Welder v. Welder

• Decision Date: 24 August 1994
• Docket Number: No. 930402,930402
• Citation: 520 N.W.2d 813
• Parties: John WELDER, Plaintiff and Appellee, v. Sonja WELDER, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 813

520 N.W.2d 813

John WELDER, Plaintiff and Appellee, v. Sonja WELDER, Defendant and Appellant.

Civ. No. 930402.

Supreme Court of North Dakota.

Aug. 24, 1994.

Melvin L. Webster (argued), of Webster & Engel, Bismarck, for plaintiff and appellee.

Sherry Mills Moore (argued), of Foss & Moore, Bismarck, for defendant and appellant. Appearance by appellant Sonja Welder.

MESCHKE, Justice.

Sonja Welder appeals from a divorce decree that divided marital property with John Welder, but declined to award Sonja spousal support and attorney fees. We reverse and remand for further proceedings.

John and Sonja were married in 1970 and have two teen-age sons. When they married, John was serving in the military and Sonja had completed her third year of college. Sonja accompanied John overseas where he was stationed during the first year of the marriage. When they returned to North Dakota, Sonja completed college with a degree in elementary education. She has since acquired 32 hours of post-graduate credit. John became employed with Job Service of North Dakota and, during the early years of the marriage, worked at various cities in the state before settling in Bismarck. John currently earns $47,000 per year as director of unemployment for Job Service, while Sonja earns $27,000 per year as a sixth grade public school teacher in Bismarck.

They separated in January 1992, and John sued Sonja for divorce the following May. Attempts at reconciliation and mediation failed. In May 1993, John and Sonja signed a stipulation for joint custody of their sons that was approved by the court. The trial covered property division, child support, and spousal support. The marital property consisted mainly of the proceeds from the sale of their home, their pension plans, and various items of personal property.

The trial court awarded John property that it valued at $39,586. The court awarded Sonja property that it valued at $42,201. The court decided that an award of spousal support was "not justified," reasoning that Sonja "has not been disadvantaged by the marriage or divorce," having "completed her Bachelor's Degree [and] acquired 30 hours of post graduate education." The court also refused to award Sonja attorney fees because both of them "are employed and earn substantial salaries," and Sonja was awarded $3,000 more in property than John.

On appeal, Sonja asserts that the trial court erroneously valued their marital property and erroneously declined to award spousal support and attorney fees.

I

A trial court's findings on the valuation and the distribution of marital property will not be set aside on appeal unless they are clearly erroneous under NDRCivP 52(a), or they are induced by an erroneous conception of the law. Steckler v. Steckler, 519 N.W.2d 23, 24-25 (N.D.1994). We address three property questions.

A

The trial court adopted John's valuation of the parties' pension plans. John's certified public accountant, Thomas Ault, advocated a liquidation method of valuing the pension plans. Ault testified that this method was the "most solid way to value" the plans because "[t]here was a large amount of uncertainty in the assumptions that were to be used in computing it under any other method." He calculated that the net after-tax proceeds from an immediate lump-sum distribution of John's retirement plan would be $27,266. Ault also calculated that the net after-tax proceeds from an immediate lump-sum distribution of Sonja's retirement plan would be $15,133. In arriving at these figures, Ault applied each parties' marginal tax rate and also deducted a 10 percent penalty for early distribution of the retirement accounts.

Sonja's certified public account, Alton Nitschke, advocated a present value method of determining the value of the parties' pension plans. Each has a defined benefit plan that carries no relationship between the employee's contribution to the plan and the retirement benefit; both are guaranteed a certain payment at the time they retire. Nitschke reduced to present value the total payments that would be made to the retiree from the time of anticipated date of commencement, age 60 for John and age 65 for Sonja, and their life expectancies at that time, 17.51 years for John and 17.32 years for Sonja. In these calculations, Nitschke figured that the parties earned no further benefits after the date of divorce and that they accrued no more years of service at their jobs. Nitschke testified that to pay for John's defined benefit at retirement of $1,304 per month for the rest of his life, $68,242 would have to be invested today and earn seven percent per year. Nitschke testified that to pay for Sonja's defined benefit at retirement of $465 per month for the rest of her life, $11,245 would have to be invested today and likewise earn seven percent per year.

Sonja argued in the alternative that use of a formula based on this court's decision in Bullock v. Bullock, 354 N.W.2d 904 (N.D.1984), would also be appropriate. In Bullock, we approved a formula for presently apportioning a vested, but presently inaccessible, military pension. The Bullock formula uses the number of years of marriage while the pension was earned, divided by the number of total years in earning the pension, times one-half of the later retirement payout to calculate a divorced spouse's apportionment. See Bullock, 354 N.W.2d at 908-909. We said that the formula "adequately determines the actual proportion of potential retirement pay derived as a result of the marriage." Bullock, 354 N.W.2d at 910. Relying on Bullock, Sonja argued that because the parties were married for the entire time John has been employed, 21.30 years, she should receive one-half of that, 10.65 years, divided by the total number of years John works, times the actual monthly benefit at retirement.

In rejecting use of the present value approach and the Bullock formula, the trial court reasoned:

[Sonja] urges the Court to use the Bullock ... formula to compute the retirement. The Court does not do so. The Bullock formula is utilized in a military retirement situation, which is not applicable here. Morales v. Morales, 402 N.W.2d 322 (N.D.1987); Anderson v. Anderson, 504 N.W.2d 569 (N.D.1993). The trial court is required to discount to present value cash payments without interest as part of a property distribution. Sateren v. Sateren, 488 N.W.2d 631 (N.D.1992). The failure to do so is reversible error. Kitzmann v. Kitzmann, 459 N.W.2d 789 (N.D.1990). The proposal by [John] reduces the retirements to present value based upon the testimony presented here.

Because the trial court's application of John's liquidation method was made under the mistaken view that Sonja's present value approach and the Bullock formula were inapplicable as a matter of law under these circumstances, we conclude that the trial court's valuation of the parties' retirement plans is clearly erroneous.

First, the trial court erred in its interpretation of this court's decision in Sateren v. Sateren, 488 N.W.2d 631, 633 (N.D.1992) (footnote omitted), where we said:

We have consistently held that "periodic cash payments without interest awarded as part of a property distribution must be discounted to present value in determining whether or not the distribution is equitable." Lucy v. Lucy, 456 N.W.2d 539, 542 (N.D.1990); see also Pankow v. Pankow, 347 N.W.2d 566 (N.D.1984); Tuff v. Tuff, 333 N.W.2d 421 (N.D.1983). The reason for the rule is obvious: if the payments are not discounted to present value, the court is relying upon an artificial value when it distributes the property. When one party receives property which is clearly worth less than the value ascribed to it by the trial court, a reviewing court cannot determine whether the resulting property distribution is equitable. Therefore, it is necessary to discount periodic payments to present value.

We also said that when interest is awarded on a cash property distribution by periodic payments, the dollar value of the interest paid should not be included when calculating the value of the property distributed to each spouse. Sateren, 488 N.W.2d at 633 n. 1. This is so because of the disadvantage to the payee caused by considering interest not only for the purpose of compensation for delay in receipt of the share of the marital estate, but also to increase the amount of the basic distribution to determine if the distribution is equitable in the first instance. See Kitzmann v. Kitzmann, 459 N.W.2d 789, 793 (N.D.1990). In Sateren, the trial court did not provide for interest on the periodic payments and did not discount the payments to present value when calculating the property distribution. In Kitzmann, no present value determination of a series of mortgage payments was made, but interest was added to the principal amount and included in the valuation of the marital estate. In distributing marital property, a trial court can properly choose to discount future payments to present value or to add interest to the principal payments, but it cannot properly refuse to do either or proceed to do both.

Here, Sonja's expert computed a present value of a retirement plan through the use of a presumed discount or interest rate. He did not add interest after doing so. An appropriate discount rate must be applied to arrive at a present value figure. See generally In re Marriage of Gavito, 794 P.2d 1377 1378 (Colo.Ct.App.1990); In re Marriage of Cope, 805 S.W.2d 303, 305-306 (Mo.Ct.App.1991); Surrette v. Surrette, 114 N.C.App. 368, 442 S.E.2d 123, 125 (1994). Sonja's expert did not violate our rulings in Sateren and Kitzmann.

Second, we reject the trial court's assumption that the Bullock formula is applicable only to military pensions. Although the Bullock formula originated in a case involving military retirement benefits, we have long suggested under some circumstances the use of a formula to divide pensions that requires both parties "to share in the ultimate...