White, supra. Given the breadth of the trial court's discretion in this area, we can do no more than point out fundamental errors and make some general observations as to the appropriate methods of valuation and distribution.

There are two primary methods utilized by courts of other jurisdictions in evaluating and distributing pension and retirement benefits. The first method is the present discounted value method. There the trial court calculates, using actuarial evidence, the present value of the vested pension, as of the date of separation (if the parties were divorced on the ground of one year separation (G.S. 50-21(b)), discounted for interest in the future and taking into account the employee spouse's life expectancy. The trial court would further have to compute the percentage of present value attributable to the marriage period (the time between date of marriage and date of separation) and the appropriate equitable share to which the nonemployee spouse is entitled. In re Marriage of Hunt, 78 Ill.App.3d 653, 34 Ill.Dec. 55, 397 N.E.2d 511 (1979), Bloomer v. Bloomer, 84 Wis.2d 124, 267 N.W.2d 235 (1978); see also Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981); In re Marriage of Skaden, 19 Cal.3d 679, 139 Cal.Rptr. 615, 566 P.2d 249 (1977); In re Marriage of Wisniewski, 107 Ill.App.3d 711, 63 Ill.Dec. 378, 437 N.E.2d 1300 (1982); Deering v. Deering, 292 Md. 115, 437 A.2d 883 (1981); Dewan v. Dewan, 17 Mass.App. 97, 455 N.E.2d 1236 (1983); Kis v. Kis, 196 Mont. 296, 639 P.2d 1151 (1982); Kullbom v. Kullbom, 209 Neb. 145, 306 N.W.2d 844 (1981); and Damiano v. Damiano, 94 A.D.2d 132, 463 N.Y.S.2d 477 (2d Dept. 1983). This type of valuation can be somewhat speculative because, depending on the facts and circumstances, it may necessarily involve consideration of various uncertainties. In re Marriage of Brown, 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561, 94 A.L.R.3d 164 (1976); accord Dewan, supra and Deering, supra; see also Holbrook v. Holbrook, 103 Wis.2d 327, 309 N.W.2d 343 (1981).

In Dewan, supra, the usefulness of the present discounted value method is discussed, though it is referred to as "present assignment as property":

Where the spouses are far from retirement age and the marriage is of short duration, present assignment as property may be feasible by reason of the fact that the prospective pension has little present value due to long deferred receipt and because the nonretiring spouse's appropriate share of pension benefits when paid would be confined by the brevity of the marriage. Where the marriage has been of long duration and retirement age is more proximate, the greater value of the prospective pension benefits may make present assignment as an asset unfeasible, at least in the absence of other significant assets, or the valuation of pension rights may be unduly speculative, especially where they are subject to destruction by premature death or termination of employment.

Dewan, supra, 455 N.E.2d at 1240. See also Robert C.S. v. Barbara J.S., 434 A.2d 383 (Del.S.Ct.1981); but see Wisniewski, supra. When the present discounted value method is used, the trial court orders immediate distribution of the nonemployee spouse's share. This is accomplished by an immediate lump sum payment, by payments prior to retirement in installments with interest or by the redistribution of other marital property. Bloomer, ...