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Conner v. Conner (4/18/2003) sp-5680
Conner v. Conner (4/18/2003) sp-5680
Notice: This opinion is subject to correction
before publication in the Pacific Reporter.
Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878, e-mail
corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
JERRY L. CONNER, )
) Supreme Court No. S-10273
Appellant, )
) Superior Court No.
v. ) 3AN-99-10201 CI
)
MARGARET CONNER, ) O P I N I O N
)
Appellee. ) [No. 5680 - April 18, 2003]
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Dan A. Hensley, Judge.
Appearances: William T. Ford, Anchorage, for
Appellant. Maurice N. Ellis, Law Offices of
Maurice N. Ellis, Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
MATTHEWS, Justice.
I. FACTS AND PROCEEDINGS
After a marriage of twenty-nine years, Jerry and
Margaret Conner separated on August 13, 1999. Their divorce
trial was held on December 14, 2000.
The main issue in this appeal is the division of
retirement benefits. During the marriage, Jerry worked as an air
traffic controller for the Federal Aviation Administration. He
became disabled in 1995 at the age of forty-two. Jerry
initially took a disability retirement, but in 1996 he began
collecting federal workers' compensation benefits instead,
because the workers' compensation benefits were greater and were
tax free. Retirement benefits were $2,428 per month, whereas the
workers' compensation benefits were approximately $4,100 every
four weeks. Upon divorce, Jerry's workers' compensation benefits
were reduced to approximately $3,850 every four weeks.
In the divorce trial, the superior court allocated to
Margaret what would have been her monthly share of the retirement
benefits from the day of separation to the day of the divorce
trial. This was $19,424, one-half of $2,428 times the sixteen
months between separation and trial.1 But this amount appears
not to have been used in the trial court's ultimate property
division calculations. In addition, the court awarded half of
Jerry's workers' compensation payments to Margaret for the next
four years. After the four-year period the award to Margaret was
reduced to $1,214, one-half of the imputed retirement payments.
During the parties' separation, Margaret was awarded
exclusive use of the couple's house. Jerry was ordered to
continue to make payments of $1,288 on the home equity loan that
was secured by both the house and by their truck. The court also
ordered Jerry to pay interim spousal support of $750 per month.
In the property division, the court refused to credit Jerry for
the loan payments. Jerry was awarded the truck and Margaret the
house, but the court allocated the entire remaining $50,000 debt
to the house, thus reducing Margaret's net assets by $50,000 and
showing Jerry's truck as free and clear. The trial court also
ordered Jerry to designate Margaret as the sole beneficiary of
any life insurance he carries, and ordered the parties to split
the cost of obtaining survivor benefits for Margaret, should
Jerry ever elect to receive his retirement benefits.
Jerry challenges these actions on appeal.
II. STANDARDS OF REVIEW
A. Property Division
The trial court has broad discretion to make a property
division in the manner it determines to be most equitable; this
court will not overturn a property division unless it is clearly
unjust.2 A three-step process is used to divide marital assets.3
First, the court determines what specific property is available.4
Second, the court values that property.5 Finally, the court
equitably allocates the property.6 The division of property is
reviewed for abuse of discretion except that any legal questions
that might be involved are reviewed de novo.7 An equal division
is presumed to be most equitable absent findings that warrant an
unequal division.8
B. Findings of Fact
Findings of fact will only be set aside if they are
clearly erroneous,9 that is, if this court is left with "a
definite and firm conviction on the entire record that a mistake
has been made."10
III. DISCUSSION
A. The Superior Court Erred in Its Treatment of
Jerry's Retirement Benefits.
1. Only a portion of Jerry's workers'
compensation benefits replaces his retirement
benefits and only that portion should be
classified as marital property.
Jerry argues that his workers' compensation benefits
are his separate property and that the superior court erred when
it awarded one-half of these benefits to Margaret. He is partly
correct. Workers' compensation payments or disability retirement
payments represent income replacement.11 After divorce, they are
regarded as the separate property of the spouse to whom they are
paid.12 In contrast, retirement benefits earned during the
marriage are marital property subject to equitable division.13
But once Jerry's pension matures,14 Margaret will be entitled to
one-half of his retirement benefits.15 Until then, Jerry's
workers' compensation award is a form of income replacement in
which Margaret has no interest. Because a portion of Jerry's
workers' compensation income will be a substitute for Jerry's
regular retirement benefits after maturity of his pension, this
portion should be viewed as marital property and divided.
Otherwise, when Jerry takes workers' compensation benefits in
lieu of matured retirement benefits, Margaret will be deprived of
a valuable marital asset.
We thus hold that the imputed retirement portion of
this income stream must be separated from the disability-related
portion, with the former divided as marital property and the
latter left as the employee spouse's separate property. Other
courts are in accord.16 For example, the Washington Court of
Appeals has stated that if the employee spouse "would be
receiving retirement benefits but for a disability, so that
disability benefits are effectively supplanting retirement
benefits, the disability payments are a divisible asset to the
extent they are replacing retirement benefits."17
Likewise, the Supreme Court of Rhode Island held:
[W]here the employee spouse elects to receive
disability benefits in lieu of a matured
right to retirement benefits, only the net
amount thus received over and above what
would have been received as retirement
benefits constitutes compensation for
personal anguish and loss of earning capacity
and is, thus, the employee spouse's separate
property. The amount received in lieu of
matured retirement benefits remains . . .
property subject to division on dissolution.[18
]
It follows that the court's allocation of $19,424 to
Margaret, representing one-half of the retirement benefits from
the time of separation to the time of trial, was erroneous
because the pension had not yet matured.19 However, this error
appears to be harmless because no order ever effectuated the
award of $19,424. To the extent that the award of one-half of
the workers' compensation benefits for four years following the
date of trial represents an award of Margaret's share of pension
benefits, the award is also erroneous until the date of maturity.
But for the reasons discussed below, it is possible that some or
all of this award may be justified on other grounds.20 At the end
of four years, the trial court required Jerry to begin paying
Margaret $1,214, half of his imputed monthly retirement benefits.
This was proper because Jerry's pension will have matured when
this aspect of the order becomes effective.
2. Jerry's fiftieth birthday is an
appropriate maturity date.
Jerry contends that the applicable maturity date of the
retirement benefits should be July of 2009, when he turns fifty-
six. He contends that this was his earliest reasonably expected
retirement date because air traffic controllers cannot serve
beyond the age of fifty-six. Margaret argues that Jerry's
retirement benefits should be considered to be mature as of
Jerry's fiftieth birthday.
The statute governing Jerry's retirement age is 5
United States Code 8412(e), which provides that an employee is
entitled to retirement benefits (1) after completing twenty-five
years of service as an air traffic controller, or (2) after
becoming fifty years of age and completing twenty years of
service as an air traffic controller.
Because of the disability that Jerry suffered beginning
in 1995, he will never have twenty years of service as an air
traffic controller. But he would have had twenty years of
service as an air traffic controller before reaching the age of
fifty had he not been disabled. Therefore the earliest date that
the parties could have been expected to begin receiving the
pension - again absent the disability - would have been on
Jerry's fiftieth birthday. This should mark the earliest
possible maturity date and thus, the earliest point at which
Margaret had any expectation of realizing benefits from the
pension.
The trial court found that Jerry could have elected to
receive retirement benefits in 1995, after he became disabled.
But Jerry could only receive retirement benefits if he did not
receive workers' compensation. Jerry was not eligible for
regular retirement at the age of forty-two when he became
disabled, or at the time of trial when he was forty-seven. Until
the maturity of his pension - 2003 at the earliest - Jerry's
retirement benefits are wage replacement payments.
Use of the earliest maturity date has been found to be
proper in order to protect the nonemployee spouse.21 While
choosing the earliest maturity date may not be required,22 it is
not an error to make such a choice and it is evident that here
the trial court intended to choose the earliest possible date.
We conclude therefore that the maturity date that should be used
in this case is Jerry's fiftieth birthday. This is the date when
the workers' compensation payments should be considered to
include pension payments that are subject to division.
3. The award to Margaret may be justified
as rehabilitative spousal support.
Margaret argues that the superior court's award of one-
half of the workers' compensation benefits for four years may be
justified as rehabilitative alimony. Rehabilitative alimony may
be appropriate when one spouse is exiting the marriage with few
job skills and limited earning capacity.23 An award of
rehabilitative alimony should be designed to support the spouse
while she receives the training and education necessary for her
to become self-supporting.24
A number of the findings made by the trial court
suggest that the court in making the award in question was
motivated at least in part by considerations relevant to
rehabilitative alimony. The court noted that Margaret did not
pursue a career during the marriage and instead raised the
parties' two children. Her earning capacity at the time of
trial was roughly $10,000 per year, and she was unable to find
satisfactory year-round employment. Margaret is currently
enrolled in an engineering program from which she should graduate
in 2005, and Jerry was ordered to pay her one-half of his
workers' compensation benefits until then.
In this case, the award was explicitly a part of the
property division ordered by the court and the court referred to
it as such. The needs analysis typically required as an
accompaniment of an award of rehabilitative alimony is not
reflected in the court's findings.25 We therefore conclude that
the four-year award cannot be affirmed based on the current
findings. On remand the court may consider whether
rehabilitative alimony is appropriate and, if so, may make an
award accompanied by appropriate findings.
B. The Superior Court Did Not Err in Failing To
Separately Allocate the Debt on the Truck and the
House.
Jerry argues that the trial court erred by failing to
divide the liability between the house and the truck. The trial
court made Margaret responsible for paying the entire amount of
the note and allocated it entirely to the house. Jerry contends
that this has the effect of distorting the value of the truck
which was awarded to him. In the court's calculation the truck
was valued at $23,000 free and clear. Jerry contends that in
reality the truck is encumbered and cannot be sold.
Although Jerry is correct that his truck will not be
saleable until the note is paid, and although it would have been
preferable to have allocated a part of the note to the truck and
a part to the house, he did not demonstrate that this could
actually be done.26 The security holder would not necessarily
agree to a novation releasing part of the security or one of the
jointly responsible parties. Further, vehicles have value even
if they are not saleable, as the popularity of long-term leasing
of vehicles illustrates. Finally, the trial court found that the
note should be paid off within three and one-half years of the
hearing. If this is done, Jerry's truck will then be free and
clear. We conclude based on these considerations that the court
did not err in failing to allocate some portion of the debt to
the truck.
C. The Superior Court Did Not Err by Refusing To
Credit Jerry for His Post-Separation Payments on the
Parties' Mortgage.
Jerry also argues that the trial court erred in failing
to give him credit for his interim house payments when he was
already required to pay interim spousal support. Trial courts are
required to consider payments made from one party's post-
separation income to preserve marital assets, but are not
required to give credit for such payments in the final property
division.27 This court has stated that "no fixed rule requiring
credit in all cases should be imposed. Instead . . . payments
from non-marital income to preserve marital property should be
considered as one of the circumstances to be weighed by the trial
court in dividing the marital property."28
In this case, the trial court specifically considered
Jerry's post-separation house payments. The court found that due
to the parties' disparate incomes the payments were fair and it
refused to give Jerry any credit for the payments. We have
routinely upheld decisions where the trial court has denied
credit for post-separation house payments because of the
disparity in the parties' incomes.29 Thus, the trial court did
not err in refusing to give Jerry credit for the interim house
payments.
D. The Superior Court Erred in Requiring Jerry To
Name Margaret as the Sole Beneficiary of His Life
Insurance.
The trial court ordered "to the extent that [Jerry]
currently maintains life insurance, he must designate [Margaret]
the sole beneficiary of his life insurance. The reason for this
is to protect [Margaret] in the event that [Jerry] passes away
before her right to collect the retirement benefits kicks in."
No evidence was presented at trial regarding Jerry's life
insurance. Jerry contends that this requirement is unnecessary
because he has already made an election with the pension
administrator that Margaret shall receive a survivor annuity
which exceeds her current calculated share of the retirement
amount in the event of his death. In his motion for
reconsideration, Jerry submitted a letter from the federal office
of personnel management which appears to verify his position that
Margaret is adequately protected in the event of his death.
This court has held that survivor benefits are an
"intrinsic part of the retirement benefits earned during the
marriage."30 Accordingly, when dividing retirement benefits as
part of the marital estate, trial courts must protect a spouse's
interest in the retirement benefits either by requiring life
insurance or by including a clause in the qualified domestic
relations order (QDRO) requiring that survivor benefits be paid
to that spouse.31
In this case, the trial court ordered both life
insurance and survivor benefits to protect Margaret's share of
Jerry's retirement benefits without adequate findings to support
such an order.32 Second, the trial court also ordered
Jerry to designate Margaret as the sole beneficiary on any life
insurance Jerry maintains "to protect [Margaret] in the event
that [Jerry] passes away before her right to collect the
retirement benefits kicks in." It would be inappropriate to
require Jerry to name Margaret as the sole beneficiary of any
life insurance policy if she is already adequately protected by
the survivor annuity. On remand, we believe that the court
should reconsider requiring life insurance in view of the
evidence that indicates that it is not needed.
IV. CONCLUSION
REVERSED and REMANDED for further proceedings in light
of this opinion.
_______________________________
1The trial court made its calculations based on the sixteen
months between the separation and divorce (1,214 x 16 = 19,424)
but mistakenly said it was basing its calculations on a fourteen-
month period.
2Broadribb v. Broadribb, 956 P.2d 1222, 1225 (Alaska 1998)
(quoting Cox v. Cox, 882 P.2d 909, 913-14 (Alaska 1994)).
3Wanberg v. Wanberg, 664 P.2d 568, 570 (Alaska 1983).
4Id.
5Id.
6Id.
7Johns v. Johns, 945 P.2d 1222, 1225 (Alaska 1997) (quoting
Lundquist v. Lundquist, 923 P.2d 42, 47 (Alaska 1996)); Cox, 882
P.2d at 913.
8McDougall v. Lumpkin, 11 P.3d 990, 993 (Alaska 2000).
9Alaska R. Civ. P. 52(a).
10Dunn v. Dunn, 952 P.2d 268, 270 (Alaska 1998) (internal citation
omitted).
11Miller v. Miller, 739 P.2d 163, 165 (Alaska 1987).
12Id.
13Edelman v. Edelman, 3 P.3d 348, 356 (Alaska 2000).
14Maturity refers to the earliest point at which the worker can
receive retirement benefits. See Laing v. Laing, 741 P.2d 649,
655 n.8 (Alaska 1987).
15We refer here to the payment-upon-receipt method for dividing
pension payments. This method was used by the trial court. The
other method is to calculate the marital property portion of a
pension's present value and take that into account in the
property division. Id. at 656-57.
16See Levy v. Office of Pers. Mgmt., 902 F.2d 1550 (Fed. Cir.
1990) (applying California law and holding that the component of
a disability pension that is based on longevity of service is
subject to division but the remainder is the disability component
and is separate property); Villasenor v. Villasenor, 657 P.2d 889
(Ariz. App. 1982) (separating the "disability component" from the
"retirement component" of a civil service disability retirement
annuity); In re Marriage of Castor, 817 P.2d 665, 669 (Mont.
1991) (civil service disability pensions can have both a
"retirement" component and a "disability" component, here the
annuity was characterized as "retirement" benefits); Ciliberti v.
Ciliberti, 542 A.2d 580 (Pa. Super. 1988) (where part of the
disability pension represents retirement benefits, that part
remains marital property subject to distribution); Allard v.
Allard, 708 A.2d 554 (R.I. 1998) (a disability pension that
serves to replace a retirement pension is divisible to the extent
that it replaces the retirement portion). Allard lists
additional jurisdictions in accord. Id. at 558.
17In re Marriage of Geigle, 920 P.2d 251, 255 (Wash. App. 1996).
18Allard, 708 A.2d at 558 (quoting In re Marriage of Stenquist,
582 P.2d 96, 101 (Cal. 1978)).
19See discussion infra A.2.
20See discussion infra A.3.
21A Massachusetts court stated:
[The nonemployee spouse] argues that for
purposes of computing present value in the
context of divorce proceedings, a court
should assume the earliest possible
retirement date for the spouse with the
pension. Some courts have thought this a
sound principle. See In re Marriage of
Gillmore, 629 P.2d 1 (1981). The point,
adverted to in the Gillmore opinion at 424-
425, is that the spouse with the retirement
benefits should not be able to manipulate
them to impair the other spouse's benefits.
Dewan v. Dewan, 566 N.E.2d 1132, 1134 (Mass. App. 1991)
(citations omitted).
22See id. "In general, fair value analysis assumes norms. . . .
There is no distortion if a judge chooses a retirement age that
is the norm" rather than "the earliest possible retirement age."
Id.
23See Myers v. Myers, 927 P.2d 326, 329 (Alaska 1996).
24Id. at 329 (citing Ulsher v. Ulsher, 867 P.2d 819, 822 (Alaska
1994)).
25See AS 25.24.160(a)(2). See, e.g., Dixon v. Dixon, 747 P.2d
1169, 1174 (Alaska 1987) (remanding case for specific findings
because spouse's "vague education plans" did not support trial
court's award of rehabilitative alimony); Miller v. Miller, 739
P.2d 163, 165 (Alaska 1987) (rejecting alimony award absent
specific findings as to whether wife intended to use alimony for
job training); Carlson v. Carlson, 722 P.2d 222, 225 (Alaska
1986) (requiring trial court to reconsider alimony award and to
state reasons for its decision); see also Jones v. Jones, 835
P.2d 1173, 1178_79 (Alaska 1992) (requiring superior court to
make specific findings regarding spouse's financial needs when
awarding spousal support).
26Jerry asserted at trial that he had researched dividing the note
and that it could be done, but he failed to provide the court
with a practical method to accomplish the division.
27Ramsey v. Ramsey, 834 P.2d 807, 809 (Alaska 1992).
28Id.
29Dodson v. Dodson, 955 P.2d 905, 912 (Alaska 1998) (upholding
trial court's refusal to grant credit to husband for post-
separation house payments because the parties had highly
disparate incomes); Harrelson v. Harrelson, 932 P.2d 247, 253
(Alaska 1997) (same).
30Zito v. Zito, 969 P.2d 1144, 1147 (Alaska 1998) (internal
quotations and citation omitted).
31See McDougall v. Lumpkin, 11 P.3d 990, 996 (Alaska 2000) ("Here,
[the wife] either needs life insurance to protect her interest .
. . or a clause in the QDRO [ensuring her the survivor
benefits].").
32First, the trial court's order dividing the federal retirement
plan awards Margaret the maximum former spouse survivor annuity,
plus 100% of the balance of any retirement funds if Jerry should
die, plus the maximum death benefit as allowed by law. The
court's order and findings also state that if and when Jerry
elects to receive his retirement pay, Margaret and Jerry will
split equally the costs of obtaining survivor benefits for
Margaret.
