Merit Decision: Unvested Military Retirement Benefits Are Marital Property Subject to Division in a Divorce. Daniel v. Daniel.

Read what happened when this case was remanded here.

On March 26, 2014, the Supreme Court of Ohio handed down a merit decision in Daniel v. Daniel,  2014-Ohio-1161. By a vote of 4-3, in an opinion written by Justice O’Neill, for himself and Justices Pfeifer, French, and Kennedy, the Court held that unvested military retirement benefits earned during a marriage are marital assets subject to division in a divorce or dissolution.  Justices O’Donnell, Lanzinger, and O’Connor dissented.

Case Background

Christen (plaintiff-appellant or wife ) and Sean Daniel (defendant-appellee or husband) were married in 1995. They had three children. During the marriage they separated twice; from the fall of 2004 until December 2005 and from January 2008 until the date of the divorce decree in 2011.  Sean had enlisted in the National Guard shortly before the parties married. At the time of the divorce hearing, Sean had sixteen years in the National Guard. Some time before the hearing, Sean re-upped for another six years.  Sean will be eligible to receive retirement benefits once he has accumulated twenty years of service credit. When the parties divorced, the only real asset of the parties was Sean’s military retirement benefit.

Procedural Posture

The magistrate who heard the case found that a non-vested retirement benefit was not marital property subject to division under Ohio law.  Christen filed objections to this finding, arguing that the magistrate should have divided those benefits by computing the ratio of the number of years of the defendant’s military service during the marriage to the total years of his military service. The trial court overruled the wife’s objection and adopted the magistrate’s decision, finding there were no retirement benefits for the court to divide.

In a split decision, the Third District Court of Appeals affirmed. The majority found that it need not decide whether unvested pension benefits are a marital asset because insufficient evidence of Sean’s retirement benefits was presented at trial.  The dissent found that the potential military pension was probably the only marital asset of the parties, and could be divided without being specifically currently valued.

Key Precedent and Statutes

RC 3015.171 – provides for the division of property in a divorce. Under 3015.171, and Neville v. Neville, 2003-Ohio-3624, the presumptive starting point is an equal division of marital property.

R.C. 3015.171 (A)(3)(a)(i) and (ii) include in the definition of marital property “[a]ll real and personal property that currently is owned by either or both of the spouses” and “[a]ll interest that either or both of the spouses currently has in any real or personal property, including, but not limited to, the retirement benefits of the spouses, and that was acquired by either or both of the spouses during the marriage.”

Wilson v. Wilson, 2007-Ohio-6056 (an unvested pension can be subject to deferred distribution through a Qualified Domestic Relations Order prepared and signed at vesting.)

Hoyt v. Hoyt, 53 Ohio St. 3d 177 (1990)(vested pension or retirement benefits earned during a marriage are marital assets to be considered in a division of property)

Thompson v. Thompson, 2011-Ohio-6286 (10th dist.)

¶33 The ratio of the number of years of employment of the employed spouse during the marriage to the total years of his or her employment is known as the coverture fraction.  In Thompson the appeals court approved the use of this fraction to divide vested but unmatured pension benefits at the time of divorce.

Majority Decision

 The majority in this case found that unvested military retirement benefits are marital assets subject to division in divorce proceedings. While the exact amount to be divided won’t be known until (and unless) Sean completes his twenty years of service, fixing the percentage of ownership of each spouse is readily ascertainable on the date of divorce.  It is the coverture fraction—in this case the number of years of service compared to the number of years of marriage.

Retirement benefits are included in the definition of “marital property” in the equitable distribution statute.  The statute does not distinguish between vested and unvested retirement benefits.

Dividing Pension Benefits

Courts have used two approaches to divide retirement benefits.  One is the present value method, which values the benefits as of the date of the final decree, and divides the value between the parties.  This method has the benefit of disassociating the parties from one another. The other is the deferred distribution method, in which the court figures out a formula for dividing the monthly benefit at the time of the decree, but defers distribution until the benefits become payable.  Even though this doesn’t accomplish the goal of disassociating the parties, it does meet the other important goal of preserving an asset to give each party the maximum benefit.

The majority disagreed with the court of appeals’ determination that Sean’s retirement benefit could not be divided because its precise value could not be ascertained on the record presented. “ [F]ixing a precise present value and date of vesting is not mandatory,” wrote O’Neill, finding that the trial court had enough information to make an equitable distribution of the retirement benefits.

How Should this be Done?

The majority cites with approval the use of the coverture fraction to divide the military benefits in this case to establish Christen’s share of Sean’s military pension—computing the ratio of number of years of [the] employed spouse’s employment during the marriage to the total number of years of his or her employment.” This was the method suggested by the Christen in this case.  The majority leaves the “appropriate method” to the trial court, but was clear that the trial court did have enough information to do this. The case was remanded to the trial court for further proceedings.

The Dissents

 That Little Word “Current”

There are two dissents in the case, one by Justice O’Donnell, just for himself, and one by Justice Lanzinger, joined by Chief Justice O’Connor. The difference between the two dissents is that O’Donnell would affirm the court of appeals, while Lanzinger believes the case should be dismissed as improvidently allowed, largely because only one party (the wife) appeared and argued in this case, and the issues are so important.  In three different places in her dissent, she expresses her concern about deciding such an important issue  “without robust adversarial presentation.”

But all three dissenters agree on a key point—the statutory definition of marital property only includes benefits a spouse currently owns or currently has, which does not include the military retirement benefits in this case. In this case, the military retirement benefits are not currently owned by either party, can only be acquired, if ever, after the termination of the marriage, and may never vest.   Sean Daniel did not currently own any right to military retirement benefits from the National Guard, because at the time of the divorce he had not yet accumulated twenty years of service credit.  Nor did he currently have an interest in those benefits because his interest was not vested, and could only become so after the termination of the marriage.  Until a pension is vested, neither party has a current interest, as required by the statute, and vesting is a contingent event.

Judicial Activism

 Justice O’Donnell takes a direct shot at the majority for judicial activism in this decision:

“ [T]his court has taken upon itself the role of legislating from the bench in its conclusion that it will order these benefits to be considered as marital property. I cannot join in this action, because I believe in judicial restraint and the role of the court as being limited to interpreting the law as written by the General Assembly.”

This is not an unusual position for O’Donnell.

Justice Lanzinger’s Dissent

In addition to her concerns about the majority’s statutory construction, Justice Lanzinger observes that the previous holdings of the court dealing with the division of pension benefits have noted the importance of vesting, noting that unvested retirement benefits have not yet actually accumulated. But she leaves the door open a bit, commenting that “ it may well be that that this court should adopt a rule that unvested military retirement benefits accrued during the marriage constitute marital property subject to division even while those benefits remain unvested. However, such a change in precedent should not occur without robust adversarial presentation. This issue is too important in its ramifications to be decided with half of the argument unpresented and unheard.”

Case Syllabus

Unvested military retirement benefits earned during marriage fall within the definition of marital property in R.C. 3105.171(A)(3)(a) and must be considered for division under R.C. 3105.171(C).

Concluding Observations

After watching this argument I thought the wife had made a very fair argument that she should get a pro rata share of the benefits based on the percent that accrued during the marriage (I have now learned this is known as the coverture fraction), and that if for some reason the pension never vests, neither party would get anything.  Justice O’Neill seemed immediately persuaded by this argument, and that is reflected in the majority decision.  While the majority suggested that the coverture fraction method would be a good way to do this, it did not require the trial court to use that method.

It was totally clear at oral argument that Chief Justice O’Connor thought the case should be dismissed as improvidently allowed.  In fact, she got pretty adamant about it.  It seemed to me at the time that Justices Lanzinger and O’Donnell shared similar concerns. And the three of them did end up dissenting, although O’Donnell didn’t go for improv’ing the case.

I think the majority made the right call in this case, and I think the dissenters’ concerns about the one-side argument were overblown.  This is a general point of law of great interest to the practicing bar, fairly presented in this case. The strengths and weaknesses of this particular case have been left to the trial court on remand.  I think the idea of the wife getting an inchoate interest, depending on actual vesting is absolutely fair, given that a significant part of this pension was earned during marital years.  And if the pension never vests, neither side will get anything.  This seems to me in keeping with the spirit of equitable distribution principles.  Interestingly, Justice Kennedy, who was silent at argument, joined the majority opinion.  As a former domestic relations judge, she should know the most about this, so her vote with the majority here is not insignificant.

Student contributor Elizabeth Chesnut called this spot on, when she wrote, “perhaps the best argument was that in the division of unvested military benefits, no harm is done to either party if the benefits never vest. It seems likely that the Court will treat unvested military retirement benefits as benefits earned during the course of the marriage, and therefore subject to division at divorce.”

 

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2 Responses to Merit Decision: Unvested Military Retirement Benefits Are Marital Property Subject to Division in a Divorce. Daniel v. Daniel.

  1. Erik Brinker says:

    I have just one quick comment on this. While I do think military retirement should be marital property, I do not think a ratio of years of marriage over years of service is an appropriate division when dealing with a spouse who is in the reserves (or National Guard).

    Retirement in the reserves is based on a point system. A reservist accumulates a retirement point for each drill period the reservist attends. This is typically 4-5 per weekend, and 14 during a two-week annual training exercise. The reservist must accumulate 50 points for a satisfactory year and must have 20 satisfactory years to be eligible for retirement. That retirement money is not paid until the reservist is 60 (minus a few exceptions). The amount of retirement is a percentage of an active duty member of equal age and time in service would have in retirement. [Ret. pts earned/(years*365)]

    This is important because the percentage an ex-spouse might receive could be very different depending on the years the couple was married. Because reserve members are being called to active duty so often, most of the retirement points a reservist accumulates these days happens on deployments. A year-long deployment is worth 365 points (one point per day). That could equal as much as seven years of service when the reservist is not activated.

    The most fair way of dividing any future retirement would be to calculate the retirement points earned during the marriage over the total retirement points earned. Although this could cut either way, I know many divorcees who have been on multiple deployments after getting a divorce (for whatever reason). A reservist could have well over 90% of his or her retirement points accumulate after he or she has been divorced, or vice versa.

    Thanks,

    Erik

    Professor’s Note-Erik Brinker, an former Marine, is a third year law student at the University of Cincinnati College of Law

  2. Solomon says:

    Truly, the best way to evaluate the military pension is based on the value of the marital portion at the date of divorce, whether vested or unvested. As Erik notes, Reserve military retirements are based on points. If a Reservist is divorced as a specialist (E4) with ten years of marriage and continues to serve, retiring as a master sergeant (E8) or major (O4) with 20 years of service, the value of his ex’s retirement is going to increase in value due to the service member’s continued service. The ex should not be permitted to benefit from post-divorce retirement enhancement. Even if the coverture fraction is reduced from 50% at ten years of service to 25% at 20 years of service, the amount the ex will receive is significantly increased. Moreover, the ex spouse is likely to obtain employment during those ten years following divorce and amass his or her own retirement benefits from which the service member will not to be able to benefit. The key to dividing pensions is to evaluate them the date of the divorce (using a hypothetical value if necessary) so that the non-military spouse does not continue to benefit from the military spouse’s continuing service in the armed forces.

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