In Re Marriage of Lehman
18 Cal. 4th 169, 955 P.2d 451, 74 Cal. Rptr. 2d 825 (1998)
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Rule of Law:
A nonemployee spouse's community property interest in a defined benefit retirement plan extends to any post-separation enhancements to those benefits. The right to retirement benefits is a right to draw from the income stream as it is ultimately defined upon retirement, not as it existed at the time of separation.
Facts:
- Jack R. Lehman (Husband) began working for Pacific Gas and Electric Company (PG&E) on June 15, 1959.
- Husband married Marietta Lehman (Wife) on June 11, 1960.
- On May 1, 1962, during the marriage, Husband began participating in PG&E's defined benefit retirement plan.
- The couple separated on October 29, 1977.
- In March 1993, approximately 14 years after their divorce became final, PG&E offered Husband a 'Voluntary Retirement Incentive' (VRI) to encourage early retirement.
- The VRI enhanced retirement benefits by crediting an additional three years of service and waiving the normal actuarial reduction for retiring early.
- Husband accepted the VRI and retired early, which resulted in a significantly larger monthly pension payment than he would have received under the standard plan.
Procedural Posture:
- The superior court entered an interlocutory judgment of dissolution of marriage on December 19, 1978, retaining jurisdiction to divide the community property interest in Husband's pension.
- A final judgment of dissolution was entered on February 23, 1979.
- Following Husband's retirement under the VRI program, Wife filed motions in the superior court to determine her share of the enhanced benefits.
- The superior court (trial court) ruled in favor of Wife, finding that she owned a community property interest in the enhanced retirement benefits.
- Husband, as appellant, appealed the superior court's decision to the Court of Appeal.
- The Court of Appeal affirmed the trial court's ruling.
- The Supreme Court of California granted Husband's petition for review.
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Issue:
Does a nonemployee spouse who owns a community property interest in an employee spouse's defined benefit retirement plan also own a community property interest in enhancements to that plan offered by the employer after the marriage has ended?
Opinions:
Majority - Mosk, J.
Yes, a nonemployee spouse who owns a community property interest in an employee spouse's retirement benefits also owns a community property interest in those benefits as enhanced. The court reasoned that the right to retirement benefits, established as community property in In re Marriage of Brown, is a right to draw from a 'stream of income that ... begins to flow' on retirement, as that stream is then defined. Post-separation enhancements are not a new, separate asset but rather a modification of the existing community asset. Because the nonemployee spouse is compelled to share the risk of a post-separation decrease in the pension's value, she must also be allowed to share in the reward of a post-separation increase. The enhancement is derivative of the underlying pension right that accrued, in part, during the marriage.
Dissenting - Baxter, J.
No, a dissolved community has no stake in an enhancement of benefits that was first offered after the marital separation. The dissent argued that the community's interest is contractual and limited to the benefits earned under the terms of employment in effect during the marriage. The VRI enhancement was not part of the employment contract during the marriage; the community performed no work in expectation of it. The enhancement was a new employer 'subsidy' provided as consideration for the husband's post-separation decision to forgo future, separate-property earnings and retire early, and therefore should be characterized as his separate property.
Analysis:
This decision solidifies the principle that retirement benefits under a defined benefit plan are treated as a single, indivisible property right whose value is determined at the time of retirement, not at separation. It rejects the argument that post-separation enhancements are a new asset, instead characterizing them as a modification of the underlying community asset. This ruling simplifies the characterization of such benefits for future courts, creating a bright-line rule that any modification to the 'stream of income' is shared by the community, but it may also disincentivize early cash-outs of pension interests at divorce.
