Filed 5/16/12
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
In re the Marriage of JULIE R. GREEN
and TIMOTHY P. GREEN.
JULIE R. GREEN,
Appellant,
A129436
v.
(Contra Costa County
Super. Ct. No. D0801292)
TIMOTHY P. GREEN,
Respondent.
In this case of first impression, we consider how to classify four years of credit in
the California Public Employeesâ Retirement System (CalPERS) that respondent
Timothy Green (Timothy) elected to purchase with community funds during his marriage
to appellant Julie Green (Julie). Timothy was eligible to purchase the credit because he
had performed four years of military service with the United States armed forces prior to
the partiesâ marriage. (Gov. Code, § 21024.)1 Over Julieâs objection, the trial court
characterized the military service credit as Timothyâs separate property, and ruled that
Julie was entitled only to reimbursement of the community funds used to pay for the
service credit, plus interest. We conclude that, because the military service credit was
purchased with community funds during the partiesâ marriage, it was community
property. We remand to the trial court to determine the correct allocation of the credit.
1
All further statutory references are to the Government Code unless otherwise specified.
1
I.
FACTUAL AND PROCEDURAL
BACKGROUND
Timothy served in the United States Air Force for four years (from July 23, 1982
to May 1, 1986). On June 16, 1989, he began working as a firefighter for the Dougherty
Regional Fire Authority in Dublin. The fire authority was a participant in CalPERS.
Julie and Timothy were married in May 1992.
In July 1997, the Dougherty Regional Fire Authority merged with the Alameda
County Fire Department, which also is a participant in CalPERS. Timothy continued to
work for the Alameda County Fire Department.
On August 1, 2002, Timothy exercised his right to buy service credit for his
military service. The purchase was made pursuant to section 21024, which permits a
CalPERS member to obtain up to four years of service credit for service with the United
States armed forces. Timothy elected to pay for the purchase through an installment plan,
paying $92.44 twice each month through payroll deductions for 15 years (scheduled to
continue until July 2017). Before the parties separated on October 1, 2007, community
funds in the amount of $11,462.56 were used toward the purchase of the military service
credit.
Julie filed a petition for dissolution of marriage in March 2008. During
dissolution proceedings, a dispute arose over whether to characterize Timothyâs military
service credit as separate or community property. A court-appointed expert proposed
awarding a pro rata share (34.44 percent) of the purchased service credit to Julie,
representing the percentage of payments toward the military service credit made with
community funds.
Both parties opposed the expertâs proposal, and they submitted briefs on the issue
to the trial court. Julie sought to continue to pay half of the cost of future installment
payments, and requested that half of the military service credit be placed into a separate
account for her benefit through CalPERS. Timothy argued that because his right to
purchase military service credit arose prior to the partiesâ marriage, all four years of
2
credit were his separate property. Timothy acknowledged, however, that community
funds used to pay for the purchase before the partiesâ separation in October 2007 were
community property.
A trial was held on the issue, and both parties testified regarding the purchase of
the military service credit. The trial court ordered that the military service credit portion
of the CalPERS pension in Timothyâs name be awarded to Timothy as his separate
property. Timothy was ordered to pay Julie the sum of $6,699.54, representing half of
the installment payments made with community funds during the marriage toward the
military service credit, plus interest at the rate of six percent.
Julie appealed after judgment was entered, challenging only the characterization of
the military service credit.2 After appellate briefing was complete, this court on its own
motion accorded amicus curiae status to the American Academy of Matrimonial
Lawyers, Northern California Chapter (Academy), and invited the Academy to submit a
brief. The Academy accepted the courtâs invitation. Because Academy members who
discussed the issue were not unanimous in their views as to the appropriate
characterization and allocation of the military service credit, the Academy filed a brief
containing two sections, one advocating reimbursement with interest, and the other
advocating allocation of separate and community property interests in the credit.
Timothy and Julie thereafter filed answer briefs.
II.
DISCUSSION
A. Overview of Applicable Law.
âThe characterization of property as community or separate determines its division
upon dissolution of marriage. Each spouse owns a one-half interest in all community
property. ([Fam. Code,] § 751.) In general, community property is divided equally in the
2
Timothy filed a motion in this court to dismiss the appeal, arguing that Julie had
appealed from the judgment, but not two relevant posttrial stipulations and orders, and
that she could not appeal because she entered into a stipulated agreement that benefited
her. This court denied the motion.
3
aggregate when the marriage ends. ([Fam. Code,] § 2550; see [Fam. Code,] §§ 26002604.) However, separate property is not subject to a similar division, and belongs only
to the owner spouse. ([Fam. Code,] § 752.)â (In re Marriage of Benson (2005)
36 Cal.4th 1096, 1102.) We review the trial courtâs characterization of military service
credit as separate property as a mixed question of law and fact that is predominately one
of law, subject to de novo review. (In re Marriage of Sonne (2010) 48 Cal.4th 118, 124
(Sonne).)
Any analysis of the division of pension rights must be guided by our Supreme
Courtâs seminal case, In re Marriage of Brown (1976) 15 Cal.3d 838 (Brown), which
held that âthe community owns all pension rights attributable to employment during the
marriage.â (Id. at p. 844.) Brown concluded that pension rights, whether or not vested,
represent a property interest, and to the extent that such rights derive from employment
during marriage, they comprise a community asset subject to division in a dissolution
proceeding. (Id. at p. 842.) The court defined a âvestedâ pension right as one that âis not
subject to a condition of forfeiture if the employment relationship terminates before
retirement.â (Ibid.) An employee can hold a âvestedâ but âimmatureâ pension right,
such as when the right to payment is subject to the condition that the employee survive
until retirement. (Ibid.) Nonvested pension rights, by contrast, are contractual rights
subject to a contingency or contingencies (usually, that an employee continue to work for
his or her employer). (Id. at p. 846.)
At issue in Brown were the nonvested pension rights of husband, who
accumulated retirement âpointsâ pursuant to a plan under which he would forfeit his
pension rights if he was discharged before he accumulated a threshold number of points.
(Brown, supra, 15 Cal.3d at pp. 842-843.) The court distinguished such nonvested rights
from a mere âexpectancy,â which is not a property right divisible upon dissolution of
marriage. (Id. at pp. 844-845.) An âexpectancyâ is âthe interest of a person who merely
foresees that he might receive a future beneficence, such as the interest of an heir
apparent [citations], or of a beneficiary designated by a living insured who has a right to
change the beneficiary [citations].â (Id. at p. 845, fn. omitted.) â[T]he defining
4
characteristic of an expectancy is that its holder has no enforceable right to his
beneficence.â (Ibid., original italics.) The Supreme Court concluded that the nonvested
property rights in Brown were more than a mere expectancy: âSince pension benefits
represent a form of deferred compensation for services rendered [citation], the
employeeâs right to such benefits is a contractual right, derived from the terms of the
employment contract.â (Ibid.) â[N]onvested pension rights are not an expectancy but a
contingent interest in property.â (Id. at p. 841.)
B. Process for Purchasing Military Service Credit.
Many public employees in California enjoy the benefit of membership in
CalPERS. âMembers of CalPERS, once vested, participate in a defined benefit
retirement plan, which supplies a monthly retirement allowance under a formula
comprising factors such as final compensation, service credit (i.e., the credited years of
employment), and a per-service-year multiplier. The retirement allowance consists of an
annuity (which is funded by member contributions deducted from the memberâs
paycheck and interest thereon) and a pension (which is funded by employer contributions
and which must be sufficient, when added to the annuity, to satisfy the amount specified
in the benefit formula). (Gov. Code, §§ 21350, 21362.2, subd. (a), 21363.1, subd. (a).)â
(Sonne, supra, 48 Cal.4th at p. 121, italics omitted.)
Section 21024 permits a CalPERS member to obtain up to four years of service
credit for service with the United States armed forces.3 Before the statute was amended
in 2000, it provided that, in order to obtain such credit, the member must âcontribute an
amount equal to the contributions for current and prior service that the employee and his
or her employer would have made with respect to him or her had he or she been in
membership for a period equal to the military service and assuming that the employerâs
3
The statute is one of several that expands the definition of â â[p]ublic service,â â and
provides CalPERS members the option to purchase service credit based on activities
outside their employment for a CalPERS participant. (§ 21020 et seq.; e.g., §§ 21022
[service credit for time when member was laid off], 21023.5 [service credit for time in
Peace Corps or AmeriCorps], 21029.5 [service credit for time in California National
Guard].)
5
rate in effect at the time of election and his or her compensation at the beginning of his or
her first period of service in membership with the employer under this section had been
in effect for the period.â (Stats. 1995, ch. 379, § 2.) In other words, whereas employers
and employees generally both pay contributions to a memberâs CalPERS plan for credit
earned during employment (Sonne, supra, 48 Cal.4th at p. 121), a member was required
to pay both the employer and employee amounts for military service credit purchased
pursuant to section 21024.
Sections 21050 through 21054 were enacted in 2000, to standardize the method
for purchasing military service credit and other forms of credit based on service
performed outside the CalPERS system. (Stats. 2000, ch. 489, § 18.) Section 21050
governs the method of payment for service credit.4 Section 21052 governs the
calculation of the contribution, and provides in relevant part that â[a] member . . . who
elects to receive service credit subject to this section shall contribute, in accordance with
Section 21050, an amount equal to the increase in employer liability, using the payrate
and other factors affecting liability on the date of the request for costing of the service
credit. The methodology for calculating the amount of the contribution shall be
determined by the chief actuary and approved by the board.â (Stats. 2000, ch. 489, § 18.)
At the same time that the forgoing statutes were enacted, section 21024 was
amended to provide that any member electing to receive credit for military service shall
do so pursuant to sections 21050 and 21052. (Stats. 2000, ch. 489, § 13.) Members, such
as Timothy, who requested costing of service credit between January 1, 2001, and
December 31, 2003, had the option of making contributions pursuant to sections 21050
and 21052, or to make the payment calculated under section 21024 as it read before the
statute was amended. (33C Westâs Ann. Gov. Code (2002 Supp.) p. 126.)
4
As originally enacted, section 21050 provided that a member electing to purchase credit
must do so by lump-sum payment, or in installment payments in accordance with
governing regulations. (Stats. 2000, ch. 489, § 18.) The statute has since been amended
to add various provisions regarding installment payments. (Stats. 2003, ch. 855, § 6;
Stats. 2010, ch. 197, § 1.)
6
As for how contributions worked in this case, Timothy testified below that his fire
department âelect[ed] to offer us certain add-ons and when my employer offers the
military add-on, PERS takes a little bit more, that rate they pay each year.â He further
testified that his employer âha[d] been contributing to allow members to buy military
[service credit] since they first gave us that option. So my employer has been
contributing their portion of it into the PERS system for many years.â In its amicus brief,
the Academy claims that this testimony misrepresented that Timothyâs employer paid for
a portion of his military service credit. The author acknowledges that Timothy was
probably referring to the cost his employer paid to elect to be subject to section 21024, as
opposed to payment for his particular military service credit. (See § 21024, subd. (f)
[statute authorizing purchase of military service credit applies only if contracting agency
elects to be subject to it].) Timothy confirms in his answer brief that this was what he
meant, which is consistent with his testimony below that the employer contribution was
ânot an individual thing,â meaning that his employer paid to enable its employees to
purchase military service credit (§ 21024, subd. (f)), but not that his employer paid to
purchase any individual employeeâs military service credit. It is thus undisputed that
Timothy was responsible for the entire cost to purchase the military service credit.
As for the benefit that Timothy obtained by electing to purchase military service
credit, section 21051, subdivision (a)(1) provides that a member electing to purchase
service pays contributions that he or she would have made to the system for the period
during which military service was performed, at a rate of contribution under his or her
employerâs formula at the rate age that applied when the employee was hired, and that the
employeeâs compensation earnable on that date applies to the member during the period
for which credit is granted. Before the statute was amended in 2000, section 21024
provided that a purchase of military service credit was based on the rate in effect at the
time of election, and as well as on the compensation at the time of hire. (Former
§ 21024, Stats 1995, ch. 379, § 2.) The rate that a CalPERS member is paid on
retirement, however, takes into account an employeeâs final compensation. (§§ 2135321354.5.) Thus, whatever method was used to set Timothyâs contribution to purchase
7
military service credit, he was able to purchase it based on his salary at the time of hire,
but he will receive payment for the service credit based on his salary upon retirement.5
C. Community Property Interest in Military Service Credit.
Julie argues that the trial court erred in characterizing Timothyâs military service
credit as separate property, and we agree. As set forth above, in determining whether the
community has an interest in pension rights, courts look to when a party acquired a
property interest in them, such that the pension rights were more than a mere
âexpectancy.â (Brown, supra, 15 Cal.3d at pp. 841, 844-845.) Here, there is no dispute
that Timothy completed his military service before his marriage to Julie. There can also
be no dispute that CalPERS members who had served in the military, and whose
employers elected to be subject to section 21024, were eligible to purchase military
service credit at the time that Timothy served in the military.6 However, at the time that
Timothy left the military, he had no property interest whatsoever in the CalPERS
retirement plan, because he did not begin working for a CalPERS participant until three
years later, when he began to work as a firefighter in 1989.
5
After the Academy filed its amicus brief, Timothy filed an unopposed request for
judicial notice of excerpts from the CalPERS annual reports for the years 1988-1989 and
2008-2009. He claims that the reports âhelp explain the nature of the employer subsidy
to the military service credits,â because they show the rate in effect at the time he was
hired, as well as at the time of trial. We deny Timothyâs request. âReviewing courts
generally do not take judicial notice of evidence not presented to the trial court. Rather,
normally âwhen reviewing the correctness of a trial courtâs judgment, an appellate court
will consider only matters which were part of the record at the time the judgment was
entered.â [Citation.]â (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th
434, 444, fn. 3.) Timothy does not direct us to any exceptional circumstances that would
justify departing from this rule. (Ibid.) Nor does he direct this court to evidence
indicating the specific rate upon which his contribution was actually calculated, so it is
unclear that the annual reports are even relevant.
6
Section 21024 was enacted in 1995. (Stats. 1995, ch. 379, § 2.) However, it was
derived from former section 20930.3, which was enacted in 1974. (Stats. 1974, ch. 1437,
§ 1; Historical and Statutory Notes, 33C Westâs Ann. Gov. Code (2003 ed.) foll. § 21024,
p. 456.)
8
Even after Timothy started working for a CalPERS participant, and thus became
eligible to purchase military service credit based on his premarital service in the military,
his right to such credit amounted to no more than an âexpectancy,â which is not a
property right divisible upon dissolution of marriage. (Brown, supra, 15 Cal.3d at
pp. 844-845.) Section 21024, subdivision (e) specifically provides that the statute âshall
apply to a member only if he or she elects to receive credit while he or she is in state
service in the employment of one employer on or after the date of the employerâs election
to be subject to this section.â (Italics added.) In other words, a memberâs right to
purchase credit is dependent on his or her employerâs election to be subject to
section 21024. Although Timothyâs employer apparently had been offering its
employees the opportunity to purchase military service credit âfor many years,â it is
unclear when it first elected to be subject to the statute. Presumably the employer could
elect at some point to no longer be subject to section 21024, in which case employees
who had served in the military would have no right to purchase credit based on that
service, let alone a property interest in CalPERS credit based on that service.
Timothy characterizes his right to purchase military service credit as a
â ânonvested pension right[],â â which was a âcontingent retirement interestâ that was
âsubject to conditions that [we]re wholly within [his] control.â He relies on cases that
stress that a contractual retirement benefit â âmaturesâ when the employee has an
unconditional right to payment, i.e., all the âconditions precedent to the payment of the
benefits have taken place or are within the control of the employee. [Citations.]â
[Citations.]â (In re Marriage of Gillmore (1981) 29 Cal.3d 418, 422, fn. 2, italics added;
see also In re Marriage of Castle (1986) 180 Cal.App.3d 206, 214-215 [husband held
property right even though contractual right to military retirement benefits contingent on
avoiding court martial or dishonorable discharge]; In re Marriage of Pace (1982)
132 Cal.App.3d 548, 551, fn. 3 [pension right â âmaturedâ â if all conditions precedent to
payment are within control of employee].) In Gillmore (unlike here), husband held
vested and matured retirement benefits, and the only condition to receiving those benefits
9
was his actual retirement, at which point he would be immediately entitled to payment.
(Gillmore at p. 422 & fn. 2.)
The Academy author advocating reimbursement also focuses on Timothyâs ability
to control a âcondition precedentâ to âactivateâ his military service credit. She relies on
In re Marriage of Skaden (1977) 19 Cal.3d 679, which held that â âtermination benefitsâ â
included in a husband insurance sales agentâs agreement with his employer (entered into
during the partiesâ marriage) were community property, subject to division upon
dissolution. (Id. at p. 682.) The relevant contract provided that husband would receive
certain benefits if he was terminated two years or more after the contractâs effective date;
the parties were still married two years after husband entered into the contract. (Id. at
pp. 682-683.) The court held that the â âvestedâ â but â âimmatureâ â rights in question,
which were subject to an agreement, were ânot a mere expectancy but a chose in action,â
and therefore property subject to division upon dissolution. (Id. at pp. 685-686.)
Apparently analogizing the status of the military service credit before Timothy purchased
it to the termination benefits in Skaden, the Academy author advocating reimbursement
notes that â âthe 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 âexpectancy.â â â (Id. at
p. 687.) In Skaden, the condition subject to the employee spouseâs control was
terminating his employmentâonce he did that, he would automatically receive
termination benefits, as set forth in his employment agreement.
Here, by contrast, Timothy held no such unconditional, contractual right to the
payment of benefits, or even a nonvested right to such credit, before he actually
purchased military service credit during the partiesâ marriage, using community funds.
The condition wholly within his control was the right to enter into a contract with
CalPERS for the purchase of military service credit in the first place. Before that point,
he did not hold a âcontractual right [to the military service credit], derived from the
terms of the employment contract.â (Brown, supra, 15 Cal.3d at p. 845, italics added.)
10
He instead held no more than an expectancy, because he held âno enforceable rightâ to
the service credit. (Ibid., original italics.)
The trial court also mischaracterized Timothyâs abstract ability to purchase
military service credit as a property interest when it relied on Sonne, supra, 48 Cal.4th
118. Sonne involved the dissolution of a husbandâs second marriage. (Id. at p. 121.)
Husband was a participant in CalPERS, and he transferred to his first wife her one-half
interest in the service credit he earned during their marriage (8.677 years) upon the
dissolution of that first marriage. (Ibid.) The first wife thereafter exercised her right to a
refund of the accumulated contributions to the account, an election that permanently
waived her right to any further claim on the retirement benefits, including any service
credit (§§ 21292, subds. (a), (d)). (Sonne at p. 121.) During his marriage to his second
wife, husband exercised his right to redeposit the contributions pursuant to section 20751,
and paid for the redeposit with community funds through monthly payroll deductions.
(Sonne at p. 121.) At the time husband and his second wife separated, the community
had redeposited 70.83 percent of the scheduled payments, and the trial court concluded
that the community was entitled to 70.83 percent of the service credit based on the
redeposited amount. (Ibid.)
The Supreme Court reversed. The court concluded that because community funds
contributed only to the annuity portion of the retirement allowance, the community was
entitled only to a pro tanto share of the annuity, and not to a share of the pension
component, which had been funded by employer contributions during husbandâs first
marriage. (Sonne, supra, 48 Cal.4th at pp. 121-122.) Citing section 20756, the court
noted that âa redeposit of member contributions for a prior period of service does not
constitute consideration for the service credit for that period; it is merely a condition
precedent to a credit for that previously rendered service.â (Sonne at p. 125.) The trial
courtâs âapportionment failed to consider that the right to the 8.677 years of service credit
was Husbandâs separate property, which preexisted the Husband-Wife marriage,
inasmuch as the service credit was offered in consideration for that prior 8.677 years of
service.â (Ibid.) The service credit at issue was earned during husbandâs marriage to his
11
first wife, and was not attributable to employment during the second marriage. (Id. at
p. 126.) â[T]he community made a redeposit of a portion of Husbandâs accumulated
contributions (Gov. Code, § 20012) for the period of the [first] marriage. Those
contributions were converted into an annuity upon Husbandâs retirement. The obligation
of the employer to contribute to the pension component, on the other hand, derived from
Husbandâs service during the [first] marriage. Accordingly, the community had a claim
only on the annuity component relating to the time period of the [first] marriage, and was
entitled only to a pro tanto share of that portion of Husbandâs retirement allowance.â (Id.
at pp. 127-128, original italics.)
The redeposit of member contributions in Sonne is distinguishable from the
purchase of military service credit in this case. In Sonne, the husbandâs right to 8.677
years of service credit was husbandâs separate property, because husband had obtained a
contractual right to it during a previous marriage. (Sonne, supra, 48 Cal.4th at p. 125.)
The community did not purchase the service credit by redepositing member contributions
during husbandâs second marriage; instead, the redeposit was merely a âcondition
precedentâ to receiving credit for previously rendered service. (Ibid.) In the present
case, Timothy held no such contractual property interest in military service credit before
he purchased it.7 His payment for the credit was not simply a âcondition precedentâ to
7
At the hearing regarding the characterization of the military service credit, the trial court
focused the fact that, in Sonne, community funds were used only to redeposit the annuity
portion of the retirement allowance, whereas the obligation of the employer to contribute
to the pension component of husbandâs retirement fund derived from the husbandâs
service during a previous marriage. (Sonne, supra, 48 Cal.4th at pp. 121-122, 127-128.)
The court apparently assumed that the purchase of military service credit worked the
same way, and that community funds were used only to purchase the annuity portion of
Timothyâs retirement benefits. The court concluded that âas the wife that had half of
your community property invested in that buy-back, you [Julie] get one-half of the
annuityâthe value of the annuity. Thatâs what the case [Sonne] says.â As set forth
above, the statutory scheme governing the purchase of military service credit
contemplates that the cost of purchasing military service credit pursuant to section 21024
includes payment of both the employee and employer cost of the credit. (Ante, § II.B.)
12
obtaining previously earned credit under CalPERS, as it was in Sonne, because unlike in
Sonne, Timothy did not previously have a right to such credit. (Cf. ibid.)
The Academy author advocating reimbursement relies on In re Marriage of
Lucero (1981) 118 Cal.App.3d 836 (Lucero), which was cited favorably in Sonne.
(Sonne, supra, 48 Cal.4th at p. 125.) In Lucero, husband withdrew retirement
contributions from an employer retirement plan during the partiesâ marriage. (Lucero at
p. 839.) Husband redeposited those funds after the parties separated, using his own
separate funds. (Ibid.) The court characterized the pension rights held before redeposit
as similar to the nonvested pension rights in Brown, because they amounted to âa
nonvested pension subject to the single additional contingency of redeposit of retirement
contributions previously withdrawn. Both are contingent contract rights, and thus both
should be treated as property subject to division on dissolution of marriage.â (Lucero at
p. 843.) Because the right to redeposit contributions was a pension right that was
attributable to employment during the marriage, husbandâs monthly retirement benefit
was community property subject to division (after wife reimbursed husband for his
separate property payment to reactivate the credit). (Id. at pp. 841-842.)
According to the Academy author advocating reimbursement, this case is
analogous to Lucero, supra, 118 Cal.App.3d 836, except that community property was
used to âactivateâ service credit owned by Timothyâs separate estate, instead of the other
way around (separate property being used to activate community-owned pension rights in
Lucero). However, the pension rights that were âreactivatedâ in Lucero clearly were
governed by a preexisting contract between the employee husband and his employer,
meaning that they were contingent contract rights, and thus should be treated as property.
Here, by contrast, there was no contract governing husbandâs military service time before
the parties purchased the credit, only a possible expectancy that if Timothy continued to
work for a CalPERS participant, and if section 21024 remained in effect, and if Timothyâs
employer continued to offer the option to buy military service credit pursuant to the
statute, and if Timothy paid the requisite amount, he would be entitled to the benefit of
the credit he purchased.
13
In re Marriage of Spengler (1992) 5 Cal.App.4th 288, upon which Timothy relies,
actually supports a finding that Timothy did not hold a property right to military service
credit before he entered into an agreement to purchase the credit. Spengler held that the
right to renew an employer-issued life insurance policy was not a property right, because
although the renewal right had potential value, âin the absence of a right by the insured
spouse to enforce that value, the renewal right is not âpropertyâ within the meaning of the
community property laws.â (Id. at p. 299.) Likewise here, although Timothyâs right to
purchase military service credit had âpotential value,â he had no right to actually enforce
that value until he entered into an agreement during the partiesâ marriage to purchase it.
(Ibid.)
Both Timothy and the Academy author who advocates reimbursement also
analogize Timothyâs premarital interest in military service credit to a leasehold right held
by husband in In re Marriage of Joaquin (1987) 193 Cal.App.3d 1529. In Joaquin,
husband executed a lease before marriage that included an option to renew, and husband
exercised the option to renew the lease during the partiesâ marriage. (Id. at pp. 15311532.) The court held that the husbandâs exercise of his option to renew the lease
âmerely extended, or perpetuated, it for an additional five years,â and the exercise of the
option effected the transfer of a 10-year leasehold, relating back to the date the option
was given. (Id. at p. 1534.) As such, the leasehold interest continued to be husbandâs
sole and separate property. (Ibid.) The Academy author advocating reimbursement
characterizes husbandâs purchase of military service credit as the âexercising [of] an
option during marriageâ that arose from âpremarital sources,â similar to what occurred in
Joaquin. This argument is based on the premise that Timothyâs right to purchase service
credit was a property right before marriage, a premise that is far less clear than it was in
Joaquin. In that case, the court noted that âan option is an indefeasible right in the
optionee to have real property transferred to him upon his performance of a condition
precedent (i.e., that which is required to exercise the option, manifesting acceptance of
the optionorâs offer). [Citation.] Once the optionee exercises the option, he has a right to
specific performance of the transfer, relating back to the time the option was given.
14
[Citations.] Thus, the optioneeâs title to the property, at least in equity, was acquired at
the time the option was originally given.â (Id. at pp. 1532-1533.) Here, although
Timothyâs military service occurred before marriage, he held no such exercisable
âoptionâ until he was eligible to purchase military service credit through his employer.
He had no right to purchase military service credit while he was actually on active duty,
because he was not an employee of a CalPERS participant at that time. There was thus
no right to which he ârelated back,â as husband did in Joaquin when he renewed his
lease.
Were this court to characterize Timothyâs interest in his military service credit as
his separate property based on the fact that his eligibility for credit depended on his
premarital military service, this could lead to unintended consequences in other cases.
For example, assuming that the right to military service credit becomes a property right
upon the completion of military service, it would logically follow that this right would be
characterized as community property if a service member performed all of his or her
military service while married, then (while still married) began working for a CalPERS
participant which provided its employees with the right to purchase credit pursuant to
section 21024. If the CalPERS member divorced before actually purchasing military
service credit, then later purchased credit with separate property after separation, the
nonemployee spouse would arguably have a claim to that credit. This would be true even
if the military service credit was purchased years after the parties divorced, and after the
person eligible for credit had remarried.
In characterizing pension rights as separate or community property, âwhat is
determinative is the single concrete fact of time. To the extentâand only to the extentâ
that an employee spouse accrues a right to property during marriage before separation,
the property in question is a community asset.â (In re Marriage of Lehman (1998)
18 Cal.4th 169, 183 (Lehman).) Once a spouse âhas accrued a right to retirement
benefits, at least in part, during marriage before separation, the retirement benefits
themselves are stamped a community asset from then on.â (Ibid.) Where a retirement
benefit is payable pursuant to a contract entered into during partiesâ marriage before
15
separation, it is a community asset. (In re Marriage of Drapeau (2001) 93 Cal.App.4th
1086, 1093.) âFor property characterization purposes, the critical question is when the
right to [a] stream of income accrued.â (In re Marriage of Rossin (2009)
172 Cal.App.4th 725, 736, original italics.)
Here, the military service credit was indisputably purchased during the marriage
with community funds. We agree with Julie that because the contractual right to receive
four additional years of retirement credit based on premarital military service was
obtained during the marriage, it was âstamped a community asset from then onâ
(Lehman, supra, 18 Cal.4th at p. 183), notwithstanding the fact that the credit was based
on service that predated the marriage.8 (Brown, supra, 15 Cal.3d at p. 842; In re
Marriage of Drapeau, supra, 93 Cal.App.4th at p. 1093; In re Marriage of Benson,
supra, 36 Cal.4th at p. 1103 [presumption under Family Code that retirement plan
acquired during marriage is community property].) We therefore reverse the judgment.
D. Allocation of Military Service Credit.
Having concluded that the trial court erred in characterizing Timothyâs military
service credit as his own separate property, the question remains how to allocate the
credit. Julie argues that she is entitled to half of it (two years), to be placed in a separate
8
Although we are aware of no California cases analyzing this issue, we note that courts
in at least two other states have come to the same conclusion with respect to retirement
plan service credit purchased during marriage based on military service prior to marriage.
(Lodrigue v. Lodrigue (La.App. 2002) 817 So.2d 466, 470 [purchase occurring during
existence of community based on service predating marriage is community property,
based on presumption that property acquired with community funds is considered
community property]; Mahaffey and Mahaffey (Or.App. 1989) 773 P.2d 806, 808 [credit
acquired during marriage is a marital asset].) By contrast, a New York appellate court
concluded that, because the characterization of a pension benefit is determined by the
time period in which the credit was earned, military service credit purchased during a
marriage based on service before the marriage was separate property. (Valachovic v.
Valachovic (N.Y.App.Div. 2004) 9 A.D.3d 659, 660.) An Ohio appellate court
(reviewing the issue as a factual one, under a deferential âweight of the evidenceâ
standard of review) concluded that because the evidence in a dissolution proceeding
established that military service accrued before marriage, the service credit purchased
was separate property. (Okos v. Okos (Ohio App. 2000) 739 N.E.2d 368, 373.)
16
account pursuant to section 21294. (§ 21290 et seq.; Fam. Code, § 2610, subd. (a) [trial
court shall make whatever orders are necessary or appropriate to ensure each party
receives full community property share in any retirement plan].) However, this is
inappropriate in light of the fact that installment payments for purchase of the credit will
continue for several years. This means that, although Timothy entered into an
irrevocable contract to purchase the four years of service credit using community funds
during the partiesâ marriage, community funds were used to make only a portion of the
necessary payments, calculated by the court-appointed expert below as 34.44 percent
(124 out of the total 360 required payments for the service credit).
The Academy author who advocates apportionment of the separate and
community property interests9 argues that employing the âtime ruleâ here would be
appropriate, and analogizes this case to Lehman, supra, 18 Cal.4th 169. In Lehman,
husband started to accrue a right to retirement benefits two years after the parties married,
when he began to participate in the retirement plan offered by Pacific Gas and Electric
Company (PG&E). (Id. at pp. 174-175.) The couple separated in 1977, and obtained a
final judgment of dissolution in 1979. (Id. at p. 175.) Fourteen years later, in 1993,
PG&E offered an enhanced retirement program, a voluntary program in which husband
participated. (Ibid.) Under the program, husband was credited with three putative years
of service. (Ibid.) By retiring early, husband received enhanced retirement benefits
(based on those three years) of $708.91 per month. (Ibid.) The court held that âa
nonemployee spouse who owns a community property interest in an employee spouseâs
retirement benefits owns a community property interest in the latterâs retirement as
enhanced.â (Id. at p. 179.) The court noted, however, that â[t]he fact that a nonemployee
9
The author who advocates apportionment argues that the right to purchase military
service credit was Timothyâs separate property, a position we reject for the reasons set
forth above. The Academy author acknowledges, however, that the military service
credit is âa divisible community asset to the extent that the community acquired a benefit
under that contract during the marriage.â (See In re Marriage of Branco (1996)
47 Cal.App.4th 1621, 1623-1624, 1627, 1629 [community entitled to interest in property
held separately by wife before marriage, because community contributed toward
purchase of property through new loans using community funds].)
17
spouse who owns a community property interest in an employee spouseâs retirement
benefits owns a community property interest in the latterâs retirement benefits as
enhanced does not mean that the enhancement is a community asset in its entirety.â (Id.
at p. 180, original italics.)
The Lehman court held that it was not an abuse of discretion for the trial court to
apportion the retirement benefits between the community property interest of the
employee spouse and the nonemployee spouse, and any separate property interest of the
employee spouse alone, pursuant to the time rule. (Lehman, supra, 18 Cal.4th at p. 187.)
âThe use of the time rule is not unreasonable when the âamount of the retirement benefits
is substantially related to the number of years of service.â [Citation.] That is the case
here. Reflecting Husbandâs length of service of 17.39 years during marriage before
separation and his length of service of 32.67 years in total, the community property
interest in Husbandâs retirement benefits as enhanced was fixed at 53.23 percent and his
separate property interest was fixed at 46.77 percent.â (Ibid.) The Academy author
advocating apportionment argues that Lehman may be more on point here than Sonne,
because the three years of âfictive serviceâ used in the employerâs enhancement formula
in Lehman âmerely constituted a device that would allow the retirement to be enhanced.â
We conclude that it is appropriate to remand the case to the trial court for a
determination of the proper allocation in the first instance. âThe requirement is that the
apportionment of retirement benefits between the separate and community property
estates must be reasonable and fairly representative of the relative contributions of the
community and separate estates. [Citations.] The basis for apportionment, however, is a
matter committed to the judicial discretion of the trial court. [Citations.] The discretion
to be exercised is that of the trial court, not a reviewing court. [Citation.]â (In re
Marriage of Poppe (1979) 97 Cal.App.3d 1, 11.) It may be appropriate for the trial court
to consider additional evidence regarding the value of the military service credit, and to
18
hear further argument regarding the best way to divide the property. 10 (E.g., In re
Marriage of Skaden, supra, 19 Cal.3d at pp. 688-689 [because trial court incorrectly
decided that termination benefits were not community property, lower court did not
address questions of present valuation or other issues; case remanded because proper
division should be left to sound discretion of trial court]; In re Marriage of Drapeau,
supra, 93 Cal.App.4th at pp. 1095, 1099 [case remanded to trial court to apportion early
retirement benefit consistent with appellate opinion, which reversed lower courtâs
characterization of the benefit]; see also Lehman, supra, 18 Cal.4th at p. 180
[distinguishing characterization and apportionment].)
III.
DISPOSITION
Timothyâs request for judicial notice is denied. The judgment is reversed, and the
matter is remanded to the trial court for further proceedings consistent with our opinion.
Appellant Julie Green shall recover her costs on appeal.
_________________________
Sepulveda, J.*
We concur:
_________________________
Ruvolo, P. J.
_________________________
Rivera, J.
* Retired Associate Justice of the Court of Appeal, First Appellate District, Division 4,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
10
The Academy author advocating reimbursement states that it may be appropriate to ask
Julie whether she wants reimbursement, rather than waiting until Timothy retires to see
how much her share of the service credit may be worth at that time, an option that may be
considered on remand.
19
Trial Court:
Contra Costa County Superior Court
Trial Judge:
Honorable Charles B. Burch
Counsel for Appellant:
April Rose Sommer
Counsel for Respondent:
Tarkington, OâNeill, Barrack & Chong, Robert A. Roth
Counsel for Amicus Curiae
Whiting, Fallon, Ross & Abel, Ann Fallon; Office of
Northern California Chapter of Barbara A. DiFranza, Barbara DiFranza,
the American Academy of
Matrimonial Lawyers, upon the
request of the First District
Court of Appeal
20
