In re Marriage of Wene

No. 2--96--1509
___________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT
___________________________________________________________________

In re MARRIAGE OF ) Appeal from the Circuit Court
DANIEL M. WENC, ) of Du Page County.
)
Petitioner and Counter- ) No. 83--D--302
respondent-Appellant, )
)
and )
)
ELIZABETH F. WENC, n/k/a )
Elizabeth F. Fleming, )
) Honorable
Respondent and Counter- ) Mark W. Dwyer,
petitioner-Appellee. ) Judge, Presiding.
___________________________________________________________________

JUSTICE BOWMAN delivered the opinion of the court:

Petitioner and counterrespondent, Daniel Wenc, and respondent
and counterpetitioner, Elizabeth Wenc, n/k/a Elizabeth Fleming,
married in 1961 and divorced in 1983. After petitioner retired,
respondent sued to determine her share of his pension benefits.
Petitioner appeals the ruling on respondent's suit, asserting that
the trial court erred in interpreting the settlement agreement
incorporated into the divorce judgment. We reverse the judgment and
remand for further proceedings. We hold that (1) the trial court
erred in applying In re Marriage of Hunt, 78 Ill. App. 3d 653 (1979)
without fully considering the language of the settlement agreement;
and (2) the agreement is ambiguous, necessitating an evidentiary
hearing for a proper determination of the parties' intent.
At the time of the divorce, petitioner was 43 years old and
respondent was 45. Since August 1, 1961, petitioner taught school
full time, contributing to the Teachers' Retirement System of the
State of Illinois (Retirement System)(see 40 ILCS 5/16--101 et seq.
(West 1994)). Paragraph 5 of the settlement agreement stated, as
pertinent here:
"DANIEL's represented adjusted contribution to the
Teacher Retirement Fund is *** $27,000. In addition thereto,
DANIEL's estimated pension, assuming a retirement age of 55,
is in the approximate sum of $677.00 per month, with an
additional annuity of $1,212.00 per month. ELIZABETH shall be
entitled to receive 30% of all of DANIEL'S vested, non-vested
and/or accrued pension/retirement benefits accumulated as of
the date hereof [i.e., the date of the dissolution] at such
time in the future when and if said benefits are paid to
DANIEL. All benefits accrued or accumulated by DANIEL
hereafter shall be his sole and exclusive property."
At the end of the 1993-94 school year, petitioner retired. In
June 1994, about two months before his fifty-fourth birthday, he
started drawing his Retirement System pension. In April 1995,
respondent brought this action, asking the court to hold petitioner
in contempt of his obligation under paragraph 5 of the agreement.
As pertinent here, respondent alleged that, since June 8, 1994,
petitioner received $4,135.49 monthly in gross pension benefits but
tendered respondent only $363.60 monthly, far short of her 30%
share.
Petitioner replied that his monthly payments followed the plain
language of paragraph 5 by giving respondent 30% of the monthly
benefit he had earned as of the dissolution. Petitioner relied in
part on a letter from a legal assistant to the Teachers' Retirement
System. The letter stated that, based on petitioner's years of
creditable service and average salary from August 1, 1961, through
November 30, 1983, and assuming he started drawing benefits on
August 15, 1995 (when he turned 55), he would receive $709.93
monthly. Petitioner maintained that paragraph 5 entitled respondent
to 30% of this sum, with adjustments for the temporarily lower
benefit levels resulting from petitioner's early retirement.
According to petitioner, his monthly payments to respondent were
good-faith efforts to adhere to the settlement.
The matter proceeded to a hearing. Respondent called Vito
Loisi, a certified public accountant, who opined that petitioner's
method of calculating respondent's share of his monthly pension did
not embody the 1983 settlement agreement. Loisi described two
alternative methods he used to arrive at a proper allocation.
The first method was based on In re Marriage of Hunt, 78 Ill.
App. 3d 653 (1979), where the appellate court explained that a court
should calculate the marital portion of a monthly pension benefit
by dividing the total years of credited service during the marriage
by the total years of credited service and multiplying this fraction
by the monthly benefit. Hunt, 78 Ill. App. 3d at 663; see also In
re Marriage of Alshouse, 255 Ill. App. 3d 960, 962-63 (1994).
Assuming (as is not in dispute) that petitioner had 21 years of
credited service during the marriage and 32 years total credited
service, Loisi applied the Hunt algorithm to petitioner's gross
monthly benefit of $4,135.49. Adjusting for the contribution that
enabled petitioner to retire early, Loisi found that, for the first
24 months, the marital portion was $2,073.58 monthly (21/32 of the
net monthly benefit after the contribution) and respondent's 30%
share was thus $622.07 monthly. After the first two years,
respondent would receive $814.17 monthly--30% of the marital 21/32
of the gross benefit.
Loisi suggested alternatively that the $709 sum could be
adjusted for growth based on earnings or inflation taking place
between the divorce and the payout. Using a "conservative" annual
growth rate of 6%, Loisi calculated respondent's share of the
monthly benefit at $431.84 for the first 24 months and $623.94
thereafter. Under either method, respondent's share would increase,
along with petitioner's payment, after his sixty-first birthday.
Loisi preferred using the Hunt-based method to determine the
marital part of the pension benefits, as the years of service before
the dissolution helped to increase the benefits that accrued
afterward. According to Loisi, petitioner's calculation was
unacceptable because it took the projected benefit amount as of the
dissolution date and "froze" that amount as of that earlier date.
Loisi agreed with the Retirement System's letter to petitioner that,
if petitioner stopped working the day of the dissolution, he would
later receive $709.93 monthly. However, Loisi noted that petitioner
did not adjust for the growth of this sum between 1983 and
petitioner's retirement much later.
The trial court refused to find petitioner in contempt (a
holding not at issue here) but otherwise sided with respondent. The
court applied the Hunt formula, explaining that the language of
paragraph 5 showed that the parties drafted it with Hunt in mind.
Thus, they did not intend that respondent's share of the benefit be
"frozen" as of the date of the divorce. Under Hunt, respondent was
entitled to $814.17 of the $4,135.49 monthly benefit; for the first
24 months, this share would be $622.07, the same proportion of the
lower initial benefit. The court denied petitioner's motion to
reconsider. He appeals.
Petitioner argues that the trial court awarded respondent an
excessive share of his pension benefit. He asserts that, under the
plain language of paragraph 5, respondent was entitled only to what
he had been paying her--30% of what he would have received each
month had he stopped working as of the dissolution judgment in
November 1983. According to petitioner, the trial court imported
the Hunt formula into an agreement that plainly declined to follow
Hunt.
Respondent counters that the trial court's decision is
consistent with the language of paragraph 5 and rightly accounts for
the greater importance of early contributions--here, those made
during the marriage and not afterward--to the eventual pension
benefit ultimately paid.
Interpreting a marital settlement agreement is a matter of
contract construction; the court seeks to effectuate the parties'
intent. In re Marriage of Agustsson, 223 Ill. App. 3d 510, 518
(1992). Ordinarily, the best guide to the parties' intent is the
language they used. In re Marriage of Frain, 258 Ill. App. 3d 475,
478 (1994). When contract terminology is unambiguous, it must be
given its plain and ordinary meaning. Frain, 258 Ill. App. 3d at
478. However, where the language is ambiguous, the trial court may
receive parol evidence to decide what the parties intended. Pepper
Construction Co. v. Transcontinental Insurance Co., 285 Ill. App.
3d 573, 576 (1996). Whether an agreement is ambiguous is a question
of law. Pepper Construction Co., 285 Ill. App. 3d at 575-76.
We must note that much of paragraph 5's meaning is unclear from
the record. Nowhere does anyone identify or explain the "additional
annuity of $1,212.00 per month" due petitioner on his retirement.
Also, neither the trial court nor the parties attached any
significance to the opening recital of petitioner's total
contributions to date. Under the Retirement System statute,
petitioner's benefits depend not on the amount of contributions but
on a function of a multiplier (related to the pensioner's years of
service) and the pensioner's final average salary. Although the
statute allows for benefits based on accumulated contributions at
the time of retirement, if that amount is the greater of the two,
the parties appear to agree that at all pertinent times petitioner's
benefit level would not have been based on this alternate
methodology. See 40 ILCS 5/16--133(a)(West 1994); In re Marriage
of Wisniewski, 286 Ill. App. 3d 236, 238 (1997).) We shall not try
to explain these terms, although on remand the parties may attempt
to do so if it sheds light on the proper interpretation of the
terminology directly at issue.
We hold first that the trial court erred in finding that
paragraph 5 unambiguously shows that the parties intended to base
the division of benefits on the Hunt formula. At least without
extrinsic evidence of the parties' intent, the similarities between
this case and Hunt are too limited to support an inference that the
division of the pension should be similar.
A dissolution judgment may value and divide marital property
in a spouse's pension plan by using the "immediate offset" approach
or the "reserved jurisdiction" approach. See Wisniewski, 286 Ill.
App. 3d at 240-41; Hunt, 78 Ill. App. 3d at 663. Under the
immediate offset approach, the court uses actuarial evidence to
assign a present value to the pension interest at the time of
dissolution. Next, the court determines the marital portion of that
interest by multiplying it by a fraction representing the proportion
of marital years in which benefits were accumulated to the total
years in which benefits were accumulated. The court awards the
pension interest to the pensioner spouse and gives the nonpensioner
sufficient other marital property to offset her marital share in the
interest. In re Marriage of Burkhart, 267 Ill. App. 3d 761, 766
(1994); Hunt, 78 Ill. App. 3d at 663.
Under the reserved jurisdiction approach, the trial court
awards each spouse an appropriate share of the pension "to be paid
'if, as, and when' the pension becomes payable." Hunt, 78 Ill. App.
3d at 663, quoting In re Marriage of Brown, 15 Cal. 3d 838, ___, 544 P.2d 561, 563, 126 Cal. Rptr. 633, ___ (1976); see Burkhart, 267
Ill. App. 3d at 766. However, as petitioner notes, that the court
reserves payment until long after the dissolution judgment does not
mean it reserves a decision on how to calculate the eventual
payment. Depending on how the court exercises its discretion or
what the parties have agreed, the dissolution judgment itself may
dictate how the pension benefits will be allocated; however, the
court may reserve this decision until the benefits are paid.
Wisniewski, 286 Ill. App. 3d at 241; see, e.g., In re Marriage of
Alshouse, 255 Ill. App. 3d 960, 961-63 (1994)(marital settlement
agreement left determination of precise formula until proceeding
after pensioner spouse retired).
In Hunt, where no settlement agreement was involved, the
appellate court set out rules to guide trial courts in the exercise
of their discretion in dividing marital property. The court
explained that the marital portion of the pension interest was the
overall interest multiplied by a fraction representing the length
of time during the marriage in which the pension accumulated divided
by the total time in which the pension accumulated. Hunt, 78 Ill.
App. 3d at 663. Here, the trial court applied the Hunt rule to the
settlement agreement, giving respondent 30% of that part of the
payments which, under the Hunt rule, were marital property.
However, because the parties signed an agreement covering this very
subject, the court's decision makes sense only if the agreement
shows the parties intended to divide the benefits this way. Of
course, the parties were also free to allocate the benefits by some
other formula. Therefore, as the trial court recognized, applying
Hunt directly makes sense only if paragraph 5 so dictates.
In finding that paragraph 5 does embody Hunt, the trial court
focused on the parties' use of the type of "if, as, and when,"
language Hunt emphasized. However, we agree with petitioner that
the use this kind of language signifies only that the parties chose
the reserved jurisdiction approach over the immediate offset
approach. These "magic words" imply that the pension will be
divided when it becomes payable rather than at the time of the
dissolution, but they say nothing about how the payments will be
divided. Thus, the proper construction of paragraph 5 requires more
inquiry into what the parties meant by the language they used.
We proceed to examine that language to determine whether it is
ambiguous. If it is not, it must be applied as written; if it is,
extrinsic evidence of the parties' intent will be necessary.
(Although the hearing included expert testimony, there was no
evidence of the intent behind the language. At the very least,
there was not enough extrinsic evidence for a proper determination
of this factual issue.) We hold that the language is ambiguous.
Paragraph 5 is not long, but it is dense with potentially
confusing terminology. Aside from the unexplained verbiage we have
noted, several phrases are less than crystal clear. The
distinctions, if any, among "vested, non-vested, and/or accrued
pension benefits" are not spelled out at all in the agreement or
precisely in the case law. Thus, merely from the language of
paragraph 5, we cannot say for certain what "benefits" petitioner
had "accumulated or accrued"--another potentially treacherous
phrase--at the time of the divorce judgment. Petitioner's reading
of the agreement is straightforward and reasonable enough. However,
it is not the only reasonable one.
As the cases demonstrate, the delay between the divorce
judgment and the payout period casts into doubt precisely how much
of the ultimate pension amount is the base for respondent's 30%
share. This is because cases recognize the time value of money and
that pension contributions in the early (marital) years carry more
earning weight than those in the later (postdissolution) years.
Courts ordinarily compensate the nonpensioner spouse for this fact
by using rules that may make the marital portion of the payments
appreciably greater than what the pensioner spouse would have
received based on his years of employment during the marriage.
In re Marriage of Blackston, 258 Ill. App. 3d 401 (1994),
illustrates this principle backhandedly, even though the appellate
court denied the nonpensioner spouse the recovery she sought.
There, the trial court used the reserved jurisdiction approach,
ordering the distribution of payments according to the Hunt formula.
On appeal, the husband argued that this distribution unfairly
benefited the wife by rewarding her for postdissolution increases
in the value of the husband's pension. On the state of the record,
the Appellate Court, Fifth District, agreed. The court rejected the
wife's (and the trial court's) assumption that the husband's early
earnings carried greater weight than those made in later years
"because the earlier dollars have had many more years to grow
through accumulation of interest on investment." Blackston, 258
Ill. App. 3d at 407. However, the appellate court acknowledged
that, in principle, this consideration might be proper; it reversed
only because the wife had provided no evidence of the time value of
money. Blackston, 258 Ill. App. 3d at 407.
In Wisniewski, the Appellate Court, First District, agreed that
the time value of money is a legitimate factor but disagreed with
the fifth district that the nonpensioner spouse needs to introduce
evidence of the earning power of early payments in order to obtain
a distribution based on the Hunt formula. The court reasoned,
correctly in our view, that our courts "[have] long recognized the
time value of money." Wisniewski, 286 Ill. App. 3d at 244.
The application of this insight in Wisniewski is significant.
Not only did the court hold that the trial court did not abuse its
discretion in apportioning benefits according to Hunt's proportional
formula, but it also implied that the court would have abused its
discretion in refusing to account for the greater earning power of
early contributions. The husband's argument, which implied
otherwise, ignored the "fact *** that contributions in the early
years are more valuable to the payor of the plan than are payments
in the last years. [The wife] cannot be deprived of the interest
earned by marital contributions just because the pension plan does
not specifically account for that interest in determining the
pension benefit." Wisniewski, 286 Ill. App. 3d at 245. Similarly,
even though the multiplier was greater for the later years than for
the earlier ones, the court "[could not] say that the years after
the marriage were more valuable than the years during the marriage.
Because of the time value of money, the opposite would appear to be
true, unless contributions were significantly greater in later
years." Wisniewski, 286 Ill. App. 3d at 245.
Although not by itself dispositive, it is worth noting that the
husband's interpretation of the settlement agreement would entitle
him to a benefits division so lopsided that it would probably not
survive appellate review absent an agreement. This is because, to
arrive at this result, the court would either have had to calculate
the marital share of the pension benefits in a way inconsistent with
Hunt or have had to award respondent a truly tiny portion of the
marital share as properly calculated under Hunt. The parties were
married for about two-thirds of the years during which petitioner
earned credited service, yet the base figure out of which he
suggests the court carve respondent's 30% share is approximately
one-third of respondent's actual benefit. This disparity is
permissible if the parties agreed to it. Yet it is so great--
especially given the importance of the marital years of credited
service to the size of the eventual benefit---that we are reluctant
to conclude that respondent clearly struck such a bargain.
We do not believe that paragraph 5 unambiguously embodies an
agreement that "freezes" respondent's share without accounting for
the long-recognized time value of money. The agreement speaks of
both "vested" pension rights and "non-vested" pension rights, even
though there is no dispute that, by 1983, petitioner had served
enough years so that his right to collect a pension upon retirement
had already "vested." Thus, petitioner's reading of the disputed
terminology would require us to ignore as wholly superfluous the
parties' deliberate reference to any "non-vested" rights under the
Retirement System pension plan. (Aside perhaps from the
paragraph's mysterious reference to an additional monthly annuity
of $1,212, nothing in the record suggests that the parties
contemplated the division of benefits in another plan to which
petitioner belonged.) Generally, we will not assume that the
parties inserted key contractual language for no reason at all, as
a document should be read to give effect to all its provisions.
Roubik v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 285 Ill. App.
3d 217, 220 (1996).
Furthermore, the importance of petitioner's early years of
credited service to the eventual payout level suggests that
paragraph 5 contains further ambiguities. From the perspective of
over a decade after the dissolution--when petitioner's pension
rights not only vested but matured--it is at least debatable what
part of his eventual benefits of over $4,000 monthly petitioner
"accumulated" as of 1983. That part might be construed to include
the amount that the earlier (marital) years added to the eventual
sum through compounding. Similarly, what part of his eventual
benefits petitioner "accrued or accumulated" after the dissolution
is open to some reasonable dispute. Depending on the parties'
intent, he might be deemed to have accrued or accumulated, through
the workings of compound interest, a sizeable amount of the eventual
benefit beyond what he would have received had he retired in 1983.
These murky matters of interpretation are for the trial court. We
cannot accept either the court's view that the agreement
unambiguously supports respondent's interpretation or petitioner's
assertion that the contract clearly favors his reading. Therefore,
we must reverse the judgment and remand this cause so that the court
may receive extrinsic evidence on how the parties intended to
allocate petitioner's pension benefits.
The judgment of the circuit court of Du Page County is
reversed, and the cause is remanded.
Reversed and remanded.
GEIGER, P.J., and THOMAS, J., concur.