Case of the Month Archive

Absent buy-out, husband could not change beneficiary . . .

In reversal, Second District holds that trial court erred by refusing to order buy-out of wife’s community interest in husband’s CalPERS pension and issuing DRO that awarded all CalPERS survivor benefits to her

Henry Cooper was in his early thirties when he began public employment in 1963. He married Jan in November 1991. When Henry retired in December 1995, he selected optional settlement 2 (option 2) from the choices available for his CalPERS pension benefits. Under that option, Henry was entitled to receive a retirement allowance until his death, after which it would be paid to his designated beneficiary until that person died. In exchange for the option 2 survivor benefit, Henry received a reduced retirement allowance. Per Govt C §§21492 and 21456, the beneficiary designation was irrevocable unless Henry was awarded his entire pension in a disso judgment. Henry and Jan separated in 2002. Their 2005 disso judgment stated that there was a community interest in Henry’s CalPERS pension benefits that had to be determined according to the time rule and divided into separate accounts in the names of Henry and Jan. The judgment also provided that Jan was entitled to her community share of the CalPERS survivor benefits. According to subsequent calculation, Jan’s interest in the pension benefits amounted to 6.38%.

In March 2006, Jan filed an ex parte application for an OSC, seeking to compel Henry to sign a DRO that would divide the community interest in his retirement benefits and award her all of the survivor benefits. In opposition, Henry asked the trial court to order a buy-out of Jan’s interest in his pension benefits; he proposed paying approximately $33,900 as the then-current value of her interest. Henry argued that under the proposed DRO, if he died before Jan did, she would receive a survivor-benefit windfall of approximately $208,400, which far exceeded her community share. He contended that a buy-out was the sole method for preventing such a windfall because the beneficiary designation was statutorily irrevocable unless he was awarded the entire pension. In a May 2006 order, the trial court found that, if the buy-out occurred, CalPERS would get a windfall on Henry’s death, and that by selecting option 2, Henry had “ ‘conferred a tangible and vested benefit on [Jan] similar to signing an annuity contract.’ ” Finding no authority that compelled a contrary decision, the court denied Henry’s buy-out request and approved Jan’s proposed DRO. After moving unsuccessfully for reconsideration, Henry appealed, and the Second District reversed and remanded.

Separate but equal . . .
The justices explained that a disso court has discretion to divide pension benefits by using either the “cash out method,” in which the court determines the current value of the community interest and awards that to one spouse, with offsetting community assets to the other spouse, or the “in kind” method, in which the court divides the community interest in kind to each party and reserves jurisdiction over future payments to each one. Whichever method is chosen, the panel went on, the court must divide the community interest in accordance with Fam C §2550, which requires that community property be divided equally between the parties unless they agree otherwise or equal division is statutorily precluded. Here, the justices found, the lower court had found that the community had an interest in the survivor benefits, but it had awarded all of those to Jan, without offsetting property to Henry. In so doing, they concluded, the trial court failed to divide the community property equally.

Blowing in the wind . . .
The trial court, the panel noted, had found that the survivor benefits were comparable to an annuity that Henry had provided for Jan. But the justices could find no evidence that Henry intended to relinquish his community share of the survivor benefits to Jan, “regardless of whether the parties legally separated or divorced.” Moreover, the panel reasoned, the lower court’s order was “tantamount to a finding that [Henry] made an irrevocable and outright gift of a community property asset to [Jan].” Here again, however, there was no evidence that Henry had signed a written transmutation of his community interest to her separate property. The justices quickly dismissed as erroneous the trial court’s notion that CalPERS would receive a windfall if Henry got his buy-out. Under those circumstances, they reasoned, the benefits would increase, and Henry would be free to name a new beneficiary or select a different option. Summing up, the panel held that the trial court had erred as a matter of law by approving the DRO that awarded all the survivor benefits to Jan. In the panel’s view, the only possible solution here was to order Henry to buy out Jan’s community interest in his pension at the present value of that interest. Accordingly, the justices reversed the DRO and remanded, with directions to the trial court to divide the retirement benefits in line with this opinion.