Opinion
For Opinion on Hearing, see 112 Cal.Rptr. 405, 519 P.2d 165
Opinion on pages 546-552 omitted.
HEARING GRANTED
[108 Cal.Rptr. 372]Elster S. Haile, Palo Alto, for appellant.
Philip A. Di Maria, Palo Alto, for respondent.
HAROLD C. BROWN, Associate Justice.
This is an appeal from that portion of an interlocutory judgment of dissolution of marriage which determined the value of the community assets. Appellant husband complains that the trial court erred in declaring all of his retirement benefits from the U.S. Marine Corps to be community property.
Husband's pension benefits were based upon two years' service in the National Guard, active duty in the U.S. Marine Corps from 1933 to 1954, and service in the Fleet Reserve for a period of some six years. Of the total of 30 years of Marine Corps service, 13.5 years were served before marriage and 16.017 years were served after marriage. Based upon these figures, the husband claims that only 53.38 percent of the retirement benefits may be considered community property and the balance, being attributable to the years when he was not married to respondent, should be declared to be his separate property. After retirement from active duty in the Marines, appellant went to work for the post office. At the time of the dissolution of his marriage, he had worked at the post office approximately 18 years and would be eligible for retirement and to receive retirement benefits in about two years. During the entire 18 years of service in the post office, appellant was married and contributions were made from his salary toward the retirement fund.
The trial court in dividing the community property determined that the entire U.S. Marine Corps pension was community property. No mention was made by the court of any interest of the wife in the postal pension which required only two years more time of employment by husband before it matured. No demand was made by the wife for a share in the expectant postal pension or for a share in the contributions of the husband to the Postal Retirement Pension Fund, although approximately $6,700.00 has been contributed during the marriage to that fund from community earnings.
We have concluded that the Marine Corps pension rights should have been apportioned between separate and community property, since the years giving rise to the pension were served both before and after marriage. We also conclude that the contributions from husband's salary toward his ultimate post office pension were contributions from community assets and should have been included in the divisible community property.
Respondent's position in regard to the Marine Corps pension is that the moment of vesting is determinative of whether the pension is community or separate property. We cannot agree.
Retirement pay is part of the consideration earned by the employee. (Sweesy v. L. A. Etc. Retirement Bd., 17 Cal.2d 356, 359-360, 110 P.2d 37; Waite v. Waite, 6 Cal.3d 461, 469-470, 99 Cal.Rptr. [108 Cal.Rptr. 373] 325, 492 P.2d 13.) Only the consideration earned by an employee during marriage is community property. Salary earned prior to marriage is separate property. (Civ.Code, §§ 5108, 51110.) Pension rights which result from employment both before and after marriage derive from both separate and community property. Like any other asset which has its source in both separate and community property, the retirement pension fund must be apportioned upon division of the assets. (See Estate of Fellows, 106 Cal.App. 681, 683-684, 289 P. 887.)
Respondent argues that the case of Cheney v. City & County of San Francisco, 7 Cal.2d 565, 61 P.2d 754, supports her position. In Cheney, the wife of a deceased employee and his mother were in conflict over the disposition of a lump sum payment from the employees' retirement fund. The holding of the court was that a prenuptial agreement between husband and wife providing that after marriage the earnings of each should be the separate property of the spouse so earning was valid and binding. The fund thus went to the named beneficiary as the separate property of the husband. In arriving at its decision, the court stated that the fund except for the agreement would be community property. The deceased had entered employment in 1929, married in 1932, and died in 1933. The question of apportionment of the fund between separate and community was not before the court and its treatment of the entire fund as community, absent an agreement to the contrary, is dicta. Later statements of the Supreme Court in Waite v. Waite, supra, 6 Cal.3d 461, 99 Cal.Rptr. 325, 492 P.2d 13, indicate that the Supreme Court would apportion a pension fund on the basis of the proportion earned before and after marriage. Thus the court said at page 471, 99 Cal.Rptr. at 332, 492, P.2d at 20: '. . . Whether a pension plan provides for fixed or variable payments, and whether adjustments occur automatically or require legislation, 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. . . .'
Although the California appellate courts have not been called upon to rule directly on this point, in two recent cases, apportionment of pension rights between separate and community has been approved without discussion. In Bensing v. Bensing, 25 Cal.App.3d 889, 102 Cal.Rptr. 255, when husband had a number of years of military service prior to the marriage, this court approved the apportionment of the pension between the years served prior to marriage and the years during marriage. The court in Brown v. Brown, 27 Cal.App.3d 188, 103 Cal.Rptr. 510, remanded the cause to the trial court for further proceedings to determine what portion of the pension rights should be declared community property. (See also Mora v. Mora, Tex.Civ.App., 429 S.W.2d 660; LeClert v. LeClert, 80 N.M. 235, 453 P.2d 755.)
We conclude that the trial court erred in failing to take into account that part of the Marine Corps pension which may be attributable to his military service prior to marriage and which should be declared to be his separate property.
Respondent argues that apportionment of the Marines' Retirement Fund would be particularly unjust to her for she was awarded no portion of the Post Office Retirement Fund. No reason appears why she should not have received one-half of the contributions which appellant put into the fund from his earnings despite the fact that the pension will not be received until retirement. In Crossan v. Crossan, 35 Cal.App.2d 39, 94 P.2d 609, the court held that the accumulated contributions of an employee to the State Employees' Retirement Fund were community property and subject to division upon divorce despite the fact that they were beyond the control of the employee at the time of the divorce. The court pointed out that he could withdraw his portion of the fund if his employment [108 Cal.Rptr. 374] discontinued. This factor distinguishes the case from Williamson v. Williamson, 203 Cal.App.2d 8, 21 Cal.Rptr. 164, where the provisions of the pension fund were such that the employee was not entitled to any portion of the fund until he had served 20 years.
As Civil Code section 4800 requires that the community property be equally divided, upon remand of this case the amount contributed to the postal fund by appellant from earnings during the marriage must be included within the community property divisible upon divorce.
We recognize with reluctance the new well-settled rule that pension benefits which will mature in futuro are mere expectancies. (French v. French, 17 Cal.2d 775, 112 P.2d 235.) We cannot help but invite attention to the inequities to respondent wife under the factual situation before us. With but two more years of employment, her husband will be the sole recipient of a pension to which she contributed for 18 years in her role as a member of the community. As one writer has argued in a criticism of the present rule: 'To alleviate unfair results, the unmatured right to retirement benefits should be treated as a valid property interest. This treatment would preclude their classification as an expectancy incapable of readily calculable apportionment between the marital partners. However, the California courts understandably are reluctant to include in the community estate an interest which is subject to forfeiture, is contingent or is otherwise imperfect. Evaluating and distributing such an interest is beyond precise solution. Yet to dismiss these unmatured benefits as an improper subject for the courts' disposition ignores a fundamental concept of the community property system. This concept is that accumulations of value which result from the expenditure of time, energy or skill of a married person should inure to the benefit of the community and each spouse should have a present, existing and equal interest in this wealth.' (Comment: Retirement Pay: A Divorce in Time Saved Mine, 24 Hastings L.J. 347, 353-354.)
We feel that the rule that a pension is a mere expectancy until it has vested and, therefore, cannot be considered in the division of community property ignores the fact that each spouse has made a contribution to this future property right. That portion of the pension which derives from earnings during marriage should be declared community property and, if the wife is alive at the time of vesting of the pension, then she should receive her proportionate share when and as it is paid to husband.
We note that one appellate court in Smith v. Lewis, 31 Cal.App.3d 677, 107 Cal.Rptr. 95, recently held that matured retirement benefits, payment of which were contingent upon survival of the retired employee for 17 years, were divisible as community property upon divorce. In the case at hand, the contingency must wait for only two years. The crucial difference is that in the case at hand, the pension rights have not yet matured and the concept enunciated in French v. French, supra, governs the case. We are bound to follow French v. French, as we have no jurisdiction to do otherwise. (Auto Equity Sales, Inc. v. Superior Court, 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937; Myers v. Carini, 262 Cal.App.2d 614, 619-620, 68 Cal.Rptr. 800.)
Until the inequities of the present rule are reconsidered by higher authority than ours, the trial court may, of course, alleviate the inequity to respondent wife in the award of spousal support.
The appellant argues that the Marine Corps pension rights should be reduced to their 'present value,' using six percent discount tables. The appellant cites no authority for this position but merely argues that this must be done 'to effect a substantially equal division of the property,' as required by Civil Code section 4800 because all other community [108 Cal.Rptr. 375] property assets were divided at their 'present value.' This ignores the fact that the wife's rights in the pension plan are not to be paid to her at present but from each pension payment as it is received. No valuation would even normally need to be made of total pension rights for if other community assets were divided equally, the wife could merely have been awarded a percentage of each pension payment despite the fact that such a method of payment subjects respondent to the risk of losing the payments should the appellant die before she does. (See Waite v. Waite, supra, 6 Cal.3d at pp. 473-474, 99 Cal.Rptr. 325, 492 P.2d 13; Bensing v. Bensing, supra, 25 Cal.App.3d at p. 894, 102 Cal.Rptr. 255.) Valuation was necessary here since other community assets were not divided equally, the wife receiving the larger amount.
The appellant also contends that it is more equitable to use the net amount of the pension payments after income tax has been deducted in determining the amount the respondent should receive. This would be improper. The respondent having been declared owner of a percentage of the pension rights as her share of the community property will presumably pay income taxes on the amount she receives. Furthermore, the income tax withheld is not a determination of tax liability but a requirement imposed upon the employer. The amount of withholding depends on various factors and the ultimate tax liability may result in a refund.
The judgment, so far as it awarded the community property and fixed spousal support, is reversed. The matter is remanded to the trial court for division of the community property in conformity with this decision and for reconsideration of the amount to be awarded to the wife for her support.
CALDECOTT, J., concurs.
DRAPER, Presiding Justice.
I concur in the judgement.