Valdez v. Ramirez

• Decision Date: 26 July 1978
• Docket Number: No. B-7272,B-7272
• Citation: 574 S.W.2d 748
• Parties: Lillie VALDEZ, Petitioner, v. Olga RAMIREZ and Tomas Valdez, Jr., Respondents.
• Court: Texas Supreme Court

Page 748

574 S.W.2d 748

Lillie VALDEZ, Petitioner, v. Olga RAMIREZ and Tomas Valdez, Jr., Respondents.

No. B-7272.

Supreme Court of Texas.

July 26, 1978.

Rehearing Denied Dec. 13, 1978.

James M. Heidelberg, San Antonio, for petitioner.

Mitchell, Stewart & Hemmi, Kirk Patterson, San Antonio, for respondents.

DANIEL, Justice.

The issue presented by this case is whether a husband's community interest in his surviving wife's civil service retirement benefits is inheritable upon his death by adult children of his former wife. We hold that it is not.

Lillie Valdez had worked as a United States Civil Service employee for 352 months prior to her retirement in 1971. For 340 months of her employment she was married to Tomas Valdez, Sr. Based on her 352 months of service she began receiving retirement benefits in 1971 under the Federal Civil Service Retirement Act. 5 U.S.C.A. § 8331, et seq. In 1973, Tomas, Sr., died intestate, leaving Olga Ramirez and Tomas Valdez, Jr., his adult children by a previous marriage, as the heirs to his half of the community estate.

Olga and Tomas, Jr., brought this suit to recover a portion of Lillie's retirement benefits based on Tomas, Sr.'s, community interest in the benefits. After a non-jury trial, the trial court rendered judgment for Olga and Tomas, Jr., awarding them one-half of 340/352 of the retirement benefits that Lillie has received since Tomas, Sr.'s, death and that she will receive in the future. The Court of Civil Appeals affirmed. 558 S.W.2d 88. We reverse the judgments of the courts below and render judgment that plaintiffs take nothing against Lillie Valdez.

A settled marital property rule in Texas is that a spouse has a community property interest in that portion of the retirement benefits of the opposite spouse earned during their marriage. Taggart v. Taggart, 552 S.W.2d 422 (Tex.1977); Cearley v. Cearley, 544 S.W.2d 661 (Tex.1976); Busby v. Busby, 457 S.W.2d 551 (Tex.1970). In each of the above cases, the non-employed spouse was alive, and we dealt with the question only as it concerned fixed or contingent rights in a division of the community asset upon divorce. We found no conflict between our application of Texas' community property law and federal laws which provided such benefits.

The question in this case is different and is one of first impression in this State. It calls for a decision of whether the interest of a spouse who died prior to any division or divorce should pass to his heirs under the Texas Probate Code § 45, or should be paid to the living and earning spouse in accordance with a joint survivorship option which she had exercised under the Federal Civil Service Retirement Act. 5 U.S.C.A. § 8339.

At the outset, it is recognized that under ordinary circumstances, where there is no contract or provision of law to the contrary, Section 45 of the Texas Probate Code would govern the distribution of a deceased spouse's interest in the community property as the Court of Civil Appeals has ruled. ¹ On the other hand, however, there are at least four categories of assets known as non-probate assets, not subject to disposition by will and not subject to the rules of intestate distribution. Examples are (1) property settled in an intervivos trust, where title remains in the trustee notwithstanding the settlor's death; ² (2) property passing by right of joint survivorship, as in a valid joint bank account; (3) property passing at death pursuant to terms of a contract, such as provided in life insurance policies, and under contributory retirement plans; ³ and (4) property passing by insurance or annuity contracts created, funded and distributed as directed by federal statutes. ⁴ In the context of the Texas community property system, this disposition of such nonprobate assets is governed by lifetime transfer rules, not by death-time transfer rules of the Probate Code. See Johanson, Revocable Trusts and Community Property: The Substantive Problems, 47 Texas L.Rev. 537 (1969).

Lillie Valdez's retirement benefits were provided for by her contract of employment as a civil service employee of the United States Government. United States v. Price, 288 F.2d 448, 450-51 (4th Cir. 1961). The terms and considerations of her employment and compensation are set out in Part III of the Civil Service Act, 5 U.S.C.A. §§ 2101-8913. Included in that portion of the Act is a comprehensive program providing retirement benefits for civil service employees. 5 U.S.C.A. §§ 8331-8348. Upon retirement, employees are paid benefits under the Act based on their contributions to the retirement program and length of government service. United States v. Price, supra. See 5 U.S.C.A. §§ 8334, 8339.

The Civil Service Act specifies which persons are entitled to receive retirement benefits. Provisions are made only for payment to the employee, or, in the case of the employee's death, to the surviving spouse and the employee's children under 18 years of age (with age exceptions for incapacitated children and students). 5 U.S.C.A. § 8341. The Act provides for no payment to persons outside of the employee's immediate family. ⁵ It would be contrary to the whole contract, policy, and plan of the Retirement Act for nearly one-half of Mrs. Valdez's monthly payments to be taken from her and awarded to her deceased husband's adult children. This would subvert the underlying purpose of the Act, which is to provide financial support and security to aged employees and their immediate families. See United States v. Price, supra. It is also contrary to the election made by Mrs. Valdez under § 8339(j) for a joint survivor annuity for the benefit of herself and her husband.

While Lillie Valdez was employed by the federal government and earning future rights to a retirement annuity, those contingent rights were community property, but such inchoate rights are characterized by the Family Code as "special community" under the wife's sole management and control. Section 5.22(a) of the Texas Family Code provides:

"During marriage, each spouse has sole management, control and disposition of "(1) personal earnings;

the community property that he or she would have owned if single, including but not limited to:

". . .

"(4) the increase and mutations of, and the revenue from, all property subject to his or her sole management, control and disposition."

Thus, while being earned, the right to a future Civil Service retirement annuity was the special community of Lillie Valdez, subject to her sole management, control and disposition. As manager of this "special community" asset, she had the contract right to select a mode of payment. As indicated, she selected the joint and survivor option in accordance with 5 U.S.C.A. § 8339. Although this option provided a lower monthly payment to her and her husband while both were living, and a lower payment to her if she survived him, it also created in the husband a right to an annuity if he survived her. 5 U.S.C.A. § 8341. At the time of the exercise of this option, the inchoate and contingent right of the community to future retirement annuity payments was fixed by federal statute. By virtue of Lillie Valdez's election to take a joint and survivor annuity, this annuity constituted community income during their joint lives. Mr. Valdez along with Mrs. Valdez had full enjoyment of this matured community asset during their joint lives. Had Mr. Valdez survived his wife, he would have succeeded to full enjoyment of the survivor portion of the annuity payments; no interest therein would have been included in Mrs. Valdez's probate estate to pass under her will or by intestacy. Since Mr. Valdez predeceased Mrs. Valdez, we hold that she succeeded to the survivor portion of the annuity benefit as set forth in the terms of the contract with her employer, the United States Government. These annuity benefits should continue to be paid to her in accordance with the terms of the Civil Service Retirement Act.

Accordingly, the judgments of the courts below are reversed and judgment is here rendered that plaintiffs take nothing from Lillie Valdez.

ON MOTION FOR REHEARING

In their motion for rehearing Respondents Ramirez and Valdez, Jr. make two attacks on our treatment of the Civil Service Retirement benefits in this case as a joint survivorship annuity payable solely to Petitioner Lillie Valdez after the death of her husband.

First, Respondents argue that no joint and survivorship annuity option or payment is provided for by 5 U.S.C.A. § 8339, et seq. of the Civil Service Retirement Act. While the Act does not use the explicit term, the effect is to permit the creation of a joint and survivorship annuity, and that is precisely the term and intent which Congressional Committees have applied to the plan since its inception. ¹

The first joint and survivorship provision was added to the Civil Service Retirement Act by P.L. 76-263, 53 Stat. 1200, effective January 1, 1940. In reporting on the proposed amendment (S. 281), the Senate Committee on Civil Service explained the relevant section 3 as adding "a provision to the existing law permitting an employee to select one of two joint-survivorship annuity plans . . ." ² The House Civil Service Committee made similar comments in its Report on S. 281. ³ The Conference Committee of the two Houses agreed upon the following language which was enacted as Sec. 2(d) of P.L. 76-263:

"(d) Any employee retiring under the provisions of section 1 of this Act may at the time of his retirement elect to receive in lieu of the life annuity described herein a reduced annuity payable to him during his life, and an annuity after his death payable to his beneficiary, duly designated in writing and filed with the Civil Service Commission at the time of his retirement, during the life of such beneficiary (a) equal to or (b) 50 per centum of such reduced annuity and upon the death of such surviving beneficiary all payments shall cease and no further annuity shall...