Over the course of his career with the International Brotherhood of Electrical Workers (IBEW), some 15 years of which included his marriage to Mary Ann Gray (Caverly), James W. Gray has earned the right to receive a pension upon retirement through a defined benefit plan. James
In 2005, Mary Ann applied to receive her share of James's monthly retirement benefit, with payment to begin in April 2006 when James would have 42 years of vesting credit towards his defined pension benefit. In response to the IBEW's calculation of Mary Ann's share of his monthly benefit in accordance with the "time rule,"
Mary Ann opposed the motion, contending that the interlocutory judgment's reference to application of the "Brown Formula" meant that the court had already not only characterized the pension rights as community property but had also already apportioned or divided it as between the community and James's separate property per the "time rule," which, she contended, was and is synonymous with the term "Brown Formula." According to Mary Ann, all that remained for the court to do was to implement the division per the time rule as the retirement benefits were paid out.
The trial court agreed with Mary Ann. On James's motion for pension division, therefore, the court did not exercise its discretion in selecting application of the strict "time rule" as an equitable method of division of the pension, instead interpreting the 1980 judgment as having already determined that that apportionment method would apply by its reference to the "Brown Formula."
We conclude that even if it is now, in 1980, the term "Brown Formula" was not a universally accepted synonym for the "time rule."
STATEMENT OF THE CASE
I. Factual Background
James and Mary Ann were married on August 24, 1963. In 1972, James, through the IBEW, began participating in a newly established defined benefit pension plan. At the plan's inception, James was given a 10-year past service credit (for the years 1961 to 1971) for his prior work in the electrical industry even though no contributions had been received to support that benefit. Each of these 10 years was assigned an annuity value of $10 per month, for a total retirement benefit for these past service years of $100 per month, assuming retirement at age 65.
James and Mary Ann separated on February 1, 1979. For the years 1972 to 1978, James earned one retirement vesting credit per year. But his potential monthly retirement benefit for these years of service was calculated not based on credits but instead on contributions received, as a percentage (3 percent) of those contributions. The contributions in turn were
In her community property declaration filed in their dissolution action before entry of the interlocutory judgment, Mary Ann proposed that the court reserve jurisdiction over James's pension "until benefits are due and payable." She did not propose in that document a method of apportioning the pension.
Appearing before the court in their dissolution case on November 7, 1980, the parties stipulated to "distribution of [IBEW] retirement fund reserved." Later that same month, their interlocutory judgment of dissolution of marriage was entered. Despite the earlier stipulation, the judgment stated that the proceedings had come on for "contested hearing" on November 7, 1980. With respect to James's pension, the judgment provided that the "Court reserves jurisdiction over that certain IBEW Retirement' Plan through [James's] employment until such time as benefits are due and payable, and at such time, the Brown Formula shall be applied."
In 1981, James remarried. That marriage also ended in divorce, with a separation date of August 15, 1998. From 1981 through 1996, James continued to accrue annual credited contributions toward retirement, with his monthly benefit calculated as a percentage of those contributions, based on the number of hours worked in each year.
As part of the dissolution of his second marriage and with respect to his defined benefit pension, James and his second wife stipulated to a Qualified Domestic Relations Order (QDRO) under the federal Employee Retirement Income Security Act of 1974 (ERISA), codified at title 29 United States Code section 1001 et seq.
In 2005, when James was eligible to receive retirement benefits,
II. Procedural Background
In response to the IBEW calculation of Mary Ann's share of his monthly benefit per the time rule, James filed a motion for pension division in which he requested the court to "determine the community interest in [his] pension through the IBEW Local 332 Pension Han." The thrust of the motion was James's contention that the prior judgment's reference to the "Brown Formula" was not a previous agreement or determination that the time rule should be applied to divide or apportion the pension when it later accrued and became payable. It was instead an acknowledgement in 1980 that under Brown, the community had an interest in his pension rights derived during marriage—even before certain rights had vested or accrued—and a determination that when benefits were to become payable, the community should receive a pro rata credit for that interest. (Brown, supra, 15 Cal.3d at pp. 841-842, 844-848, 126 Cal.Rptr. 633, 544 P.2d 561.)
James's declaration in support of the motion said that he understood the prior judgment's reference to the "Brown Formula" to mean simply that "the community (my share and [Mary Ann's] share) interest would be based on the benefits earned during the marriage (plus any enhancement to my pension due to community years) then divided equally." James also acknowledged his understanding at the time of the judgment that if the plan benefit formula applicable to his pension were to increase in the future, the community share of the benefit would be enhanced by that increase for those years of service attributable to the marriage.
James further offered that if the community interest in his pension were to be apportioned per the time rule, he would receive less than 50 percent of his total pension benefit due to the amounts together attributable to the community property interests of both his failed marriages. James further suggested that an appropriate method by which to apportion the community interest in his pension, and then to derive Mary Ann's share of that interest, would not be by application of the strict
In response to the motion, Mary Ann contended that the IBEW calculation of her share of James's monthly retirement benefit under the defined benefit plan per the time rule was in accordance with the prior judgment—the time rule being synonymous with the term "Brown Formula" both in 1980 and currently. But with respect to just what that term in the judgment had meant, she offered by way of declaration: "I don't believe I had a clear understanding of the Brown Formula at that time other than I had been awarded an equitable share of [James's] pension benefits and that my share would stay in the plan to grow and mature until [James] retired." She further stated her understanding that what James now wanted was to have "the benefit frozen as of the [separation] date." Mary Ann accordingly requested the court to confirm application of the time rule to calculate her share of James's monthly benefit using the "Brown Formula" as referenced in the 1980 judgment.
At the hearing on James's motion, the trial court was unequivocal that it considered the judgment to be "clear," meaning that it perceived the term "Brown Formula" to be synonymous with application of the time rule. The court, perceiving James to be trying to alter the judgment in "hindsight," ruled that application of the time rule to division of James's retirement benefit was "a done deal" per the prior judgment and the court therefore declined to exercise its discretion to equitably select that method of apportionment or any other, instead merely implementing what it considered to have already been determined.
The court's subsequent written order
This appeal followed.
I. Issue on Appeal and Standard of Review
In dividing the community estate as part of a marital dissolution, the court must generally effect an equal division. (Fam.Code, § 2550.)
Similarly, "`"In making such apportionment between separate and community property our courts have developed no precise criterion or fixed standard, but have endeavored to adopt that yardstick which is most appropriate and equitable in a particular situation...." [Citations.]'" (Hug, supra, 154 Cal.App.3d at p. 791, 201 Cal.Rptr. 676.) "Whatever the method that it may use, however, the superior court must arrive at a result that is `reasonable and fairly representative of the relative contributions of the community and separate estates.' [Citation.]" (Lehman, supra, 18 Cal.4th at p. 187, 74 Cal.Rptr.2d 825, 955 P.2d 451.)
But as we see it, in this case, the issue is not whether the court abused its discretion in selecting the time rule as the appropriate method of dividing the community and separate property interests in James's defined benefit pension. Indeed, the record makes clear that the court did not apply this formula to the pension benefit division based on equitable considerations. Instead, the court understood the prior judgment to have already divided the pension per the time rule, thus constraining the exercise of its discretion to the implementation of this predetermined division accordingly.
The issue on appeal is therefore whether the trial court erred in failing to exercise its discretion to divide the pension benefit equitably because it found that the parties had already stipulated, and the court had already determined, that the pension benefit would be divided per the "Brown Formula," a term which it found to be synonymous with the time rule. A trial court's failure to exercise discretion is itself an abuse of discretion, and we review such action in accordance with that standard of review. (People v. Orabuena (2004) 116 Cal.App.4th 84, 99, 10 Cal.Rptr.3d 99; Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 449, 99 Cal.Rptr.2d 678.)
Here, because the trial court perceived that its discretion to divide the pension was constrained by the 1980 interlocutory judgment, the question comes down to the proper construction of that judgment, which reserved jurisdiction over James's pension benefits for later division per the "Brown Formula." In other words, did that reference—by its clarity and universally understood meaning—require the trial court on James's motion for pension division to apportion the pension benefits per the time rule instead of exercising its discretion to select an equitable method of apportionment, whether the time rule or some other?
In order to resolve this question, we construe the judgment. In the course of doing so, we examine the evolution of the time rule and the context of its application both before and after the 1976 Brown decision.
The signature of the strict time rule is the way in which it makes time alone the determining factor in apportioning community and separate interests in defined benefit pension plans. This has the effect of eliminating from the apportionment equation other factors such as fluctuations in salary that affect the total benefit amount, that amount often being determined by a plan formula that takes salary or earning levels into account. The rationale for the rule is that even though an employee spouse while married might have earned less in early career years than in the later prime of a career that might occur post-separation, the right to the ultimate benefit, at least in part, still accrued during the earlier marriage. This entitles the marital community to evenly share in the ultimate benefit based solely on the ratio of the duration of the marriage to the duration of the total employment service, regardless of the amount of the benefit specifically attributable to service or salary during the marital years or any breaks in service. (Go-wan, supra, 54 Cal.App.4th at pp. 90-91, 62 Cal.Rptr.2d 453.)
Today, although the court has discretion to choose among apportionment methods, the time rule is the most frequently employed method of dividing pension benefits. According to our Supreme Court, its use "is not unreasonable when the `amount of retirement benefits is substantially related to the number of years of service.' [Citations.]" (Lehman, supra, 18 Cal.4th at p. 187, 74 Cal.Rptr.2d 825, 955 P.2d 451; see also Poppe, supra, 97 Cal.App.3d at pp. 8-9, 158 Cal.Rptr. 500 [application of strict time rule inappropriate where service points rather than years of service determined the benefit amount].) Nor is the time rule's result "unreasonable when the `relative contributions of the community and separate estates' are accounted for. [Citation.]" (Lehman, supra, at p. 187, 74 Cal.Rptr.2d 825, 955 P.2d 451.) The frequency of the rule's application is largely driven by the fact that the number of years of service factors substantially in determining the amount of the income stream in most defined benefit pension plans.
In Waite, husband, a judge, contended that his pension should be characterized as separate property since, for one thing, the amount of the retirement benefit was indexed to whatever operative judicial pay scale was in effect in the years after he retired. Thus, the judicial pay scale was subject to upward legislative changes, of which husband would continue to enjoy the benefits even after retirement. He argued that these changes to the benefit meant that his pension rights did not accrue at all until after the marriage had ended. The court rejected husband's argument, concluding that post-retirement compensation rates are irrelevant to benefit characterization. The court observed that "[t]he plan of payment of the pension—whether fixed, or reflective of subsequent salary increases in the relevant position—does not change the nature of the right to the pension. The right flows from the services rendered by the employee during the marriage; the manner of the expression of the right does not distort it or alter its community characteristic." (Waite, supra, at p. 471, 99 Cal.Rptr. 325, 492 P.2d 13.) The court added, "Whether a pension plan provides for fixed or variable payments, and whether adjustments occur automatically or require legislation [as in the case of judicial pensions], the basic point remains that the pension payment serves as a remuneration for services rendered by the employee; if these services were discharged during the marriage, that remuneration must compose a community asset." (Ibid.)
In at least three characterization (as opposed to apportionment) cases decided after Waite but before Brown, all of which involved military pensions that had vested during marriage even though the husband in each case had not yet retired at the time of separation, courts concluded that there was a community property interest in the pensions, which were proportionately divisible based on years of service. (See, Bensing v. Bensing (1972) 25 Cal.App.3d 889, 891-894, 102 Cal.Rptr. 255 (Bensing) [husband had completed required number of years of service at time of separation and had only to apply for retirement benefits, which were proportionately divisible as between community and separate property based on years of service]; In re Marriage of Wilson (1974) 10 Cal.3d 851, 854-856, 112 Cal.Rptr. 405, 519 P.2d 165 (Wilson) [husband had premarital separate property interest in fully vested military pension, which was proportionately divisible based on premarital versus marital years]; In re Marriage of Martin (1975) 50 Cal.App.3d 581, 583-585,123 Cal.Rptr. 634 (Martin) [upon dissolution, wife was entitled to her proportionate share of husband's expected retirement benefit based on marital years of service even though husband had not yet retired and was not yet receiving benefits].) While these cases thus concerned characterization of pension benefits accrued during marriage, they also endorsed the idea that
In 1976, the California Supreme Court decided Brown, reversing prior precedent,
The court also held in Brown that, depending on the circumstances of the particular case, pensions could be divided in one of two ways—division in kind with the trial court retaining jurisdiction to later implement the division as benefits become payable, or cash out by reduction of the community interest to present value and payment to the nonemployee spouse or offsetting of assets as between the spouses to account for the community value. (Brown, supra, 15 Cal.3d at pp. 848-849, 126 Cal.Rptr. 633, 544 P.2d 561.) The manner in which the court chooses to effect apportionment—by division in kind or by cash out—may be dictated by feasibility issues and the degree to which the court at the time of dissolution is able to evaluate the risk that factors such as death or termination of employment will destroy pension rights before they mature. (In re Marriage of Skaden (1977) 19 Cal.3d 679, 689, 139 Cal.Rptr. 615, 566 P.2d 249; In re Marriage of Alarcon (1983) 149 Cal.App.3d 544, 558-559, 196 Cal.Rptr. 887.) If there are considerable "uncertainties affecting the vesting or maturation of the pension," then, according to Brown, the court "should not attempt to divide the present value of pension rights," and instead should award "each spouse an appropriate portion of each pension payment as it is paid." (Brown, supra, at p. 848, 126 Cal.Rptr. 633, 544 P.2d 561, fn. omitted.) This requires the court to "continue jurisdiction to supervise the payments of pension benefits." (Id. at p. 849, 126 Cal.Rptr. 633, 544 P.2d 561.)
Citing Wilson and Bensing, the Brown court further observed that the in-kind division of nonvested pension rights could be achieved in the same manner as division of vested pension rights—"by awarding each spouse a share in future payments." (Brown, supra, 15 Cal.3d at p. 849, 126 Cal.Rptr. 633, 544 P.2d 561.) Notably for present purposes, and as the parties agree, the court in Brown did not endorse or employ a specific formula or method of in-kind pension division, instead remanding the case for an equitable division of Mr. Brown's pension rights, whether accrued or not at separation. (Id. at p. 852, 126 Cal.Rptr. 633, 544 P.2d 561.)
Thus, the general principles that can be distilled from Brown, and for which it is most often cited,
Within months of the Brown decision, In re Marriage of Freiberg (1976) 57 Cal.App.3d 304, 127 Cal.Rptr. 792 (Freiberg),
Thus, although Waite involved benefit characterization and not apportionment, its underpinning that post-retirement compensation rates are irrelevant to benefit characterization was transformed in Freiberg into the broader notion that an employee's changing compensation while still in service is also irrelevant to apportionment. In other words, the qualitative aspect of each service year as measured by its associated level of compensation has no effect on the final benefit as apportioned,
Shortly after Freiberg, the time rule was extended from military retirement plans to private industry plans (In re Marriage of Anderson, supra, 64 Cal.App.3d at pp. 39-40, 134 Cal.Rptr. 252), to city government plans (In re Marriage of Adams, supra, 64 Cal.App.3d at pp. 186-187, 134 Cal.Rptr. 298), and then to all plans in which years of service is a "substantial factor" in computing the benefit formula (Judd, supra, 68 Cal.App.3d at pp. 522-523, 137 Cal.Rptr. 318). Not one of these cases cited Brown specifically for their application of the time rule or referred to the time rule as the "Brown Formula." The court in Judd, in applying the time rule, even observed that "[s]uch disposition would comport with what we have termed the `time rule.' [Citation.] [H] This method of ascertaining the community interest in a spouse's retirement benefits has been approved not only by pre-Brown decisions dealing with vested pension rights [citations], but by post-Brown decisions under which the trial court retains jurisdiction to supervise payments as they are received." (Judd, supra, at p. 522, 137 Cal.Rptr. 318.)
And over the years (but especially for present purposes in the 1980 time frame of the interlocutory judgment in this case), these three cases and Freiberg, as opposed to Brown, have been most frequently cited in published opinions to explain, discuss, or support application of the time rule. (See, e.g., Poppe, supra, 97 Cal.App.3d at pp. 8-9, 158 Cal.Rptr. 500 [strict time rule not applied where amount of pension benefit is not substantially related to years of service but instead to points earned as a result of service, which varied over the years]; Hug, supra, 154 Cal.App.3d at pp. 784, fn. 2, 787-788, 201 Cal.Rptr. 676; In re Marriage of Jacobson (1984) 161 Cal.App.3d 465, 475, 207 Cal.Rptr. 512; In re Marriage of Bergman, supra, 168 Cal.App.3d at pp. 750, 759, 214 Cal.Rptr. 661; In re Marriage of Henkle (1987) 189 Cal.App.3d 97, 99, fn. 3, 234 Cal.Rptr. 351; Gowan, supra, 54 Cal.App.4th at pp. 88-91, 62 Cal.Rptr.2d 453; Lehman, supra, 18 Cal.4th at pp. 176, 179, 187-188, 74 Cal.Rptr.2d 825, 955 P.2d 451 [nonemployee spouse who owns community interest in retirement benefits owns a community interest in those benefits as enhanced by conditions or events occurring after separation or dissolution since right is one to income stream that begins to flow, and is defined, at retirement]; In re Marriage of Bowen (2001) 91 Cal.App.4th 1291, 1295, 111 Cal.Rptr.2d 431 (Bowen).)
We acknowledge that in 1988, some eight years after the filing of the interlocutory judgment in this case, the court of appeal in Zarrahy v. Zarrahy (1988) 205 Cal.App.3d 1, 5, 252 Cal.Rptr. 20, a civil partition action, used the term "Brown
Similarly, in 1997, some 17 years after the judgment in the instant case, the California Supreme Court, quoting from the 1983 interlocutory judgment of dissolution at issue in In re Marriage of Oddino (1997) 16 Cal.4th 67, 71, 65 Cal.Rptr.2d 566, 939 P.2d 1266 (Oddino), made reference to "`the formula in Brown.'" But there again, it is not apparent from that case or its holding, which had nothing to do with this reference in the underlying interlocutory judgment, that the court was endorsing the use of the time rule or equating that rule with the Brown decision.
And in 2001, the court of appeal in Bowen, supra, 91 Cal.App.4th at p. 1299, 111 Cal.Rptr.2d 431, quoting from the 1984 judgment below in that case, also used the term "Brown Formula," the judgment there referring to the time rule by this reference. But then the court went on to parenthetically describe that "formula" as the more general Brown holding that "to the extent pension rights derive from employment during marriage, they comprise a community asset subject to division." (Ibid.) While we can observe that the 1984 underlying judgment in Bowen expressly correlated the term "Brown Formula" with the time rule, we cannot say that this single instance then connoted a generally accepted association or demonstrated a universal meaning of the term, especially one that could be made retroactive to 1980, the year of the interlocutory judgment in this case.
The trial court in its written order found here that the parties had in 1980 "entered into a stipulated Interlocutory Judgment."
The record reveals that the parties initially stipulated to "distribution of [IBEW] retirement fund reserved" and that no one requested the court to later divide the pension benefits expressly per the time rule or any other specific method of apportionment. James understood the stipulated judgment to mean simply that "the community ... interest would be based on the benefits earned during the marriage (plus any enhancement to [his] pension due to community years) then divided equally." Mary Ann, for her part, could only say that she had no specific understanding of the "Brown Formula" at the time of the stipulated judgment but that she did understand that she had been awarded "an equitable share of [James's] pension benefits and that [her] share would stay in the plan to grow and mature until [James] retired."
Both of these understandings are perfectly consistent with the principles for which Brown stands—(1) that pension rights that derive during marriage, whether or not vested, represent a community property interest subject to division; and (2) that in-kind division may be accomplished by the court's retention of jurisdiction and later implementation of the division as benefits become payable. (Brown, supra, 15 Cal.3d at pp. 841-842, 844-849, 851, 126 Cal.Rptr. 633, 544 P.2d 561) And neither understanding dictates that the term "Brown Formula," as used in the 1980 interlocutory judgment, be interpreted as requiring application of the time rule.
Instead, in light of the record and the parties' expressions of their intentions when entering into the stipulation, as well as Brown itself, this reference is more readily understood to mean that James and Mary Ann agreed that the pension rights which derived during their marriage, whether or not vested, were community property and that these rights were subject to later in-kind division, with the court retaining jurisdiction over the pension to later implement that division. Rather than being cashed out based on then-present value, one of Brown's alternatives, Mary Ann agreed to bear the risk that the pension would not fully mature whether by James's premature death or termination of employment. James likewise agreed that Mary Ann would enjoy any increases in value to his pension rights derived during their marriage, including upward changes to the plan formula that might increase or enhance that benefit. And the language of the judgment, even with its ambiguous reference to the "Brown Formula," confers no more and no less.
Thus, contrary to the trial court's construction of the judgment, that judgment's treatment of the pension requires the exercise of judicial discretion to apportion community and separate property interests, by selecting an appropriate and equitable method of apportionment based on the particular facts and circumstances of this case, and to divide the community interest in the benefits equally between the parties. The court's failure to exercise that discretion by its equating the term "Brown Formula" as used in the 1980 judgment with the strict time rule as the
The order providing for apportionment of James's defined benefit pension per the time rule is reversed. The matter is remanded to the trial court with directions to exercise its discretion to equitably apportion the defined pension benefits and divide the community interest in accordance with Family Code sections 2610, subdivision (a), and 2550. We express no opinion on the proper method of apportionment, i.e., per the time rule or any other particular formula.
WE CONCUR: BAMATTRE-MANOUKIAN, Acting P.J., and McADAMS, J.