Opinion
Supreme Court No. S-10833.
July 7, 2004.
Appeal from the Superior Court of the State of Alaska, Fourth Judicial District, Fairbanks, Charles R. Pengilly, Judge. Superior Court No. 4FA-01-2819 Civil.
Anna L. Ridenour, pro se, Fairbanks.
William James Ridenour, pro se, New Comerstown, Ohio.
Before: Bryner, Chief Justice, Matthews, Eastaugh, Fabe, and Carpeneti, Justices.
MEMORANDUM OPINION AND JUDGMENT
Entered pursuant to Appellate Rule 214.
I. INTRODUCTION
Did the superior court correctly treat a disability pension as income replacement, and thus not subject to division upon divorce, or should the court have treated it as a retirement pension, the marital portion of which is subject to division? Because the superior court properly applied Alaska law, we affirm the court's property division as within its discretion and supported by evidence in the record. We remand, however, for determination whether any payments made before age sixty-five are also early retirement benefits and therefore subject to division as marital property.
II. FACTS AND PROCEEDINGS
William Ridenour was born on December 30, 1953 and began working for KF Aircraft Braking Systems Corporation (Aircraft Braking) in 1976. He married Anna Ridenour in 1982. After marrying Anna, he suffered injuries in two automobile accidents, causing him complete and permanent physical disability. His employment at Aircraft Braking ended in April 1999.
William, now fifty years old, has not reached the normal age for retirement at Aircraft Braking. Aircraft Braking, however, deemed him eligible to receive disability pension benefits as of May 1, 2000. He is entitled to receive $568 per month in disability pension benefits from Aircraft Braking, but he was not yet receiving the pension benefits at the time of the divorce trial in June 2002. William also receives $1,412 per month in Social Security benefits, which he began receiving in October 2001.
The parties divorced on September 23, 2002, after twenty years of marriage. The divorce decree divided various items of marital property, but the subject of this appeal concerns only one item — William's Aircraft Braking pension — which the superior court divided as follows:
Until age 65 William is being compensated for his disability, the benefits William receives up to age 65 are not subject to distribution. William should, therefore, be awarded the entirety of the monthly pension benefit, as well as accrued benefits, until he reaches age 65.
Anna is entitled to one-half (50%) of the Aircraft Braking Systems Corporation pension benefit paid after William reaches age 65.
The superior court therefore characterized the pension benefits William was to receive before turning sixty-five as a replacement for lost income, thereby classifying them as his separate property, and not, as Anna urged, marital property subject to division. The decree treated pension payments William will receive after he turns sixty-five (when he will presumably be eligible for normal retirement) as marital property, subject to division.
The superior court also entered a Qualified Domestic Relations Order (QDRO) satisfying Section 414(p) of the Internal Revenue Code of 1986 and Section 206(d)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), as amended, to implement the divorce decree. The QDRO specified Anna as the alternate payee and ordered that she receive fifty percent of William's retirement benefits paid after December 30, 2018, when he turns sixty-five. The superior court later issued an amended decree deleting a provision that previously ordered payments to go to Anna's attorney in trust for her.
Anna appeals the superior court's division of William's pension on the grounds that it (1) is based on a misapplication of Alaska statutory and case law; (2) is factually and clearly erroneous and an abuse of discretion; (3) conflicts with ERISA; and (4) forces Aircraft Braking, William's former employer, to violate ERISA. Anna also contends that her trial attorney violated Anna's rights, her right to due process of law, and the lawyer's ethical standards by incorporating an indefinite "trust arrangement" into the divorce decree without Anna's agreement. Both Anna and William had counsel in earlier stages of the litigation, but their respective attorneys have withdrawn. They appear pro se before us.
III. DISCUSSION
A. Standard of Review
Trial courts have broad discretion in dividing property during divorce proceedings. Property division involves three steps: (1) determining what property is available for distribution; (2) valuing that property; and (3) equitably allocating the property. We review for abuse of discretion the superior court's characterization of property as marital or separate. We review the equitable allocation of the property under the same standard and will not overturn a property division unless it is "clearly unjust." When the trial court's decision involves statutory interpretation or involves application of legal principles to the facts at issue, we review its legal determinations de novo.
Conner v. Conner, 68 P.3d 1232, 1234 (Alaska 2003); Johns v. Johns, 945 P.2d 1222, 1224 (Alaska 1997) (citing Alaska case law and AS 25.24.160(a)(4)).
Johns, 945 P.2d at 1224-25; Lundquist v. Lundquist, 923 P.2d 42, 46-47 (Alaska 1996).
Leis v. Hustad, 22 P.3d 885, 887 (Alaska 2001); Wanberg v. Wanberg, 664 P.2d 568, 570 (Alaska 1983).
Conner, 68 P.3d at 1235; Brown v. Brown, 947 P.2d 307, 308-09 (Alaska 1997).
Leis, 22 P.3d at 887.
B. The Superior Court Did Not Err in Characterizing Pension Payments William Will Receive Before Retirement Age as Disability Payments and Treating Them as Separate Property.
Anna challenges the superior court's division of William's Aircraft Braking pension. She argues that the entire stream of payments, including those disbursed before William's sixty-fifth birthday, is a retirement pension and thus marital property subject to equitable division between the parties. Anna argued below that the pension is marital property because William earned the pension while he was married. She also contended that William's disability merely allowed for early payment of retirement benefits he would not otherwise receive until he reached normal retirement age. She also noted that the monthly amount that William will receive due to his disability is exactly the same as the monthly amount he will receive when he reaches retirement age.
We held in Edelman v. Edelman that to the extent a party earns during marriage the right to future retirement benefits, those benefits are marital assets and hence subject to equitable distribution. This entitles the spouse to a share of the retirement benefits or at least to another part of the marital estate equal to this share.
3 P.3d 348, 356 (Alaska 2000).
Id.
The same does not hold true, however, with respect to disability retirement benefits. As we explained in Conner v. Conner:
Workers' compensation payments or disability retirement payments represent income replacement. After divorce, they are regarded as the separate property of the spouse to whom they are paid. In contrast, retirement benefits earned during the marriage are marital property subject to equitable division. But once [the husband's] pension matures, [the wife] will be entitled to one-half of his retirement benefits. Until then, [the husband's] workers' compensation award is a form of income replacement in which [the wife] has no interest. Because a portion of [the husband's] workers' compensation income [would] be a substitute for [the husband's] regular retirement benefits after maturity of his pension, this portion should be viewed as marital property and divided.
Conner, 68 P.3d at 1235 (emphasis added) (citations omitted).
We also held in Miller v. Miller that a workers' compensation disability award is marital property only to the extent it compensates for loss of income during the marriage; but if an award compensates for the loss of earnings after divorce, it is separate property even if the compensable injury occurred during marriage. Other jurisdictions are in accord with our approach in Conner and Miller in treating post-divorce disability payments as separate property.
739 P.2d 163, 165 (Alaska 1987).
In re Marriage of Saslow, 710 P.2d 346, 351-52 (Cal. 1985) ("The primary purpose of disability benefits is to compensate the disabled spouse for lost earnings — earnings which would normally be separate property after dissolution."); Carney v. Carney, 653 N.Y.S.2d 696, 697 (App.Div. 1997) ("A disability pension, to the extent that it is compensation for personal injuries, is separate property which is not subject to equitable distribution."); In re Marriage of Geigle, 920 P.2d 251, 255 (Wash.App. 1996) (recognizing that disability payments "which are solely meant to compensate an individual for lost post-dissolution wages are not considered an asset divisible upon dissolution").
The rationale discussed in Conner applies equally here. We hold that disability retirement benefits paid to William after the date of the divorce replace the income he would have earned after the divorce; they are therefore his separate property and are not to be divided upon divorce. Retirement benefit rights earned before the period of coverture began are likewise William's separate property.
Conner, 68 P.3d at 1235; Miller, 739 P.2d at 165.
Cf. Conner, 68 P.3d at 1235.
It is undisputed that, whether or not he remains disabled, all pension payments William receives after he reaches normal retirement age will be longevity retirement benefits rather than disability benefits (or "early retirement benefits"). It is therefore proper to treat those pension benefits William earned during marriage and receives after he reaches normal retirement age as marital assets to be equitably divided.
Id.
The evidence in the record supports the superior court's finding that the payments William receives before he is eligible for retirement should be characterized as a disability benefit rather than as a retirement benefit. It is undisputed that William's disability is the only reason he is presently eligible to receive a pension. He is well under the age at which Aircraft Braking employees may retire. William testified that Aircraft Braking requires him to provide records so that if he becomes able to return to work before he reaches retirement age, all payments will stop until he reaches normal retirement age. Indeed, Anna admits that it is William's disability that triggered his early retirement benefits.
We have previously relied upon evidence from pension administrators in cases in which it was disputed whether benefits were retirement or disability benefits. We thus held in Foster v. Foster that the superior court did not err in treating a pension as marital property because "[e]vidence from the pension administrator . . . indicate[d] that the benefits [were] true retirement payments rather than payments on account of disability."
883 P.2d 397, 400 (Alaska 1994).
The record here includes a letter on behalf of Aircraft Braking's pension committee from Mario Bonacci, the Aircraft Braking retirement benefits administrator; the letter refers to William's pension as "a disability pension." Bonacci also attached a document prepared by Aircraft Braking in December 2001 showing William's estimated benefits and marking "Yes" for the fields "Disability Pension" and "SS Disability." Bonacci testified at trial that William applied for a disability retirement pension and that Aircraft Braking approved his application. There is no indication that William's retirement effective May 1, 2000 was due to anything other than his disability.
The testimony and the letter from the Aircraft Braking pension committee, as well as the undisputed characteristics of the current pension payments, thus support the superior court's property division. That the current payments are the same amount as the amount he is to receive as retirement benefit payments when he turns sixty-five does not mean that the superior court erred in its characterization of the pension.
C. Early Retirement Benefits May Be Subject to Division.
There is, however, one potential wrinkle to consider. There is a possibility William may be eligible for longevity retirement before he reaches sixty-five. If so, payments to William made prior to age sixty-five may actually be early retirement benefits subject to division. Although neither Anna nor the superior court directly addressed early retirement, Anna's argument encompasses all retirement benefits paid before age sixty-five, and therefore necessarily implicates this issue.
In Conner, a disabled air traffic controller argued that the applicable maturity date of his retirement benefits should be the mandatory retirement age. We noted, however, that the trial court has discretion to choose the earliest possible maturity date for retirement benefits in order to protect the nonemployee spouse. The earliest maturity date is the earliest date that the parties could expect to begin realizing benefits from the pension.
Conner, 68 P.3d at 1236.
Id. at 1237.
Id. at 1236.
Evidence in the record suggests that the Aircraft Braking pension plan may permit retirement at age sixty-two, although the superior court found normal retirement age to be sixty-five. The December 2001 estimate of William's retirement benefits contains numerous references to age sixty-two rather than sixty-five. William testified that his pension "kicks in" at age sixty-two and that upon recovery from his disability, his disability payments cease until he turns sixty-two. In addition, Bonacci testified that employees do not incur any reduction due to earlier age prior to normal retirement. This evidence suggests that the Aircraft Braking pension plan may permit early retirement, without penalty, when an employee reaches age sixty-two. It is also unclear how the superior court determined sixty-five to be the standard age for retirement as defined under Aircraft Braking's pension plan. One of Anna's pleadings below refers to sixty-five as the normal retirement age, but the record discloses no other evidence supporting that assertion.
If a plan allows for early retirement at age sixty-two, the superior court has discretion to treat payments received between age sixty-two and sixty-five as retirement benefits constituting marital property for division. These payments will not necessarily be income replacement. We therefore remand to give the parties an opportunity to litigate this issue if they choose to do so. If they do, the superior court may in its discretion decide whether the evidence already in the record is sufficient to resolve the issue, or whether to allow the parties to submit additional evidence.
Id. at 1237.
D. ERISA Does Not Preempt the Superior Court's Division of William's Pension.
Anna also argues that the superior court's determination that the payments William currently receives are disability compensation, rather than retirement payments, conflicts with the Employment Retirement Income Security Act of 1974 (ERISA) as amended by the Retirement Equity Act (REA). She argues that the award would force Aircraft Braking to violate ERISA by denying Anna her fair share of the pension payments William receives before his sixty-fifth birthday.
We note that Anna raises this argument for the first time on appeal, but we will address the issue because it pertains to subject-matter jurisdiction which is not waivable and can be raised at late stages in the litigation. Hydaburg Co-op. Ass'n v. Hydaburg Fisheries, 925 P.2d 246, 249 (Alaska 1996).
Whether ERISA preempts a state law presents a question of law, which we review de novo. We apply our independent judgment and "adopt the rule that is most persuasive in light of precedent, policy, and reason." ERISA generally preempts state court divorce decrees and judgments purporting to affect the benefits payable from an ERISA policy. There is an exception, however: ERISA does not preempt state court divorce decrees or judgments if the state court order meets the requirements of a QDRO under 29 U.S.C. § 1056(d)(3). 29 U.S.C. § 1056(d)(3)(B)(i) specifies the requirements a state court order must meet to qualify as a QDRO:
Andrews v. Alaska Operating Eng'rs-Employers Training Trust Fund, 871 P.2d 1142, 1144 (Alaska 1994).
Id.
29 U.S.C. § 1056(d)(3)(A); Aetna Life Ins. Co. v. Montgomery, 286 F. Supp.2d 832, 838 (E.D. Mich. 2003) (citing Sixth Circuit cases).
[T]he term "qualified domestic relations order" means a domestic relations order — (I) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and (II) with respect to which the requirements of [a "domestic relations order" as defined by the statute] are met. . . .
The required elements of a "domestic relations order" include:
(i) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order, (ii) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, (iii) the number of payments or period to which such order applies, and (iv) each plan to which such order applies.
In addition, under 29 U.S.C. § 1056(d)(3)(D) a qualified domestic relations order
(i) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan, (ii) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and (iii) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
The superior court's QDRO, which states that it is intended to fulfill the requirements of a QDRO pursuant to 29 U.S.C. § 1056(d)(3), specifies the names of the participant and alternate payee and the plan to which the order applies and states that Anna will receive fifty percent of the benefits after December 30, 2018. The QDRO also directs Anna and William to provide the plan administrator with correct and sufficient mailing addresses for the payment of benefits. Paragraph 15 of the QDRO explicitly recites all the requirements specified in 29 U.S.C. § 1056(d)(3)(D). Because the superior court's QDRO complies with the requirements under the QDRO exception, ERISA does not preempt state law as to the division of William's pension.
E. Issues Related to the Trust in the Divorce Decree Are Moot.
Anna also argues her trial attorney inserted a "trust arrangement" that she did not want into the original divorce decree. This contention, if true, would not necessarily demonstrate that the superior court erred. In any event, the superior court amended the decree of divorce to remove the trust arrangement. We therefore are unpersuaded that the attorney's alleged error harmed Anna in any way that would justify reversal.
IV. CONCLUSION
Because the division of William's disability retirement pension was within the superior court's discretion under Alaska case law and was not preempted by ERISA, we AFFIRM in principle the superior court's decree of divorce and property division, but REMAND for determination whether any benefits to be paid between age sixty-two and sixty-five should be considered early retirement benefits, the marital portion of which is potentially subject to equitable division.