Opinion
NOT TO BE PUBLISHED
Santa Clara County, Super. Ct. No. FL072713
Bamattre-Manoukian, ACTING P.J.
I. INTRODUCTION
In this marital dissolution action, appellant Stephen Darcy challenges four trial court rulings concerning his Price water house Coopers partnership retirement plan (PRP) benefit. Stephen contends that the trial court erred in (1) finding that there is a community property interest in the PRP benefit; (2) misapplying the time rule when the court divided the community property and separate property interests in the PRP benefit; (3) failing to find that he is entitled to an offset or reimbursement for signing the noncompete agreement on which the PRP benefit is contingent; and (4) determining that respondent Carol Darcy is entitled to reimbursement of her share of the community property interest in the PRP benefit if Stephen fails to sign the noncompete agreement and thereby forfeits the benefit.
Hereafter, we will refer to the parties by their first names for purposes of clarity and not out of disrespect. (See Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, 1136, fn. 1.)
For reasons that we will explain, we determine on the facts of this case that the trial court did not correctly apply the time rule in dividing the community property and separate property interests in the PRP benefit. We find no merit in Stephen’s other contentions. Therefore, we will reverse the judgment and remand the matter for the sole purpose of recalculating the division of the community property and separate property interests in the PRP benefit under the time rule.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. Marital Dissolution Proceedings
Stephen was born on June 18, 1954. After graduating from college in 1976, he obtained a job with the accounting firm then known as Price Waterhouse. Stephen married Carol less than two years later on September 3, 1977. He continued to work for Price Waterhouse and became a partner on July 1, 1987. Stephen and Carol separated on October 4, 1997, after 20 years of marriage. Their marital status was terminated on March 25, 1999, and a judgment on reserved issues was subsequently entered on May 13, 1999. At the time of the marital dissolution, Stephen had been an employee or partner of Price Waterhouse and its successor Price water house Cooper for more than 20 years.
The judgment on reserved issues incorporated the parties’ prior stipulation regarding Stephen’s retirement plans. The stipulation states in pertinent part, “The parties have a community interest in the following plans held in [Stephen’s] name: [¶] 1) Retirement Plan for Employees of Price Waterhouse; [¶] 2) Price water house Coopers Partner Retirement Plan (which is unfunded and unvested); and [¶] 3) Price water house Coopers Retirement Benefits Accumulation Plan (RBAP), net of debt that is community. [¶] The parties agree to divide the community interest in each of these plans by qualified domestic relations orders. The Court will reserve jurisdiction over early retirement benefit or early retirement incentive benefit, if any.”
The judgment on reserved issues also states that the “Property Confirmed to [Stephen]” includes “Portion of Price water house Coopers Partners Retirement Plan and accumulations since separation.” The court reserved jurisdiction to “carry out and enforce each and every provision of this agreement.”
Thereafter, the community property interest in two of Stephen’s retirement plans, the Retirement Plan for Employees of Price water house Coopers and the Price water house Coopers Retirement Benefits Accumulation Plan, was divided in qualified domestic relations orders (QDRO) filed on June 7, 2004. The PRP was not divided by a QDRO because the parties agreed that the PRP is not an ERISA-governed pension plan. According to Carol, the parties could not reach an agreement regarding the division of the PRP benefit and therefore she set the matter for a hearing.
“Under ERISA [the federal Employee Retirement Income Security Act of 1974, title 29 United States Code section 1001 et seq] spouses in dissolution actions may not transfer rights in retirement benefits unless the court so orders in a QDRO. (29 U.S.C. § 1056, subd. (d)(1); [Citation].) A QDRO is a judgment or order that creates a right in a former spouse to receive all or a portion of the benefits payable to the participant in a pension plan. (29 U.S.C. § 1056, subd. (d)(3)(B)(i)(I).)” (In re Marriage of Gray (2007) 155 Cal.App.4th 504, 511)
The procedure by which Carol set the matter of the division of the PRP benefit is not reflected in the record on appeal.
The parties stipulated to the appointment of a retired judge, the Honorable Robert A. Baines, as judge pro tempore. The “stipulation and order for appointment of judge pro tem” also provided that the issues to be determined in the hearing were “(1) the disposition of the Pricewaterhouse Coopers Partner Retirement Plan (‘PRP’), [and] (2) the claims of each party with respect to attorney fees and costs.” The proceedings before Judge Baines were divided into two phases. In phase one, the issue to be decided was the extent of the community’s interest, if any, in the PRP. In phase two, assuming that the trial court found there was a community interest in the PRP, the parties agreed that court was to determine the method by which Carol’s “ ‘in-kind interest’ ” in the PRP benefit would be paid and to rule on the parties’ claims for fees and costs.
B. The Hearing Regarding the Disposition of the PRP
The hearing on phase one was held on June 19, 2006, and June 20, 2006. The testimony and evidence presented at the hearing concerned the terms and value of the PRP, as well as Stephen’s eligibility for the PRP benefit and the dates of the parties’ marriage and separation. The PRP is an extremely complex retirement plan set forth in a 68-page PricewaterhouseCoopers document. The relevant terms of the PRP, as presented to the trial court in the documentary evidence and the testimony of witnesses, are briefly summarized below.
1. The PRP
Testimony regarding the terms of the PRP was provided by Roger Hindman, a partner in the partner affairs group at the national office of PricewaterhouseCoopers; Richard Firestone, Carol’s retirement benefits expert; James Crawford, Stephen’s employee benefits expert; and Patricia Watt, Stephen’s actuarial expert.
Prior to 1999, Price Waterhouse provided its partners with a retirement plan that was based on partnership shares. Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers (PwC) in 1998. Following the merger, the Price Waterhouse partners’ retirement plan (the “old [Price Waterhouse] plan”) was replaced. A new plan, the PRP, was adopted in May 1999, retroactive to July 1, 1998, the date of the merger. The PRP was subsequently modified, effective June 30, 2003. The PRP was originally intended to provide Price Waterhouse partners (known as Price Waterhouse legacy partners) with a retirement benefit no less than they would have received under the old Price Waterhouse plan.
The PRP is a defined benefit plan that is nonfunded because benefits are paid from the current earnings of PwC. The purpose of the PRP, according to Roger Hindman, is “ ‘[t]o provide a continuing income . . . to partners that spent a significant part of their working career here at the firm. [¶] So there was immediate income that they would receive as an active [partner], and part of that income which would be deferred, if you will, and paid as a retired person. So to help bind them to the organization and push that income beyond their working years.’ ”
In general, the formulas utilized to calculate the PRP benefit are based upon the factors of age, years of partner service, and partner earnings. A Price Waterhouse legacy partner may receive the full PRP benefit at the age of 55. The maximum number of partner service years on which the full PRP benefit is calculated is 20. Thus, even if a Price Waterhouse legacy partner has more than 20 partner service years at the time of retirement, only 20 partner service years are counted for the purpose of calculating the PRP benefit. The PRP also provides an early retirement option. Stephen would have been eligible for early retirement as of June 30, 2004, after attaining the age of 50, but his PRP benefit would have been less than the full amount.
The amount of the PRP benefit payable to a Price Waterhouse legacy partner, such as Stephen, is calculated under three component formulas. The “ ‘30% Final Average Pay Formula’ ” applies to the 16-year period from the start of Stephen’s partner service on June 30, 1987, to June 30, 2003. A different formula, the “ ‘C.I.E. Benefit Formula,’ ” applies to partner service after June 30, 2003. For all years of partner service, there is a “ ‘Floor benefit’ ” that provides that the Price Waterhouse legacy partner will be offered no less than at least 60 percent of what he or she would have been offered at retirement, but for the formula change in 2003.
To obtain the PRP benefit, a partner must execute a noncompete agreement. The noncompete agreement is a “condition precedent” to receiving the PRP benefit. The noncompete agreement states: “It is a condition precedent of the right of a Former Partner . . . to receive or continue to receive benefits under this Plan that the Former Partner (i) comply with the provisions of the Plan and the Partnership Agreement relating to conduct after withdrawal or retirement, as the case may be, (ii) refrain from any activity which in any way directly or indirectly competes with the practice or business of the Firm without prior written consent of the Board or its designee, (iii) comply with Independence Requirements, and (iv) refrain from any activity that would cause or appear to cause the Firm’s independence to be impaired with respect to a client or a potential client. The term ‘Former Partner’ means a Partner who has retired or withdrawn from the Firm.”
The mandatory retirement age for PwC partners is 60. On rare occasions, PwC may extend the mandatory retirement age or contract with a retired partner for consulting services. Approximately 50 or 60 partners retire each year. The average age of retiring partners is 57. In the past five to seven years, two or three retiring partners did not request the PRP benefit because they were going to work for a competitor after retirement. During the same time period, PwC suspended payment of the PRP benefit to one or two retired partners who violated the noncompete agreement. PwC enforces the noncompete agreement and is interested in all global companies as a present or future client. Before obtaining gainful employment, a retired partner must submit a request for approval of the employment to PwC. PwC may also change the terms of the PRP at any time without the retired partner’s consent.
2. Stephen’s Eligibility for the PRP Benefit
As of June 30, 2003, Stephen had completed 16 years of partner service. According to PwC’s projections, as of June 30, 2009, Stephen will be 55 years old, have 22 years of partner service and projected earnings of $1,434,035, and be eligible for a full PRP benefit of $327,774 per year. If he retires at the average PwC partner retirement age of 57, with 24 years of partner service and projected earnings of $1,551,052, he will be entitled to a PRP benefit of $347,885 per year as of June 30, 2011. Stephen’s actuary calculated at the time of trial in June 2006 that the present value of Stephen’s PRP benefit, assuming that he retires at the mandatory age of 60, was $5,003,643.
3. The Parties’ Contentions Regarding Stephen’s PRP benefit
According to his trial testimony, Stephen intends to work until he is at least 70 years old, despite PwC’s mandatory retirement age of 60. At the time of trial Stephen’s position was global chief quality officer for PwC. His previous clients at PwC include the Walt Disney Company, Hewlett Packard, Applied Materials and Cypress Semiconductor. In 2005, Stephen’s total compensation was $1,319,875.
Stephen believes that if he does not sign the noncompete agreement, he will be able to obtain a position as chief financial officer for a global company with a salary in the range of his final salary at PwC. Stephen also believes that if he signs the noncompete agreement, he will be barred from working for most public companies because they are either clients of PwC or PwC aspires to have them as clients. Stephen therefore argued at the time of trial that he will suffer a detriment if he signs the noncompete agreement and that detriment should be borne by the community. He also contended that the full value of the noncompete agreement (the amount of PRP benefit paid as consideration for the noncompete agreement) should be allocated to him as his separate property.
Additionally, Stephen argued in his posttrial brief that there can be no community interest in the PRP benefit until he signs the noncompete agreement because, unless that condition precedent is satisfied, there is no guarantee of payment and the PRP benefit has not matured, vested or accrued. Stephen suggested that the trial court reserve jurisdiction over the PRP benefit until he reaches the age of 60 or dies, whichever comes first, because the value, if any, of the PRP benefit cannot be determined until that time.
Carol asserted that the community interest in the PRP was established by the May 13, 1999, judgment on the reserved issues, which incorporated the parties’ stipulation to a community interest in the PRP. She further asserted that the community interest in the PRP could be allocated under the time rule because, of the 20 years of partner service required for payment of the full PRP benefit, over 10 years were served during the marriage.
Carol also argued that the noncompete agreement should be disregarded in allocating the community interest in the PRP benefit because this benefit is given in exchange for partnership service and not the noncompete agreement, which is impossible to value in any event. Finally, Carol maintained that Stephen could not lawfully defeat her community interest in the PRP benefit by failing to sign the noncompete agreement and, therefore, if the noncompete agreement was not signed, she was entitled to reimbursement of her lost community share.
C. The Statement of Decision
After the trial court considered the parties’ objections and comments regarding the court’s tentative decision of September 8, 2006, the court issued its proposed statement of decision on October 3, 2006. Stephen submitted objections to the proposed statement of decision and the trial court thereafter issued its final statement of decision on October 26, 2006. The trial court made several rulings in the October 26, 2006 statement of decision, as set forth below.
1. The Community Interest in the PRP
The trial court found that the community had an interest in Stephen’s PRP benefit, based upon the parties’ unambiguous stipulation to a community interest in the PRP benefit as incorporated in the May 13, 1999, judgment on reserved issues. The court stated, “[w]ith that stipulation and judgment on record, [Stephen] may not now, or later on appeal, challenge the existence of the community’s interest in that asset.”
2. Application of the Time Rule
The trial court ruled that the extent of the community interest in the PRP benefit should be determined under the time rule. “Generally, under the time rule, the community is allocated a fraction of the benefits, the numerator representing length of service during marriage but before separation, and the denominator representing the total length of service by the employee spouse.” (In re Marriage of Steinberger (2001) 91 Cal.App.4th 1449, 1460.)
The trial court’s time rule calculation was based upon the following findings: “the PRP now looks to two distinct periods of [Stephen’s] partner service to calculate his benefits. The first is the 16 year period from the start of his partner service on June 30, 1987, to June 30, 2003; the second period runs from July 1, 2003 to his date of retirement (the years included in this second period will not exceed four, however, as the total partner years used for PRP calculations cannot exceed twenty years.) A separate formula is applied to each of these two periods of partner service, i.e., a ‘30% Final Average Pay Formula’ is applied to the first 16 year period, and a ‘C.I.E. Benefit Formula’ is applied to the later period. The formula for this latter period also factors in his best four continuous years of earnings. Then, the totals from the application of these two different formulas to the different time periods are added together, and that sum determines [Stephen’s] annual retirement benefits.” The court also found that Stephen and Carol were married during 10.263 years of Stephen’s first 16 partner years.
Based upon these findings, the trial court determined that the “community’s interest is properly confined to the benefits payable from [the] first period, and it is appropriate to apply a time-rule share to that component of the PRP alone. The appropriate time-rule calculation involves dividing the community’s 10.263 partner years by the total partner years in that period (16 years), to arrive at a community contribution of 64.14 percent. As there were no community contributions during the second period, the benefits flowing from that second period are deemed [Stephen’s] separate property. [¶] . . . To find the community’s share, the above-determined percentage (64.14%) is applied only to those benefits flowing from the first time period. Carol will then have a right to receive one-half of that amount.”
3. The Effect of the Noncompete Agreement Requirement
The trial court also made a number of findings with respect to the noncompete agreement. First, the trial court found that the PRP benefit was not provided as compensation for signing the noncompete agreement, since the PRP described the noncompete agreement as a “ ‘condition precedent’ ” to the receipt of the PRP benefit and the amount of the PRP benefit was “not tied to how much competition he agreed to forgo, or how much revenue [PwC] might realize as a result of not having [Stephen] as a competitor.”
Second, the trial court noted that Stephen had provided no evidence as to the monetary value of the noncompete agreement to PwC. The court therefore determined that “it would be speculation to conclude the PRP benefits truly represent ‘compensation’ for the value of what [Stephen] is giving to PwC by his [noncompete agreement]. Again, as noted above, the amount paid out under the PRP is determined solely by pre-[noncompete agreement] events, such as the number of partner years worked, not by an attempt to calculate the benefit bestowed on PwC by that [noncompete agreement].”
Third, the trial court ruled that Stephen was not entitled to either an offset for the separate property value of the noncompete agreement or reimbursement by the community for the loss of earnings he may suffer if he signs the noncompete agreement. Even assuming that a retiring spouse is entitled to an offset or reimbursement for satisfying retirement requirements, the court found that the lack of evidence defeated Stephen’s claim. “[T]he testimony furnished little or no hard evidence as to what [Stephen] might be able to earn between the years 2016 and 2024 without the [noncompete agreement] i.e., during the time between when he could start competing with PwC and when he turns 70 (the age to which he wants to work). The only evidence was [Stephen’s] statement that he ‘believes’ he could make the same income he would be making at PwC at the time of his retirement . . . .”
4. Effect of Certain PRP Features
The trial court also considered the effect of certain features of the PRP, including the fact that the PRP was unfunded; payment of PRP benefit is subject to a cap of 15 percent of annual partnership profits; and the PwC partnership reserves the right to change the retirement benefits at any time, including elimination of the PRP. The trial court concluded that these features did not effect the calculation of the community’s share in the PRP benefit because the court could not speculate as to any future changes to the PRP. Therefore, in making its rulings the trial court assumed that the current version of the PRP would be in effect when Stephen retired.
5. Effect of Stephen’s Failure to Sign the Noncompete Agreement
The trial court rejected Stephen’s argument that no PRP benefit will come into existence unless he signs the noncompete agreement and therefore his failure to sign the noncompete agreement cannot adversely affect the community interest. The court relied on the rule, stated in In re Marriage of Gillmore (1981) 29 Cal.3d 418, 426 (Gillmore), that when an employee spouse “ ‘opts for an alternative that deprives [the non-employee spouse] of [his or] her full share of retirement benefits, he [or she] must compensate [him or her] for the interest she [or he] loses as a result of his [or her] decision.’ [Citation.]” Accordingly, the trial court determined that although Stephen “may be free to make a choice that will end his pension rights, such a decision has consequences. Out of equity and fairness, if he chooses to forfeit his pension benefits, he nonetheless should compensate the community for what it would have received had he protected the community’s interests.”
D. The Judgment
The trial court issued a judgment with its October 26, 2006, statement of decision. The judgment provides that (1) when Stephen retires and begins receiving the PRP benefit, Carol is entitled to receive 32.07 percent of the payments flowing from the “ ‘30% Final Average Pay Formula’ ” period of June 30, 1987 through June 30, 2003; (2) should Stephen elect a joint and survivor annuity under the PRP, Carol is entitled to receive the same percentage of the “ ‘30% Final Average Pay Formula’ ” portion when that portion is paid to Stephen’s surviving spouse; (3) Stephen is not entitled to an offset or reimbursement due to the fact that PwC required him to sign the noncompete agreement as a precondition of receiving PRP benefit; and (4) should Stephen retire and decline to sign the noncompete agreement or engage in conduct that causes PwC not to pay him the PRP benefit, Stephen must pay Carol the same amounts of PRP benefit and survivor’s benefits that she otherwise would have received.
The judgment also included an order certifying probable cause for immediate appellate review. This court granted Stephen’s motion to appeal a bifurcated family law order pursuant to California Rules of Court, rule 5.180(f).
California Rules of Court, rule 5.180(f) provides, “(1) If the motion to appeal is granted, the moving party is deemed an appellant, and the rules governing other civil appeals apply except as provided in this rule. [¶] (2) The partial record filed with the motion will be considered the record for the appeal unless, within 10 days from the date notice of the grant of the motion is mailed, a party notifies the Court of Appeal of additional portions of the record that are needed for a full consideration of the appeal. [¶] (3) If a party notifies the court of the need for an additional record, the additional material must be secured from the trial court by augmentation under rule 8.155, unless it appears to the Court of Appeal that some of the material is not needed. [¶] (4) Briefs must be filed under a schedule set for the matter by the Court of Appeal.”
III. DISCUSSION
On appeal, Stephen contends that the trial court erred in (1) finding that there is a community property interest in the PRP benefit; (2) misapplying the time rule when the court divided the community property and separate property interests in the PRP benefit; (3) failing to find that he is entitled to an offset or reimbursement for signing the noncompete agreement on which the PRP benefit is contingent; and (4) determining that Carol is entitled to reimbursement of her share of the community property interest in the PRP benefit if Stephen fails to sign the noncompete agreement or engages in competition with PwC after retirement and thereby forfeits the benefits. We will address each issue in turn.
A. The Community Interest in the PRP Benefit
In his challenge to the trial court’s ruling that there is a community property interest in the PRP benefit, Stephen’s main contention is that the PRP benefit is entirely his separate property. According to Stephen, his right to the PRP benefit did not accrue during his marriage to Carol because the PRP “is an entirely new plan, created after the date of separation” and the right to the PRP benefit is established only upon the execution of the noncompete agreement.
Stephen also denies that he waived his separate property claim due to the stipulation, which was incorporated in the May 13, 1999 judgment on reserved issues, that the parties had a community interest in the PRP benefit. He asserts that he could not have intentionally relinquished his separate property claim because the PRP was not adopted by the Price Waterhouse partners until June 30, 1999, over one month after entry of the May 13, 1999 judgment on reserved issues, and the present version of the PRP was not adopted until June 30, 2003. For that reason, Stephen claims that “imposition of a waiver of his legal rights under such circumstances would be unwarranted and unfair.”
Carol disagrees. She points out that the stipulation incorporated in the May 13, 1999 judgment on reserved issues was drafted and approved by Stephen’s attorney and Stephen has never sought relief from the judgment. Carol also disputes Stephen’s claim that he could not have intentionally relinquished his separate property interest in the PRP because the PRP had not been adopted at the time of the May 13, 1999 stipulated judgment. She asserts that the terms of the PRP were disseminated before that time, as indicated in a PwC document admitted at trial. The PwC document references a workshop for partners regarding the PRP that was held prior to May 1999.
The standard of review for the trial court’s order finding that certain property is separate or community property is whether the finding is supported by substantial evidence. (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1421.) However, in the present case the trial court’s finding that there is a community interest in Stephen’s PRP benefit was based on the stipulation incorporated in the May 13, 1999 judgment on reserved issues. On appeal, the appellate court interprets a stipulated judgment independently. (In re Marriage of Smith (2007) 148 Cal.App.4th 1115, 1120. “The interpretation of a written instrument is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. [Citation.] Unless the interpretation turns upon the credibility of extrinsic evidence, an appellate court is not bound by the trial court’s construction but makes an independent determination of the meaning of the writing. [Citations.]” (Ibid.)
We have independently reviewed the stipulation incorporated in the May 13, 1999 judgment on reserved issues and agree with the trial court that it unambiguously reflects the parties’ agreement that there is a community interest in the PRP. The stipulation states, “The parties have a community interest in the following plans held in [Stephen’s] name: [¶] . . . [¶] 2) PricewaterhouseCoopers Partner Retirement Plan [PRP] (which is unfunded and unvested). . . .” The judgment on reserved issues also includes the parties’ stipulation to Stephen’s separate property interest in the PRP: the “Property Confirmed to [Stephen]” includes a “Portion of PricewaterhouseCoopers Partners Retirement Plan [PRP] and accumulations since separation.” Thus, the judgment on reserved issues clearly indicates that the parties stipulated that there were both community and separate property interests in the PRP.
We are not convinced by Stephen’s argument that the stipulation cannot constitute a waiver of his claim that the PRP is entirely his separate property because the PRP had not been adopted at the time of the May 13, 1999 judgment on reserved issues. If Stephen did not intend to stipulate to a community interest in the PRP, his remedy was to seek timely relief from that portion of the May 13, 1999 judgment on reserved issues under either Code of Civil Procedure section 473 or Family Code section 2122. “[Code of Civil Procedure ] Section 473 and the Relief from Judgment chapter (specifically Fam. Code, § 2122) now coexist, operating as alternative bases for relief, depending on when the application is filed.” (In re Marriage of Heggie (2002) 99 Cal.App.4th 28, 32.)
Code of Civil Procedure section 473, subdivision (b), provides in pertinent part, “The court may, upon any terms as may be just, relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect.”
Family Code section 2122 provides in pertinent part, “The grounds and time limits for a motion to set aside a judgment, or any part or parts thereof, are governed by this section and shall be one of the following: [¶] . . . [¶] (e) “As to stipulated or uncontested judgments or that part of a judgment stipulated to by the parties, mistake, either mutual or unilateral, whether mistake of law or mistake of fact. An action or motion based on mistake shall be brought within one year after the date of entry of judgment.”
Stephen did not appeal the May 13, 1999 judgment on reserved issues or make a timely motion to set aside the judgment under Code of Civil Procedure section 473 or Family Code section 2122, subdivision (e). Therefore, the judgment is final and the parties’ unambiguous stipulation to a community interest in the PRP cannot be challenged in the present appeal.
For these reasons, we will uphold that portion of the October 26, 2006 judgment that states, “It is hereby declared that the Darcy marital community holds an interest in [Stephen’s] PRP at PwC . . . .”
B. Application of the Time Rule
Alternatively, Stephen contends that the October 26, 2006 judgment must be reversed because the trial court misapplied the time rule in dividing the community and separate property interests in the PRP benefit. Although Stephen concedes that the time rule applies, he argues that the trial court failed to recognize that all of his years of partner service contribute to the computation of the PRP benefit. Stephen maintains that “the correct community property fraction under the time rule should be the total number of years that [he] worked as a partner at [Price Waterhouse] and PwC during the marriage (10.263), divided by the total number of years he will have worked as a partner when he retires in the future and signs the [noncompete agreement].”
Carol responds that the trial court’s application of a “modified time rule” was well within the court’s broad discretion in dividing community and separate property interests. She explains that “[t]he PRP benefit is computed by adding two independent separately calculated factors. The first component is the result of a formula based on services rendered prior to June 1, 2003, which covers the entire period of marital service. Component One is a fixed sum that is only affected by a built-in cost of living adjustment, and bears no relationship to [Stephen’s] subsequent earnings. In contrast, the second component is based entirely on [Stephen’s] services and earnings subsequent to June 1, 2003 (along with a different cost of living factor), reflecting entirely post-separation efforts. [¶] . . . [¶] Component Two is accruing entirely after separation, and the parties expressly stipulated that the post-separation portion of the PRP would be [Stephen’s] separate property. Under these circumstances, it was entirely reasonable for the court to treat Component Two as entirely [Stephen’s] separate property, and to apply the time rule to Component One.”
Our analysis of Stephen’s claim of trial court error begins with a review of the time rule. This court has previously stated that “[t]he traditional ‘time rule’ provides that whenever credited time of service is a substantial factor in determining the benefit payable under a defined benefit plan, the extent to which that service was provided during the marriage in comparison to the total duration of service will alone determine the community share. The community share is thus derived per a purely mathematical formula under which time or years of service is the determining factor. [Citations.] According to the time rule, the community interest is that fraction of the retirement benefits, the numerator of which represents the length of service during marriage and the denominator of which represents the total length of service by the employee spouse. [Citation]. The rule thus divides the separate property and community property interests in a pension by giving equal weight to each year of service, regardless of whether the divorce occurred early in the employed spouse's career (when salary-based pension contribution deductions might be smaller but would have longer to grow) or closer to retirement (when salary-based pension contribution deductions might be greater but would have less time to grow).” (In re Marriage of Gray, supra, 155 Cal.App.4th at p. 509, fn. 3; In re Marriage of Lehman (1998) 18 Cal.4th 169, 187-188 (Lehman.)
The standard of review for the trial court’s application of the time rule to divide the community and separate property interest in retirement benefits is abuse of discretion. (Lehman, supra, 18 Cal.4th at p. 187; In re Marriage of Gowan (1997) 54 Cal.App.4th 80, 88.) “The use of the time rule is not unreasonable when the ‘amount of the retirement benefits is substantially related to the number of years of service.’ [Citations.]” (Lehman, supra, 18 Cal.4th at p. 187.) “[T]he result of the time rule is not unreasonable when the ‘relative contributions of the community and separate estates’ are accounted for. [Citations.]” (Ibid.)
Here, the parties agree that the time rule should be applied to divide the community and separate property interest in Stephen’s PRP benefit. The parties also agree that the numerator in the time rule fraction should be the number of marital partner service years, which is 10.263. The parties disagree, however, as to the number of years of partner service that should be used as the denominator in the time rule fraction. On appeal, Carol argues that the trial court properly determined that the denominator is 16, which reflects the 16-year period from the start of Stephen’s partner service on June 30, 1987 to June 30, 2003, because one formula for calculating the PRP benefit (the “ ‘30% Final Average Pay Formula’ ”) applied to that 16-year period of partner service, while a different formula (the “ ‘C.I.E. Benefit Formula’ ”) applies to partner service after June 30, 2003. Stephen, on the other hand, contends that the denominator should reflect of all his partner service years, which will total 27 if he retires at the mandatory age of 60 on June 30, 2014.
In her trial brief, Carol argued that the denominator could not exceed 20, because 20 partner service years are the maximum allowed in the PRP benefit calculation.
We do not agree with either party regarding the number of partner service years to use for the denominator in the time rule fraction. Under the time rule, the numerator is “ ‘the length of service performed on behalf of the community’ ” while the denominator is “ ‘the total length of service necessary to earn those benefits.’ [Citation.]” (In re Marriage of Bowen (2001) 91 Cal.App.4th 1291, 1296 (Bowen).) In other words, the denominator is the number of years of service on which the retirement benefits are based, which may or may not equal the total number of years of employee or partner service. (Id. at p. 1298.)
Thus, in Bowen, supra, 91 Cal.App.4th 1291, where a husband’s pension benefits from his employment with Flying Tiger were based solely on his years of service with Flying Tiger prior to that company’s merger with Federal Express, the correct application of the time rule to the Flying Tiger pension benefits excluded the years of Federal Express service from the denominator “because they did not contribute to the total number of years of service on which the Flying Tiger benefits were based.” (Id. at p. 1298.) Similarly, the appellate court in In re Henkle (1987) 189 Cal.App.3d 97, 99-100, determined that where only the first 30 years of a husband’s military service were necessary to earn his retirement pay, the correct denominator in the time rule fraction was 30, not 32. The court stated, “the last two years of [his] military service did not contribute to the total number of years of service--30--on which the amount of retirement pay depends.” (Id. at p. 100.)
In the present case, the record reflects that the maximum number of partner service years that contribute to the calculation of Stephen’s full PRP benefit is 20. PwC’s representative, Roger Hindman, testified that “there’s a 20-year period over which benefits are earned.” Hindman also explained that as of June 30, 2003, when the PRP was modified to use the C.I.E. formula, Stephen “had 16 years of partner service. [¶] . . . [¶] So he has four remaining years of service to measure his benefit . . . under the post change provisions.”
We are therefore not convinced by Stephen’s argument that the denominator in the time rule formula should equal his total number of partner service years at the time of his retirement. Assuming that Stephen has continued to work as a Price Waterhouse legacy partner at PwC, he completed 20 years of partner service as of June 30, 2007. No matter how many more partner service years he attains, only 20 partner service years will contribute to the calculation of his full PRP benefit under the current PRP formula. The denominator in the time rule fraction therefore cannot exceed 20.
We are also not convinced by Carol’s argument that the denominator should equal 16 years. While we recognize that all of the 10.263 marital partner service years occurred during the 16-year period (from June 30, 1987 to June 30, 2003) during which the PRP benefit was calculated under the prior “ ‘30% Final Average Pay Formula,’ ” as the trial court determined, the denominator cannot equal 16. Since Stephen had completed nearly 18 partner service years at the time of trial in 2006, the total number of partner service years that will contribute to the calculation of his PRP benefit is necessarily greater than 16.
Thus, assuming that Stephen continued to work as a Price Waterhouse legacy partner at PwC and attained 20 years of partner service as of June 30, 2007, the time rule fraction applicable to the division of the community and separate property interests in Stephen’s PRP benefit as of June 30, 2007, includes (1) a numerator of 10.263, representing the years of partner service during Stephen and Carol’s marriage; and (2) a denominator of 20, representing the maximum number of years of partner service that will contribute to the calculation of the full PRP benefit. This time rule fraction (10.263 divided by 20) results in a community property interest of 51.315 percent in Stephen’s PRP benefit, with Carol having a community share of one-half of 51.315 percent.
For these reasons, we determine that the trial court’s time rule calculation, which resulted in a fraction with a numerator of 10.263 marital partner service years and a denominator of 16 total partner service years, did not account for the “ ‘relative contributions of the community and separate estates’ [Citation.]” (In re Marriage of Lehman, supra, 18 Cal.4th at p. 187.) We will therefore reverse the judgment and remand the matter with directions to recalculate the community and separate property interests in Stephen’s PRP benefit in accordance with the views expressed in this opinion.
C. Value of the Noncompete Agreement
Stephen also contends that the trial court erred in failing to find that he is entitled to either a separate property offset for the value of the noncompete agreement (which would reduce the community share of the PRP benefit) or community reimbursement of the amount of the detriment that he will suffer (due to forgoing employment opportunities) if he signs the noncompete agreement. Stephen acknowledges that no appellate court decision has addressed the issue of whether a spouse who is required to sign a noncompete agreement in order to receive retirement benefits is entitled to such an offset or reimbursement. His argument relies on this court’s decision in In re Marriage of Quay (1993) 18 Cal.App.4th 961 (Quay), which involved the sale of a business.
In Quay, the husband founded a company during the marriage that was sold for $55 million after the parties separated. The community owned about 14 percent of the company stock. The purchaser of the company required the husband to sign a five-year promise not to compete. (Quay, supra, 18 Cal.App.4th at p. 964.) This court noted that “[w]hile the five-year period began after the parties separated, it was clear the stock would have been worthless unless [the husband] had given his promise not to compete. With that promise, the community realized the $7.5 million profit.” (Ibid.) The trial court also determined that the husband had suffered a detriment of $1,320,000 in unearned salary due to the covenant not to compete, and that the community should be charged with the amount of 14 percent of the detriment. (Id. at p. 966.)
On appeal, this court ruled that the community should bear the entire amount of the detriment, reasoning that “[o]rdinarily affirmative compensation for a promise not to compete after separation would be separate property ([former] Civ. Code, § 5118 [now Fam. Code, § 771]), but here the covenanting spouse suffered a detriment and that detriment gave value to the community property stock.” (Quay, supra, 18 Cal.App.4th at p. 968.) Thus, “[i]n equity the community must bear the entire loss [husband] suffered. We find the trial court abused its discretion in assigning only 14 percent of the loss to the community; the whole detriment should be borne by the community.” (Ibid.)
Stephen argues that Quay compels the community to bear the amount of detriment that he will suffer if he signs the noncompete agreement because the noncompete agreement is required to give value to the community’s share of the PRP benefit. Moreover, Stephen argues that the inability to quantify the amount of his detriment at the present time is not an obstacle to requiring the community to bear the detriment. While Stephen acknowledges the trial court’s ruling that “[e]ven if this Court were inclined to grant [Stephen] Quay-type equitable compensation, . . . it is simply unable to determine the appropriate amount, or to devise a formula at this time,” he asserts that the trial court should reserve jurisdiction to value the detriment until the date he decides whether or not to sign the noncompete agreement.
Alternatively, Stephen contends that the value of the noncompete agreement should be allocated to him as his separate property. According to Stephen, “[s]ince the firm is willing to pay the PRP [benefit] only if [he] signs the [noncompete agreement], the [noncompete agreement] must necessarily have value. In light of the fact that the partnership created the terms of the PRP, this value must be at least equal to the amount the partnership is willing to pay for the [noncompete agreement] at the time of retirement.” In making this argument, Stephen relies on the decisions in In re Marriage of Czapar (1991) 232 Cal.App.3d 1308, 1314 [the consideration paid for a noncompete agreement is the separate property of the covenanting spouse if the covenant was negotiated as part of the sale of a business]; Garfein v. Garfein (1971) 16 Cal.App.3d 155, 159 [motion picture company’s payments to wife after separation under actor’s “ ‘play or pay’ ” contract deemed her separate property]; In re Marriage of Steinberger, supra, 91 Cal.App.4th at p. 1458 [severance pay given to wife by her employer to avoid wrongful termination suit was her separate property].)
Carol responds that the trial court properly relied on In re Marriage of Skaden (1977) 19 Cal.3d 679 (Skaden) to support the court’s finding that the PRP benefit is not compensation for signing the noncompete agreement and therefore Stephen is not entitled to an offset if he signs it. In Skaden, the husband was an insurance agent who was entitled to termination benefits if his agent’s agreement was terminated under certain circumstances. (Id. at p. 684.) The appellate court agreed with the insurance agent’s wife that the termination benefits constituted deferred compensation subject to division, to the extent of its community character, upon dissolution of the marriage. (Id. at pp. 687-688.)
Carol also objects to Stephen’s request that the trial court be directed to reserve jurisdiction over the value of the noncompete agreement until the date he decides whether or not to sign it. She argues that an open-ended reservation of jurisdiction would be improper because it is well established that the trial court may not reserve jurisdiction indefinitely to divide the community interest in a pension asset.
We need not reach the issue of whether a spouse who is required to sign a noncompete agreement in order to receive retirement benefits is entitled to a separate property offset for the value of the noncompete agreement or reimbursement in the amount of the detriment the retired spouse will suffer as a result of the noncompete agreement. Even assuming such an entitlement, the evidence at trial was insufficient to meet Stephen’s burden to show that either all or part of the PRP benefit is given by PwC as consideration for signing the noncompete agreement. As the trial court correctly stated, “there was no evidence as to the monetary value to PwC of [Stephen’s] [noncompete agreement]. While this [noncompete agreement] arguably has some value to PwC (in terms of increased revenues resulting from the absence of [his] competition or from the avoidance of professional conflicts], we have no information quantifying that benefit to PwC. Without that information, it is difficult, if not impossible, to say there exists any reasonable relationship between what [Stephen] is bestowing on the firm via his [noncompete agreement] and what the firm is paying him in return under the PRP. As such, it would be speculation to conclude the PRP benefit truly represent ‘compensation’ for the value of what [Stephen] is giving to PwC by his [noncompete agreement].”
The evidence at trial was also insufficient to show that Stephen would suffer a detriment if he signed the noncompete agreement and therefore the community should reimburse him in the amount of his detriment, pursuant to Quay, supra, 18 Cal.App.4th at pages 964-966. The trial court correctly determined that the only evidence presented at trial was Stephen’s speculative “statement that he ‘believes’ he could make the same income he would be making at PwC at the time of his retirement in 2014 (i.e., $1.75 million/year).” Further, Stephen does not challenge the trial court’s finding that “no testimony (expert or otherwise) was offered as to the anticipated job market for his skills ten or more years from now, and [Stephen] acknowledged that he had not ‘tested the waters’ as to job possibilities even at the present time.”
Thus, Stephen failed to support his claim that he is entitled to either a separate property offset for the value of the noncompete agreement, or reimbursement in the amount of the detriment he will suffer if he signs the noncompete agreement, with any evidence showing the value of the noncompete agreement or the amount of his anticipated detriment. The trial court therefore did not err in rejecting Stephen’s claim on the ground that it was speculative.
Finally, we address Stephen’s request that the trial court be directed to reserve jurisdiction over the value of the noncompete agreement until the date he decides whether or not to sign it. We determine that it is not necessary at this time to direct the trial court to reserve jurisdiction over the value of the noncompete agreement. The general rule is that “courts cannot reserve jurisdiction indefinitely to divide the community interest in a pension fund after the conclusion of dissolution proceedings, but they can reserve jurisdiction to supervise payments at a later date.” (In re Marriage of Colvin (1992) 2 Cal.App.4th 1570, 1578; In re Marriage of Bergman (1985) 168 Cal.App.3d 742, 756.) In this case, however, the parties have agreed that this matter will be tried in two phases, and that phase two will include a determination of the method by which Carol will receive her community share of Stephen’s PRP benefit. At the time of phase two, therefore, the trial court may determine whether and how long it will retain jurisdiction to supervise the payment of Carol’s community share of the PRP benefit.
D. Effect of Stephen’s Failure to Sign the Noncompete Agreement
Finally, Stephen argues that the trial court erred in ruling that Carol is entitled to reimbursement of her share of the community property interest in the PRP benefit if he fails to sign the noncompete agreement, or signs the noncompete agreement but engages in competition with PwC after retirement and thereby forfeits the benefit.
Stephen relies on the decisions in In re Marriage of Stenquist (1978) 21 Cal.3d 779 and In re Marriage of Foster (1986) 180 Cal.App.3d 1068 for the proposition that a spouse’s voluntary forfeiture of a retirement benefit that is unvested and immature does not entitle the worker’s spouse to reimbursement of her community share of the retirement benefit because “ ‘a community share of nothing equals nothing.’ ” According to Stephen, his PRP benefit is “un-vested and non-matured” because the PRP benefit does not come into existence absent his execution of the noncompete agreement. Accordingly, he argues that there is no legal basis for the trial court’s determination that his failure to sign the noncompete agreement will cause him to become liable for Carole’s community share of the nonexistent PRP benefit.
Carol asserts that the California Supreme Court’s decision in Skaden, supra, 19 Cal.3d 679 supports the trial court’s ruling. We agree. As we have discussed, the issue in Skaden was whether there was a community property interest in the termination benefits included in an insurance agent’s agency agreement with an insurer. (Id. at p. 682.) Payment of the termination benefits during the five-year period after termination of the agency agreement was contingent upon the insurance agent fulfilling “specified conditions relating to competitive activities on the part of the terminated agent.” (Id. at p. 684.) The “specified conditions” required the terminated agent to refrain from selling a competitor’s insurance coverage to former clients and from engaging in the insurance business within 25 miles of the agent’s principal place of business at the time of termination. (Id. at p. 684, fn. 4.)
On appeal, the California Supreme Court rejected the trial court’s ruling that the termination benefits were “merely an expectancy” that belonged to the insurance agent as his separate property. (Skaden, supra, 19 Cal.3d at p. 685.) First, the court determined the status of the termination benefits under the appropriate definitions of “ ‘vested’ ” and “ ‘matured.’ ” “[T]he use of the term ‘vested’ has acquired a special meaning in the context of divorce and dissolution. A right which is ‘vested’ for these purposes . . . is one which ‘survives the discharge or voluntary termination of the employee.’ [Citation.] Such a ‘vested’ right may be either ‘matured’ or ‘immature.’ If the payment is subject to one or more conditions--e.g., a condition of survival to a specified time--the right is said to be ‘vested’ but ‘immature.’ If on the other hand it is subject to no conditions and constitutes an ‘unconditional right to immediate payment,’ it is said to be ‘matured.’ [Citation.]” (Ibid.)
Applying these definitions, the Skaden court determined that the termination benefits were vested and immature. The termination benefits were vested because the right to benefits arose two years after the effective date of the agency agreement, which had passed by the time the parties’ dissolution proceedings were commenced. (Skaden, supra, 19 Cal.3d at p. 685.) However, the termination benefits were immature because “no termination of the agent’s agreement had occurred, and the post-termination conditions of payment had not been fulfilled.” (Id. at p. 686.)
The Skaden court further stated, “It is clear in the context of retirement pensions that a ‘vested’ but ‘immature’ pension right is property subject to division upon dissolution to the extent of its community character.” (Skaden, supra, 19 Cal.3d at p. 686.) The also court also pointed out that “the fact that the payment of benefits, the right to which has vested, is subject to a condition whose fulfillment is wholly within the control of the employee spouse does not affect the vested nature of the right or degrade it into an ‘expectancy’. [Citations.]” (Id. at p. 687.)
Therefore, the Skaden court concluded that “it is clear from the foregoing that the termination benefits contemplated by the subject contract were, like pension benefits, ‘a form of deferred compensation for services rendered.’ The right to these benefits ‘derived from the terms of the employment contract’ and under those terms became vested upon the expiration of two years after the date of execution. Manifestly, . . . that right is property subject to division, to the extent of its community character, upon dissolution of the marriage. [Citation.]” (Skaden, supra, 19 Cal.3d at pp. 687-688.)
Because the decision in Skaden was based upon applying the rules governing the division of pension benefits in marital dissolution actions to the division of an insurance agent’s termination benefits, we believe that Skaden is instructive in the present case. Under Skaden, Stephen’s right to the PRP benefit has vested. As Stephen’s employee benefits expert, James Crawford, testified, the PRP benefits are vested because “[i]n this plan, vesting means that once you reach a certain age, you will not lose that right to be offered that benefit.” Moreover, the PwC documents entered into evidence indicated that Stephen had a right to be offered early retirement at the age of 50, with less than the full PRP benefit, as of June 30, 2004.
However, Stephen’s right to the PRP benefit is immature. He does not have an unconditional right to payment of the PRP benefit because he has not fulfilled the condition precedent of signing the noncompete agreement. Under Skaden, the fact that payment of the PRP benefits is subject to a noncompete condition “whose fulfillment is wholly within the control” of Stephen “does not affect the vested nature of the right” or make the PRP benefit a mere expectancy. (Skaden, supra, 19 Cal.3d at p. 687.)
The vested community interest in the PRP benefit is therefore subject to the general rule, set forth in Gillmore, supra, 29 Cal.3d at page 423, that “ ‘one spouse cannot, by invoking a condition that is wholly within his [or her] control, defeat the community interest of the other spouse.’ [Citations.]” In Gillmore, the husband continued to work after he became eligible to retire, and his former wife requested an order requiring him to pay her community share of his pension benefits immediately. The trial court denied her request, finding that the court had discretion to delay distribution of pension benefits until the husband retired. (Id. at p. 422.) The California Supreme Court reversed the trial court, ruling that a husband could not choose a retirement option that deprived his former wife of her full share of the community interest in his pension. (Id. at p. 426.) The court stated that the husband had retained the right “to determine what retirement benefits he will receive. He can retire now or at some time in the future. He also retains the option of choosing between the alternative pension plans offered by his employer. However, if he opts for an alternative that deprives [the former wife] of her full share of retirement benefits, he must compensate her for the interest she loses as a result of his decision.” (Ibid.) The trial court was authorized to divide the present value of the pension rights, or, if the present value was uncertain, to award the parties the appropriate portion of each pension payment. (Id. at p. 426.)
In the present case, the trial court ruled that in the event Stephen retired and declined to sign the noncompete agreement, or engaged in conduct that caused PwC not to pay him the PRP benefit, Stephen was required to pay Carol the same amounts of PRP benefit and survivor’s benefits that she otherwise would have received. The trial court did not err because, under Gillmore, Stephen must reimburse Carol for her share of the community interest in the vested PRP benefit that she will lose if he forfeits his PRP benefit.
Stephen’s reliance on the decisions in In re Marriage of Stenquist, supra, 21 Cal.3d 779 (Stenquist) and In re Marriage of Foster, supra, 180 Cal.App.3d 1068 (Foster) for a contrary result is misplaced because those decisions are distinguishable.
In Stenquist, the husband retired after 26 years of military service and elected to receive a disability pension of 75 percent of his basic pay instead of a pension of 65 percent of his basic pay. (Stenquist, supra, 21 Cal.3d at p. 782.) He claimed that the disability pension was entirely his separate property. The California Supreme Court disagreed, ruling that the disability retirement pay was community property to the extent the pay constituted retirement support attributable to employment during marriage. (Id. at p. 791.) The court also relied on its prior decision in In re Marriage of Brown (1976) 15 Cal.3d 838, in which the court ruled that “that pension rights, whether or not vested, constituted a property interest; that to the extent such rights derive from employment during coverture, they now comprise community assets.” (Stenquist, supra, 21 Cal.3d at p. 785.)
Nevertheless, Stephen points to the Stenquist court’s comment that “a community share of nothing equals nothing” to support his contention that the PRP benefit is worth nothing, and therefore the community share in the PRP is worth nothing, if he does not sign the noncompete agreement. However, Stephen has taken the phrase “a community share of nothing equals nothing” out of context.
In a footnote, the Stenquist majority disagreed with the view expressed in the dissenting opinion that the majority‘s decision discriminated against the disabled, stating, “In attempting to demonstrate such discrimination, the dissent first describes a healthy worker who takes some action, such as terminating his employment before his pension vests or working beyond his retirement date, which has the effect of forfeiting all or part of his pension rights. In such a case, of course, the worker’s spouse has no claim to any of the forfeited rights; a community share of nothing equals nothing.” (Stenquist, supra, 21 Cal.3d at p. 788, fn. 10.) Thus, the Stenquist court’s comment emphasized by Stephen, that “a community share of nothing equals nothing,” was made in reference to either nonvested pension rights or a situation where working beyond retirement caused a forfeiture of retirement benefits. Neither is the case here.
In Foster, the appellate court considered a husband’s decision to voluntarily resign and thereby divest his former wife of her community share in his vested but immature military retirement benefits. (Foster, supra, 180 Cal.App.3d at p. 1071.) The trial court imposed a constructive trust on his former wife’s community share of the retirement benefits, but the appellate court agreed with the husband that the constructive trust was improper. (Id. at pp. 1073-1074.) Although the appellate court recognized that “our courts have scrupulously protected a former spouse’s community property rights from the detrimental control of the other [spouse],” the court found that this principle did not apply because the husband’s resignation disadvantaged both his former wife and himself. (Id. at p. 1074.) “He has not . . . somehow relabeled or shifted benefits to increase his share or augment his control over the pension . . . . In these circumstances, [he] has not obtained the unjust advantage or enrichment which necessarily underlies a constructive trust. [Citation.]” (Ibid.)
In contrast to the facts in Foster, Stephen’s failure to sign the noncompete agreement will give him an advantage at Carol’s expense, since, according to him, he will be able to obtain employment with another global company that would pay a salary greater than his projected PRP benefit. Carol, on the other hand, would be divested of her community share in the PRP benefit. Foster therefore does not support Stephen’s implicit claim that he may divest Carol of her community share of the PRP benefit by failing to sign the noncompete agreement and thereby forfeiting the PRP benefit. We conclude that the trial court properly ordered Stephen to reimburse Carol if he decides not to sign the noncompete agreement or, if he signs the noncompete agreement and later competes with PwC, thereby causing Carol to be deprived of her community share of the PRP benefit.
E. Conclusion
For the reasons discussed above, our conclusions regarding Stephen’s challenge to four trial court rulings regarding his PRP benefit are as follows:
1. The trial court correctly determined that there is a community interest in Stephen’s PRP benefit, based upon the stipulation included in the May 13, 1999 judgment on reserved issues.
2. The trial court’s time rule calculation, which resulted in a fraction with a numerator of 10.263 marital partner service years and a denominator of 16 total partner service years, did not properly divide the relative contributions of the community and separate estates and, therefore, we will reverse the judgment and remand the matter with directions to recalculate the community and separate property interests in Stephen’s PRP benefit in accordance with the views expressed in this opinion.
3. We need not reach the issue of whether a spouse who is required to sign a noncompete agreement in order to receive retirement benefits is entitled to a separate property offset for the value of the noncompete agreement or reimbursement in the amount of the detriment the retired spouse will suffer as a result of the noncompete agreement because Stephen did not meet his evidentiary burden.
4. The trial court properly ordered Stephen to reimburse Carol, if he decides not to sign the noncompete agreement or if he signs the noncompete agreement and later competes with PwC, thereby causing Carol to be deprived of her community share of the PRP benefit.
IV. DISPOSITION
The judgment is reversed, and the matter is remanded to the trial court with directions to recalculate the community and separate property interests in appellant Stephen Darcy’s PRP benefit in accordance with the views expressed in this opinion. The parties shall bear their own costs on appeal.
I CONCUR: MCADAMS, J.
Mihara, J., Concurring and Dissenting.
I do not agree with the majority opinion’s resolution of Stephen Darcy’s claim that the trial court misapplied the time rule. I am convinced that the trial court properly concluded that the community’s interest in Stephen Darcy’s PricewaterhouseCoopers partnership retirement plan (PWC-PRP) could be properly determined by applying the time rule solely to the calculation of the portion of the PWC-PRP benefit that was attributable to the 16 years of partnership service prior to June 30, 2003, which PricewaterhouseCoopers (PWC) utilized to determine a discrete component of the PWC-PRP benefit. As PWC separately calculated the PWC-PRP benefit attributable to those years using one formula and the PWC-PRP benefit attributable to the four years after July 1, 2003 using a different formula, the trial court could have properly concluded that the years in each group were not of equal value and should not be subject to a single, undifferentiated time rule calculation.
Nevertheless, I would conclude that the trial court’s ruling was flawed in one easily remediable respect. While PWC utilized only a total of 20 years of partnership service in calculating the two discrete components of the PWC-PRP benefit, a partner who retired before the age of 55 would receive eight percent less for each year he or she was younger than age 55. Since Stephen Darcy (Stephen) achieved 20 years of partnership service at the age of 53, his two years of partnership service thereafter were entirely separate property, and the 16 percent increase (that is, the absence of the 16 percent reduction) in the PWC-PRP benefit attributable to these two years of partnership service must be allocated entirely to Stephen’s separate property interest in the PWC-PRP benefit. Consequently, Carol Darcy (Carol) is only entitled to 84 percent of half of the community’s share of the discrete component of the PWC-PRP benefit that is attributable to the 16 years prior to June 30, 2003. I would modify the judgment to reflect this simple correction.
I. Background
Carol and Stephen married in September 1977 and separated in October 1997. Stephen was employed by Price Waterhouse (PW) when they married. He became a PW partner in July 1987 at the age of 33 and remained a PW partner throughout his marriage to Carol. PW offered a partnership retirement plan (the PW-PRP) to its partners that was based on “retirement shares multiplied by . . . annual retirement share value.”
PW merged with Coopers & Lybrand in 1998, and the merged entity became known as PricewaterhouseCoopers. Stephen became a partner in the new entity, PWC. PWC reformulated the PW-PRP multiple times after the merger. Ultimately, PWC created a PWC-PRP plan that provided a reformulated benefit for “PW Legacy Partners” who did not yet have 20 years of partnership service as of June 30, 2003, among them Stephen.
Under the PWC-PRP plan for PW legacy partners, the minimum retirement age was 50, and 20 years of partnership service was required. However, although a partner would be eligible to retire at age 50 with 20 years of partnership service, the partner would not receive the full PWC-PRP benefit if he or she retired before the age of 55. This would be considered an early retirement, and the total PWC-PRP benefit would be reduced by eight percent for each year of age less than 55.
The calculation of the amount of the PWC-PRP benefit for a PW legacy partner requires the application of two different formulas (which I will call formula one and formula two) to two discrete periods of partnership service. The amounts produced by formula one and formula two are then added together to produce the total PWC-PRP benefit. Formula one is applied to the years of partnership service prior to June 30, 2003, while formula two is applied to those years of partnership service after July 1, 2003 that the partner needed to serve to reach a total of 20 years of partnership service.
The PWC-PRP benefit plan also provided for a minimum benefit and a maximum benefit, neither of which plays any role in the calculation of Stephen’s benefit.
The formula one calculation multiples the number of years of partnership service prior to June 30, 2003 by 1.5 percent and then applies the resulting percentage, which will always be less than 30 percent, to the partner’s average salary during the final five years of employment. The formula two calculation multiplies the number of years of partnership service after July 1, 2003 that were necessary for the partner to reach a total of 20 years of partnership service by 1.25 percent and then applies the resulting percentage to the partner’s “career indexed earnings” (CIE), which are the actual earnings by the partner during his or her “four continuous best years” of earnings after July 1, 2003, “adjusted for [the lower of] CPI[,] [overall PWC earnings growth, or average partner earnings growth] through the retirement date.”
II. Analysis
It is fairly obvious that formula one years are valued differently than formula two years. Formula one years are each worth 1.5 percent in the formula one calculation, and the percentage multiplier is applied to the partner’s average salary in the last five years of employment. Formula two years are each worth 1.25 percent in the formula two calculation, and the percentage multiplier is applied to the partner’s best years of post-July 1, 2003 earnings, adjusted for earnings growth through the retirement date. Thus, a partner who earned significantly less during the last years of employment might reap more benefit from formula two years than from formula one years, while a partner who had steady earnings would probably reap more benefit from formula one years. Due to this distinction, the trial court could have concluded that there was a sound basis for distinguishing between formula one years and formula two years.
The application of the PWC-PRP benefit calculation to determine Stephen’s PWC-PRP benefit amount requires consideration of not only formula one and formula two but also the early retirement adjustment. Stephen turned 50 in June 2004. At that point, Stephen had only 17 years of partnership service and therefore was not yet eligible to retire under the PWC-PRP retirement plan. Stephen became eligible to retire under the PWC-PRP retirement plan in June 2007, when he achieved 20 years of partnership service at age 53. However, although he was eligible to retire, Stephen was not eligible to receive the full PWC-PRP benefit at that time because he was not yet 55 years old. Had Stephen retired at age 53, his PWC-PRP benefit would have been reduced by 16 percent because he was two years shy of the age of 55. This fact meant that the two years of partnership service that Stephen needed to serve in order to qualify for the full PWC-PRP benefit, and which were clearly his separate property, had a value of 16 percent of the full PWC-PRP benefit.
Stephen claims that he has no plans to retire and plans to work at least until the age of 70, although PWC has a mandatory retirement age of 60 which it extends only “[i]n very rare circumstances.”
In my view, the trial court did not abuse its discretion in limiting its application of the time rule to the formula one calculation. The community had no interest in the amount of the PWC-PRP benefit that was produced by the formula two calculation because the formula two years were not served during the marriage. Each of the 16 formula one years had an equal value, but that value was different from the value of each of the formula two years. Since the years of partnership service that were during the marriage were all formula one years, the trial court reasonably concluded that the community should have an interest only in the amount of the PWC-PRP benefit attributable to the formula one calculation. It is undisputed that 10.263 of the 16 formula one years were served during the marriage. Consequently, 64.14 percent of the formula one amount is community property. None of the formula two amount is community property.
Where the trial court erred was in failing to value the portion of the PWC-PRP benefit that was attributable to Stephen’s two additional years of partnership service that were required to preclude the 16 percent reduction in the PWC-PRP benefit. Without his service of these two years, the PWC-PRP benefit would have been only 84 percent of the full benefit. Since these two additional years were not served during the marriage, the 16 percent portion of the full PWC-PRP benefit attributable to these years is Stephen’s separate property.
Carol’s interest in the PWC-PRP benefit is limited to 84 percent of one-half (her share) of 64.14 percent (the community property share) of the formula one (for years of partnership service prior to June 30, 2003) benefit. This calculation results in a conclusion that Carol is entitled to 26.94 percent of the portion of the full PWC-PRP benefit that is attributable to the years of partnership service prior to June 30, 2003.
It is for these reasons that I must dissent from the majority opinion’s resolution of Stephen’s challenge to the trial court’s time rule calculation.