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Case of the Month Archive

March 2016

A more equitable solution possible if parties stipulate to one . . .

 

In affirmance, Second District holds that husband’s Social Security benefits are his separate property, but wife’s LACERA benefits are community property and must be divided equally on divorce

 

In re Marriage of Peterson

(January 11, 2016)

California Court of Appeal 2 Civil B259322 (Div 4) 243 Cal.App.4 th 923, 197 Cal.Rptr.3d 588, 2016 FA 1722, per Collins, J (Willhite, PJ and Manella, J, concurring). Los Angeles County: Silverman, J, affirmed. For appellant: James Neavitt, CFLS, (661) 255-0016, and Andrew Fowler, (925) 998-3604. For respondent: Brian Moore, CFLS, (818) 222-8793. CFLP §§L.5.5.40.5, L.69.

 

John and Annette Peterson, both attorneys, were married on March 12, 1994. During the marriage, John worked in private practice and contributed to Social Security. Annette, who began working as a deputy DA for Los Angeles County in September 1994, was a member of the Los Angeles County Employees Retirement Association (LACERA), a defined benefit retirement plan to which the County, but not its employees, contributes. In fact, Annette was barred from contributing to Social Security and per 42 USC 415(a)(7) [Windfall Elimination Provision of the Social Security Act], was barred from receiving Social Security benefits, either as an individual or as John’s spouse.

 

The couple separated in February 2010 and began disso proceedings. They stipulated to child custody and property division issues, but not to the division of their retirement benefits. They agreed that under current federal and state law, John’s Social Security benefits were his separate property and Annette’s LACERA benefits were community property. However, Annette contended that it was inequitable for John to receive all of his Social Security benefit, plus half of her LACERA benefits, while she received only the other half of her benefits. At trial, Annette presented evidence as to the present value of each set of benefits, the amount she would have been entitled to if she had participated in Social Security, and the amounts that John and his employer had contributed to Social Security during the marriage. She asked the trial court to “fashion an equitable division of the LACERA benefits to account for this disparity.” She suggested that the trial court either (a) require John to reimburse the community for the amount of Social Security contributions withheld during the marriage and then divide the community property, (b) allocate a portion of the LACERA benefits to her (based on her entitlement if she had participated in Social Security) as her separate property and divide the rest, or (c) consider the present value of John’s Social Security when it divided the LACERA benefits to obtain a roughly equal division. The trial court subsequently concluded that considering John’s Social Security benefits would be a statutorily impermissible offset, that those benefits were John’s separate property and not subject to division, and that Annette’s LACERA benefits were community property that must be divided equally under Fam C §2550. Accordingly, the trial court declined to fashion a division of the LACERA benefits that was not permitted by law.

 

Annette appealed, but the Second District affirmed.

 

No hat trick for Annette . . .
On appeal, Annette again urged the justices to consider the three methods for equitably dividing the retirement benefits that she suggested to the trial court. The justices reasoned that federal law preempts California law on the issue of Social Security and precludes Social Security benefits from being characterized as community property and/or divided in a disso. The panel pointed out that the anti-attachment provision of 42 USC 407(a) states that a person’s right to receive Social Security benefits cannot be transferred or assigned, nor may the benefits be subject to execution, levy, attachment, garnishment, or other legal process, including bankruptcy law. In addition, the justices noted, the offset solution that Annette proposed is also precluded by federal law. They recalled that in Hisquierdo v, Hisquierdo (1979) 439 U.S. 572, 99 S.Ct. 802, 1979 CFLR 1030, a case involving Railroad Retirement Act Benefits, the wife made a similar argument regarding an offsetting award of community property to compensate her for her interest in those benefits, which were her husband’s separate property. The U.S. Supreme court rejected that argument, finding that approving such an offset would be the same as awarding the benefits themselves, which was prohibited.

 

A bird in the bush, not in the hand . . .
Annette also contended that John’s contributions to Social Security amounted to the use of community funds to improve an item of separate property, for which the community should be reimbursed. The panel found, however, that the amounts withheld from John’s earnings for Social Security were mandatorily removed from John’s earnings and “were never available to the community” and if they characterized the benefits as community property it would be the same as authorizing a precluded offset. Moreover, Fam C §760 defines community assets as property acquired by a married person during marriage, the justices noted. Here, they reasoned, the parties never acquired the directly-withheld funds, thus, the funds never became community property. Turning to the question of Fam C §2640 reimbursement for the withheld funds, the justices pointed out that this statute excludes “ ‘payments made for maintenance, insurance, or taxation of the property.’ ” The funds withheld for Social Security, the panel found, are taxes and are not eligible for §2640 treatment.

 

Isn’t that special . . .
Annette’s request for a more equitable award faced a final big hurdle, Fam C §2550, which requires the trial court to divide community property equally between the parties. And, although Annette’s other suggestions for achieving a more equitable division might have merit, they are “not supported by California law.” She cited, and the justices acknowledged, several cases in which the courts of other states had approved the methods she suggested to account for disparities like the one in this case. The panel found the laws of those other states distinguishable, and emphasized that California “is unique in its approach to community property because it strictly limits trial court discretion.” Here, the trial court has no discretion to divide community property unequally unless the parties stipulate to such a division or another law permits it. The justices “symphathize[d] with Annette’s situation” and recognized that the result was inequitable, but concluded that their role was not “to change or defy California law.” Accordingly, the panel held that the trial court correctly determined that John’s Social Security benefits were his separate property, but Annette’s LACERA benefits are community property that must be divided equally.

 

 

Comment

  

The inequity in this situation is clear; the path to a remedy for it is less clear. The justices tell us that our Legislature is free to craft a statute that will provide a more equitable division when one spouse’s retirement plan is classified as separate property under federal law. However, we wonder how effective such a law would be, given that they have just emphasized that any kind of an offset is prohibited by federal and case law, and the remedies used under the laws of other states are distinguishable because of California’s unique approach. The panel also notes that members of Congress have repeatedly introduced “versions of a ‘Social Security Fairness Act’ intended to amend the Government Pension Offset and Windfall Elimination Provision,” but without success. In addition, in a footnote, the justices remind us that on July 16, 2015, the Legislature passed Senate Joint Resolution No. 1, which, among other things, requests the Congress to pass legislation repealing that provision from the Social Security Act. Meanwhile, unless our clients can agreed on an equitable settlement in these situations, the inequity will unfortunately continue.

 

 

 
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