Opinion
No. M2000-03103-COA-R3-CV.
Filed May 27, 2003.
Appeal from the Chancery Court for Marshall County; No. 8684; Lee Russell, Chancellor.
Reversed and Remanded.
James G. Martin, III and Gregory D. Smith, Nashville, Tennessee, for the appellant, Brian E. Dunloy.
Jeffrey L. Levy, Nashville, Tennessee, for the appellee, Eileen Wilson Dunloy.
PATRICIA J. COTTRELL, J. delivered the opinion of the court, in which JOHN J. MADDUX, JR., Sp. J., joined. William B. Cain, J. filed a dissenting opinion.
OPINION
This appeal involves a dispute over the interpretation of a provision in a marital dissolution agreement dealing with the method of distribution of the husband's defined benefit plan. The trial court interpreted the provision as calling for deferred distribution pursuant to the coverture fraction method. The husband appeals arguing that the net present value method, rather than the deferred distribution method, is proper. We reverse the trial court.
Brian E. Dunloy and Eileen Wilson Dunloy were divorced on the grounds of inappropriate marital conduct on April 29, 1994, after twenty-two years of marriage. The Final Decree of Divorce incorporated a Marital Dissolution Agreement ("MDA") executed by the parties on April 28, 1994. This case involves the interpretation of the MDA concerning the distribution of certain retirement benefits and a Qualified Domestic Relations Order ("QDRO"). The MDA provides as pertinent to the issue before this Court:
Mrs. Dunloy has since remarried becoming Mrs. Turowski but for convenience will be referred to as Mrs. Dunloy.
34. Mr. Dunloy agrees that his account balance, as of April 29, 1994, with The Savings Plan of the Saudi Arabian Oil Company (Vanguard Funds account #462-78-8754) shall be divided equally between the parties. Mr. Dunloy hereby assigns to Mrs. Dunloy one-half (½) of his account balance in said Plan as of April 29, 1994. The division of Mr. Dunloy's account balance with The Savings Plan of the Saudi Arabian Oil Company as of April 29, 1994 shall be further effectuated through the entry of a Qualified Domestic Relations Order.
35. Mr. Dunloy agrees that his account balance, as of April 29, 1994, with The Retirement Income Plan of the Saudi Arabian Oil Company, net of current off-sets value at retirement in the approximate amount of $32,326.48 shall be divided equally with Mrs. Dunloy. Mr. Dunloy hereby assigns to Mrs. Dunloy one-half (½) of his account balance with The Retirement Income Plan of the Saudi Arabian Oil Company, net of current off-sets value at retirement in the approximate amount of $32,326.48. The division of Mr. Dunloy's account balance, net of off-set value at retirement, shall be further effectuated through the entry of a Qualified Domestic Relations Order.
About a year after the decree was entered, the parties entered into a QDRO with regard to the Savings Plan referred to in paragraph 34, which is a defined contribution plan, without difficulty, and the order was entered by the trial court. Problems, however, arose with regard to a QDRO for the Retirement Income Plan referenced in paragraph 35. After several years of unsuccessful negotiation, Mrs. Dunloy filed a Motion to Enter a Qualified Domestic Relations Order with the trial court. Mr. Dunloy insisted upon a QDRO using the net present value approach, and Mrs. Dunloy insisted upon a deferred distribution ("piggyback" or "coverture fraction") approach. The conflict between the parties centered around the fact that Mrs. Dunloy would receive far more money from the benefits if the deferred distribution method were used as opposed to the net present value approach urged by Mr. Dunloy.
According to the record, applying Mr. Dunloy's proposed "frozen as of the date of the divorce" approach would result in Mrs. Dunloy receiving an expected monthly benefit upon Mr. Dunloy's retirement at age sixty of $565. If she chose a lump sum at that time it would be approximately $60,000. Adopting the deferred distribution approach proposed by Mrs. Dunloy she would receive a monthly benefit at Mr. Dunloy's retirement at age sixty in the amount of $1,087 per month. If she chose a lump sum benefit at the time of Mr. Dunloy's retirement it would be $161,702.
Both parties retained experts to assist in the resolution of the dispute. Mrs. Dunloy's expert, Mr. Guyton, is an actuary who works in the area of employee benefits specializing in defined benefit plans. Mr. Guyton opined that the proper form of the QDRO is the deferred distribution method. Mr. Dunloy retained J. Michael Yopp, an attorney specializing in the areas of taxation, estates, employee benefits, and partnerships. Mr. Yopp opined that the net present value method is the proper method.
If the net present value method were used, Mrs. Dunloy's portion would be treated as though Mr. Dunloy had terminated his employment as of the date of divorce. Under the deferred distribution method, the court would retain jurisdiction and use a coverture fraction, typically defined as the number of years the spouses were married while participating in the plan, divided by the total number of years that Mr. Dunloy participated in the plan, to determine the proper portion of the benefit to be awarded to each party.
After hearing oral argument and expert witness testimony, the trial court found that the coverture fraction method should be used to value Mrs. Dunloy's interest in Mr. Dunloy's retirement plan. The order stated:
It is, therefore ORDERED, ADJUDGED and DECREED that the coverture fraction method to value Mrs. Dunloy's share of Mr. Dunloy's retirement shall be utilized and the qualified Domestic Relations Order tendered on behalf of Mrs. Dunloy should be entered by the Court to implement the terms of paragraph 35 of the Marital Dissolution Agreement incorporated into the Final Decree of Divorce entered in this cause on the 29th day of April, 1994.
Mr. Dunloy appealed, and the sole issue for review is whether the trial court erred in entering a QDRO based on the coverture fraction method. Ordinarily the "choice of valuation method" remains within the sound discretion of the trial court to determine after consideration of all relevant factors and circumstances. Cohen v. Cohen, 937 S.W.2d 823, 831 (Tenn. 1996). However, the parties herein agreed on the distribution and valuation method, and our task is to determine the intent of the parties with regard to the division of the retirement income plan from the words the parties used in paragraph 35 of their MDA.
I. Standard of Review
"The interpretation of a written agreement is a matter of law and not of fact, therefore, our review is de novo on the record with no presumption of correctness of the trial court's conclusions of law." Gray v. Estate of Gray, 993 S.W.2d 59, 63 (Tenn.Ct.App. 1998) (citing Union Planters Nat'l Bank v. American Home Assurance Co., 865 S.W.2d 907, 912 (Tenn.Ct.App. 1993)). A marital dissolution agreement is essentially a contract between a husband and wife in contemplation of divorce proceedings that will be construed and enforced as other contracts are. Gray, 993 S.W.2d at 63. Thus, the interpretation of a written marital dissolution agreement is a matter of law, and our review is de novo on the record with no presumption of correctness. Id.
This Court has stated the following with regard to the interpretation of MDA's:
When contracting parties have reduced their agreements to writing, their rights and obligations will be governed by the terms of their written contract. Cookeville Gynecology Obstetrics, P.C. v. Southeastern Data Sys., Inc., 884 S.W.2d 458, 461 (Tenn.Ct.App. 1994). The courts must take a position of neutrality with regard to the parties, Hillsboro Plaza Enters v. Moon, 860 S.W.2d 45, 47 (Tenn.Ct.App. 1993), and must not concern themselves with the wisdom or folly of the contracts. Chapman Drug Co. v. Chapman, 207 Tenn. 502, 516, 341 S.W.2d 392, 398 (1960); Brooks v. Networks of Chattanooga, Inc., 946 S.W.2d 321, 324 (Tenn.Ct.App. 1996). Thus, the courts must enforce the parties' agreement according to its plain terms, Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975), and must be careful not to rewrite an agreement under the guise of construing it. Duvier v. Duvier, 1995 Tenn. App. LEXIS 494, No. 01 A01-9311-CH-00506, 1995 WL 422465, at *3 (Tenn.Ct.App. July 19, 1995) (No Tenn.R.App.P. 11 application filed).
The language in a marital dissolution agreement is of central importance. Unlike the documents thrust before the courts in other types of contract disputes, marital dissolution agreements are neither pre-printed form documents nor the common boilerplate forced on consumers of goods and services at the point of sale. For the most part, they come closer to being contracts in the classic sense-specific language hammered out at close range by negotiating parties with keenly felt competing interests. Divorcing parties who decide to use marital dissolution agreements want their agreements to say what each party is expected to do now and in the future, and thus both parties contribute or insist on particular language to achieve that end. Thus, the courts must focus on the words chosen by the parties rather than the parties' separate and subjective intentions.
Allman v. Allman, No. M1997-00251-COA-R3-CV, 2000 Tenn. App. LEXIS 766, at *8-*9 (Tenn.Ct.App. Nov. 22, 2000) (no Tenn.R.App.P. 11 application filed). Consequently, we must review the MDA at issue herein in order to determine what the language chosen by the parties means, specifically in regard to the "account balance" language appearing in paragraph 35 of the MDA and how that language affects the determination of Mrs. Dunloy's percentage of Mr. Dunloy's defined contribution plan.
II. Types of Pension Plans
Generally, there are two types of pension plans, a defined contribution plan and a defined benefit plan. Mrs. Dunloy's expert, Mr. Michael Guyton, testified as to the differences between the two types of pension plans:
There are basically two types of tax-qualified pension plans. The one category is called defined contribution plans and the other category is defined benefit plan.
A defined distribution plan you've heard of them as 401(k) plans, profit-sharing type plan. And as the name implies, there's a defined contribution amount that goes in a separate account, is maintained for each employee in those plans, so at any time you know how much they have accumulated in their account, and each year the employer contributes to those accounts interest earnings on the funds that they're investing and it's credited to those accounts. So it's like a savings account basically.
The defined benefit plan is a promise made to employees that if they reach retirement or early retirement, that a benefit would be paid to them. And usually it's based on a formula, based on years of service, based on compensation to determine the amount that they would be paid at the time of retirement or separation of employment.
The parties agree that the retirement plan at issue in paragraph 35 is a defined benefit plan and is vested. Further, the defined benefit plan at issue is back loaded, which means that the later years of employment receive extra weight in the formulation of the retiree's benefit.
III. Valuation of Mr. Dunloy's Defined Benefit Plan
The parties were able to reach agreement regarding paragraph 34 of the MDA covering a section 401(k) deferred compensation plan by assigning fifty percent of the total account balance as of the date of the divorce to Mrs. Dunloy as her separate property together with all accumulations thereon until distribution, with Mrs. Dunloy having the right "to receive her benefits at the earliest date at which the Participant could elect to receive a distribution in accordance with the terms of the Plan, or earlier if permitted by the Plan or applicable law." Thus, the parties had no trouble interpreting the MDA's directive that Mr. Dunloy assign "one-half (½) of his account balance" as of the date of the divorce.
The parties were unable to agree, however, on the terms of a QDRO with regard to Mr. Dunloy's Retirement Income Plan, which is the subject of paragraph 35 of the MDA, which also included the language that Mr. Dunloy hereby assigns to Mrs. Dunloy "one-half (½) of his account balance."
Mr. Dunloy argues that the net present value approach is the proper method for valuing the defined benefit and Mrs. Dunloy argues that the deferred distribution method is what the parties intended by the language in paragraph 35 of the MDA. In Cohen v. Cohen, 937 S.W.2d 823, 831 (Tenn. 1996), our Supreme Court explained the two methods of valuation and distribution of pension interests available under Tennessee law, in the context of a judicial award:
Most courts use one of two techniques. In re Marriage of Brown, 544 P.2d at 576; Gallo v. Gallo, 752 P.2d at 54; Janssen v. Janssen, 331 N.W.2d at 755. The first approach, known as the present cash value method, requires the trial court to place a present value on the retirement benefit as of the date of the final decree. Kendrick v. Kendrick, 902 S.W.2d at 927. To determine the present cash value, the anticipated number of months the employee spouse will collect the benefits (based on life expectancy) is multiplied by the current retirement benefit payable under the plan. Gallo v. Gallo, 752 P.2d at 54. This gross benefit figure is then discounted to present value allowing for various factors such as mortality, interest, inflation, and any applicable taxes. Id. See also In re Marriage of Grubb, 745 P.2d at 666; In re Marriage of Hunt, 397 N.E.2d at 519; Deering v. Deering, 437 A.2d at 891. Once the present cash value is calculated, the court may award the retirement benefits to the employee-spouse and offset that award by distributing to the other spouse some portion of the marital estate that is equivalent to the spouse's share of the retirement interest. Gallo v. Gallo, 752 P.2d at 54. The present cash value method is preferable if the employee-spouse's retirement benefits can be accurately valued, if retirement is likely to occur in the near future, and if the marital estate includes sufficient assets to offset the award. Kendrick v. Kendrick, 902 S.W.2d at 927; Gallo v. Gallo, 752 P.2d at 54.
In other circumstances in which the vesting or maturation is uncertain or in which the retirement benefit is the parties' greatest or only economic asset, courts have used the "deferred distribution" or "retained jurisdiction" method to distribute unvested retirement benefits. This method has distinct advantages when the risk of forfeiture is great. Kendrick v. Kendrick, 902 S.W.2d at 927. Under such an approach, it is unnecessary to determine the present value of the retirement benefit. Rather, the court may determine the formula for dividing the monthly benefit at the time of the decree, but delay the actual distribution until the benefits become payable. In re Marriage of Brown, 544 P.2d at 567; Gallo v. Gallo, 752 P.2d at 55; Deering v. Deering, 437 A.2d at 891; Janssen v. Janssen, 331 N.W.2d at 753. The marital property interest is often expressed as a fraction or a percentage of the employee spouse's monthly benefit. The percentage may be derived by dividing the number of months of the marriage during which the benefits accrued by the total number of months during which the retirement benefits accumulate before being paid. Kendrick v. Kendrick, 902 S.W.2d at 927.
One advantage to the deferred distribution method is that it allows an equitable division without requiring present payment for a benefit not yet realized and potentially never obtained. Gallo v. Gallo, 752 P.2d at 55. Another advantage to the approach is that it equally apportions any risk of forfeiture. While a disadvantage may be that the approach requires a trial court to retain jurisdiction to oversee the payment, the entry of an order awarding a certain percentage of the benefits at the time of payment should lessen the administrative burden of the court . . . .
Cohen, 937 S.W.2d at 831.
However, in the instant case, it is not within our purview to determine which method of valuing the defined benefit plan is the more appropriate, more advantageous, or more equitable; we are merely to interpret the intent of the parties as expressed in the language of the MDA. We note this was not an irreconcilable differences divorce wherein the court has the responsibility to approve the MDA as equitably distributing the parties' property. Tenn. Code Ann. § 36-4-103(3)(b). Even in that situation, if an MDA is ambiguous, "it is the intent of the parties that is relevant, not the intent of the trial judge." Ahern v. Ahern, 15 S.W.3d 73, 81 (Tenn. 2000).
A marital dissolution agreement is essentially a contract between a husband and wife in contemplation of divorce proceedings. Towner v. Towner, 858 S.W.2d 888, 890 (Tenn. 1993); Gray, 993 S.W.2d at 63. Such a contract is enforceable. Holt v. Holt, 995 S.W.2d 68, 72 (Tenn. 1999). "A property settlement agreement between a husband and wife is `within the category of contracts and is to be looked upon and enforced as an agreement, and is to be construed as other contracts as respects its interpretation, its meaning and effect." Bruce v. Bruce, 801 S.W.2d 102, 105 (Tenn.Ct.App. 1990) (quoting Matthews v. Matthews, 24 Tenn. App. 580, 593, 148 S.W.2d 3, 11-12 (1940)). Where the MDA or property settlement is incorporated into the decree of the court, the agreement with regard to division of property does not lose its contractual nature. Gray, 993 S.W.2d at 64; Moore v. Moore, No. 01-A-01-9708-CV-00444, 1998 Tenn. App. LEXIS 831, at *5 (Tenn.Ct.App. Dec. 8, 1998) (no Tenn.R.App.P. 11 application filed) (citing Penland v. Penland, 521 S.W.2d 222, 224 (Tenn. 1975)).
Although both parties maintain that paragraph 35 is not ambiguous, each presented expert testimony regarding the proper interpretation of the language. The experts agreed the term "account balance" was not one appropriate to a defined benefits plan. While the 401(k) plan distributed pursuant to paragraph thirty-four of the MDA had an "account balance" as of April 29, 1994, there is no such thing as an "account balance" in a retirement income plan such as the one involved in paragraph 35 of the MDA.
Mr. Yopp testified that he would interpret the term "account balance" used by the parties in paragraph 35 to mean "accrued benefit." When asked his opinion as to what type of QDRO was required by paragraph 35 he responded that his interpretation was that ". . .you had to calculate what it was today, and that value was fixed as of April 29, 1994."
Mrs. Dunloy's own expert, Mr. Guyton, acknowledged that he would have reasonably concluded that the term "account balance" as used in the MDA meant "accrued benefit." If the term "accrued benefit" is substituted for "account balance," the MDA requires that the retirement income plan be divided under the present value method. Mr. Yopp explained, "Account balance means a sum certain and the only way you can calculate and have a sum certain is to do a net present value calculation."
Although the term "account balance" may not, according to the experts, clearly fit a defined benefits plan, the parties used that term, and this court must presume the parties intended something by its use. We find that the most logical conclusion, based on the words employed in paragraph 35 is that the parties used the term "account balance" to mean a sum certain amount as of the date specified. The most likely description of that sum certain is the accrued benefit. This interpretation is supported by other language of paragraph35 that refers to a specific amount accrued as of a specific date. For example, Mr. Dunloy agreed that "his account balance, as of April 29, 1994, . . . shall be divided equally with Mrs. Dunloy." Further, he "hereby assigns to Mrs. Dunloy one-half (1/2) of his account balance," referring to the balance as of April 29, 1994.
The deferred distribution method does not calculate the value of the benefit; it distributes the portions of the benefits, whatever their value, to be paid in the future. The deferred distribution method does not involve a present assignment of any specific amount; it entitles the recipient to a portion of benefits when they are received in the future. Therefore, we interpret the language used by the parties in paragraph 35 of their MDA as inconsistent with any intent to use the deferred distribution method and consistent with an intent to use the net present value method.
Accordingly, we reverse the judgment of the trial court and remand this case for further proceedings consistent with this opinion. The costs of appeal are taxed against the appellee, Eileen Wilson Dunloy, for which execution may issue if necessary.
I respectfully dissent.
The majority is introducing a doctrine that might aptly be called "judicial substitution" by substituting the term "accrued benefit" in the place and stead of "account balance" as it actually appears in paragraph 35 of the MDA, and then further assuming as a matter of law that "accrued benefit" mandates application of the "present cash value" method of distributing the retirement income plan which is the subject of paragraph 35 of the MDA. I find no justification for either the substitution or the assumption which work a reversal of the trial court's studied consideration of the issue.
The only witnesses to testify at this hearing were Michael Guyton, an expert witness employed by Mrs. Dunloy and G. Michael Yopp, an expert witness employed by Mr. Dunloy. Neither of these experts had been involved in any way with the divorce case or knew anything about the intent of the parties when they executed the marital dissolution agreement contemporaneously with the April 1994 divorce. The only evidence subsequent to the divorce hearing bearing on the intent of the parties in the property settlement agreement is a joint stipulation filed April 8, 1997 which is crucial to the outcome of this case. This stipulation provides: "As evidenced by the signatures of their attorneys set forth below, the parties hereby stipulate that the remainder of the property settlement division is equitable standing independently of paragraph 35."
The difficulty arises in the fact that everyone agrees that paragraph thirty-five standing alone makes no sense. While the 401k plan distributed pursuant to paragraph thirty-four of the MDA had an "account balance" as of April 29, 1994, there is no such thing as an "account balance" in a retirement income plan such as that involved in paragraph thirty-five of the MDA. The only testimony offered at the February 14, 1997 hearing was the testimony of two expert witnesses ex post facto as to what the parties really intended by paragraph thirty-five of the April 29, 1994 MDA. Mr. Dunloy insists that the term intended by the parties in paragraph thirty-five was "accrued benefit" rather than the term "account balance." This would in his view pave the way for an actual cash value benefit for Mrs. Dunloy frozen in time at the divorce date.
Mrs. Dunloy, on the other hand, insists that the parties intended in paragraph thirty-five to provide for a deferred compensation method involving the "coverture fraction." Mr. Guyton, testified without contradiction by Mr. Yopp, as to the definition of the coverture fraction method.
The coverture fraction method looks at the time that the parties were married and they participated in the plan. That would be the numerator; number of month, years of service. And the denominator would be the entire length of time that the participant was a member of the plan up to his retirement age or he separates employment.
That fraction would be applied to the benefit determined at his separation of employment, which would give you the marital share, which would then be divided equally.
While the parties strenuously disagree as to the proper interpretation of paragraph thirty-five both parties with equal vigor deny any ambiguity in the language used.
First of all, it is well to observe that an ambiguity "does not arise in a contract merely because the parties may differ as to interpretations of certain of its provisions." Cookeville Gyocology and Obstetrics, P.C. v. Southeastern Data Systems, Inc., 884 S.W.2d 458, 462 (Tenn.Ct.App. 1994); see also Johnson v. Johnson, 37 S.W.3d 892, 896 (Tenn. 2001).
The Tennessee Supreme Court has held:
The overriding purpose of the Court in interpreting the contract is to ascertain the intention of the parties and to give effect to that intention, consistent with legal principles. Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., Tenn., 521 S.W.2d 578 (1975); Walker v. Tennessee Farmers Mut. Ins. Co., Tenn.App., 568 S.W.2d 103, 105 (1977); 17 Am.Jur.2d Contracts § 244 (1964). Another fundamental principle which is applicable here is stated in the Restatement of Contracts, § 236(b), as follows:
"The principal apparent purpose of the parties is given great weight in determinating the meaning to be given to manifestations of intention or to any part thereof."
Also applicable here is a principle which has been aptly stated as follows:
"The court in interpreting words or other acts of the parties puts itself in the position which they occupied at the time the contract was made. In applying the appropriate standard of interpretation even to an agreement that on its face is free from ambiguity it is permissible to consider the situation of the parties and the accompanying circumstances at the time it was entered into — not for the purpose of modifying or enlarging or curtailing its terms, but to aid in determining the meaning to be given to the agreement." Restatement of Contracts, § 235(d) and Comment.
Particularly pertinent here is the following principle:
"Intention or meaning in a contract may be manifested or conveyed either expressly or impliedly, and it is fundamental that that which is plainly or necessarily implied in the language of a contract is as much a part of it as that which is expressed. If it can be plainly seen from all the provisions of the instrument taken together that the obligation in question was within the contemplation of the parties when making their contract or is necessary to carry their intention into effect, the law will imply the obligation and enforce it." 17 Am.Jur.2d Contracts § 255 (1964) at 649.
This principle was applied in this State by the Court of Appeals in E.O. Bailey Co. v. Union Planters Title Guaranty Co., 33 Tenn. App. 439, 232 S.W.2d 309, 3165 (1949), the court stating: "[A]n unexpressed obligation will be implied when it is clear that it was intended." Hamblen County v. City of Morristown, 656 S.W.2d 331, 333-34 (Tenn. 1983).
Whether or not the law requires the court to find the distribution of marital property to be equitable under an MDA in a divorce not based on irreconcilable differences grounds, one element of the intent of the parties established by the proof in this case was that they intended an equitable distribution of their marital property. They so stipulated immediately before the February 14, 1997 hearing. Apparently, what nobody wanted was for the trial court to upset any part of the marital dissolution agreement relative to marital property that was not involved in paragraph thirty-five of the MDA. That this kind of isolation of paragraph thirty-five from the remainder of the marital property division concerned the trial court as to the equitable nature of the entire distribution of marital property was evident at the conclusion of the February 14, 1997 hearing:
THE COURT: I'm also thrown back without any proof on the division otherwise between the property interest of the parties, because I don't know whether this was meant to — — whether Paragraph 35 was meant to balance off detriments or benefits in any other — in the rest of the MDA, or if I may assume that everything else in the MDA was balanced and as it should be, given the facts of the case, and so I should be doing something in Paragraph 35 in rewriting Paragraph 35 and dividing up the retirement that equally divides the interest between the two parties.
THE WITNESS: With due respect to the Court, as Mr. Martin pointed out, the MDA contains severability language which says that the rest of this was apparently a[n] intensely negotiated document.
THE COURT: Okay. Let's talk about the severability language. The severability language says that a determination that Paragraph 35 is not enforceable does not invalidate the other paragraphs. I'm not suggesting for a minute that it would invalidate; I'm saying that the — I must still take into account the rest of the property settlement division in order to decide what is equity with regard to the retirement. I'm saying these are two very different things. The one says we're throwing the whole thing out, the other says I'll look at what was done and the appropriateness in all the other divisions to decide what is equitable to do with the retirement benefits. You don't' see that those are the same thing?
The parties envisioned the totality of the marital property division to be an equitable one. Isolation of paragraph thirty-five and applying Mr. Dunloy's proposed "frozen" as of the date of the divorce approach would result in Mrs. Dunloy receiving an expected monthly benefit upon Mr. Dunloy's retirement at age sixty of $565.00. If she chose a lump sum at that time it would be approximately $60,000.00. Adopting the deferred jurisdiction approach proposed by Mrs. Dunloy she would receive a monthly benefit at Mr. Dunloy's retirement at age sixty in the amount of $1,087.00 per month. If she chose a lump sum benefit at the time of Mr. Dunloy's retirement it would be $161,702.00. Thus, the reason for the trial court's concern about overall equitable distribution is obvious. This frozen or "present cash value" has serious drawbacks in determining the equitable distribution of the entire marital estate:
Once the present cash value is calculated, the court may award the retirement benefits to the employee-spouse and off set that award by distributing to the other spouse some portion of the marital estate that is equivalent to the spouse's share in the retirement interest. In re: Marriage of Gallo, 752 P.2d at 54. The present cash value method is preferable if the employee-spouse's retirement benefits can be accurately valued, if retirement is likely to occur in near future, and if the marital estate includes sufficient assets to off set the award.
Cohen v. Cohen, 937 S.W.2d 823, 831 (Tenn. 1996).
Like Croley v. Tiede, No. M1999-00649-COA-R3-CV, 2000 WL 1473854 (Tenn.Ct.App. Oct. 5, 2000), the calculation of the benefits payable at retirement in this case is back loaded. The benefit is figured using the average salary of the last three years prior to retirement rather than being figured on the basis of units of equal value such as were reflected in Cozart v. Cozart, 1999 WL 669225 (Tenn.Ct.App. Aug. 27, 1999).
The parties intended an equitable distribution of all of their marital property and the trial court held that this meant application of the deferred distribution method envisioned in the coverture fraction. As to a "back loaded" retirement benefit, it is immaterial whether we are dealing with a vested or an unvested retirement benefit. In Croley, we applied the "time rule" formula based upon the "marital foundation theory" articulated by the Supreme Court of Colorado in In re: Marriage of Hunt, 909 P.2d 525 (Col. 1995) and In re: Marriage of Kelm, 912 P.2d 545 (Col. 1996).
The trial court decision applying the "coverture fraction" to deferred distribution is clearly the most equitable solution to the present problem and conforms to the parties' stipulated intent to effect an equitable distribution of the entirety of their marital property.
It is well to observe that the term "accrued benefit" does not necessarily mean the "present cash value" method of distribution. Under the deferred distribution method the "coverture fraction" is accrued as of the date of the MDA. It is the numerator which remains static in contrast to the continually expanding denominator resulting from post-divorce employment of Mr. Dunloy.
"The fairness and equity of the `time rule formula' stem from the static numerator of the marriage years compared to the ever expanding denominator of the post marriage years so that the percentage of the actual retirement income assigned to the non-employee spouse continues to diminish with each year added to the denominator by the continued post divorce employment of the employee spouse prior to his actual retirement." Croley, 2000 WL 1473854, at *10.
In this case the trial judge was faced in a situation where neither party wanted to disturb any part of the Marital Dissolution Agreement except paragraph 35. The parties stipulated that except for paragraph 35, the distribution was "equitable" in accordance with their wishes. The term "account balance" is meaningless when applied to pension benefits not payable until the retirement of Mr. Dunloy. The parties cannot agree as to the meaning of paragraph 35 as to the method of distribution. On the stipulation of the parties that all other distributions of marital property in the MDA were meant to be equitable, the trial court properly assumed that both parties intended for paragraph 35 to involve an equitable distribution of retirement benefits. He applied the deferred distribution method in making an equitable distribution. The evidence does not preponderate against his decision and he has not abused his discretion. Judicial substitution is not an appropriate appellate remedy and I would affirm the trial court.