In Re the Marriage of Kelm

Nelson Oliver In re Petitioner,

KELM, KELM, Respondent. Rae

Eloise

No. 94SC184. Colorado,

Supreme Court Banc.

En 26, 1996.

Feb. March

Rehearing Denied Kirchner,

John E. Springs, Colorado for Petitioner. Kirkman, Jr.,

William H. Colorado Springs, Respondent.

Justice MULLARKEY delivered the Opinion of the Court. granted We certiorari in In re (Colo.App.1994), 878 P.2d 34 to review

whether the trial awarding court erred in (1) portion wife: of husband’s retirement employment benefits attributable to his after (2) divorce; all benefits from her (3) plan; lump-sum distribution of contributions to the pension plan prior should he die to retirement.1 The appeals court of affirmed in and re- part. versed We now hold that the trial court abused its discretion and affirm in in part reverse the decision of the court appeals. We return the case with instruc- tions to appeals to remand the case to the trial court for proceedings further opinion. consistent with this I. (wife)

Eloise Rae Kelm and Nelson Oliver (husband) Kelm twenty-six were married for years prior to the dissolution of their mar- granted (3) following We certiorari on reserving jurisdiction issues: Whether as to one unmatured, spouse's pension requires future (1) Whether the trial court below awarded the similarly jurisdic- that the trial court reserve portion wife a of the husband’s unmatured unmatured, spouse’s tion as the other future future benefits which will be attribut- fairly equitably in order to offset able to his after the date of disso- considerations, plans upon the two the same lution. (2) parties' whether the unmatured practical bene- necessity Whether for defer- fits' can ring be ‍​​​​‌‌‌‌‌​​​​‌‌‌​‌​‌​​‌​‌​‌​​​‌‌​‌​‌​​​‌​​‌‌‌‌‌​‍valued and divided different distribution of an unmatured methodology points equally apportion and at order to different in time. the risk of forfeiture (4) permits Whether the trial court at the time of court of erred in de- divorce to ignore obligation termining prior to exclude the that if husband dies to retire- ment, pension payments future bewill wife will "receive a distribu- after the pre-dissolution ended. tion of contributions." the trial court had not abused its held that riage in 1992. At the time hus- posi- and had treated both in a civil service had worked Army pos- bene- band’s CSRS tion for the United States court of found in federal Civil Ser- fits. a vested interest sessed (CSRS) awarding System benefits the trial court erred vice Retirement already lump-sum having accumulated nineteen credit under husband’s the entire pension. plan prior was toward his Wife if he were die of service retirement Hence, part-time re- employed as a librarian with the сourt retirement. system. had ac- di- public school She back to the trial court with Colorado manded Colora- order six of service under that the trial court amend its cumulated rections Associa- Employee’s provide Retirement wife receive a do’s Public “to (PERA) short, plan. pre-dissolution at the contri- tion benefit distribution parties held vested at 37. both 878 P.2d time butions.” respective in their but unmatured interests II. pension In addition to the (which they subse-

parties owned home property are marital Pension benefits sold) card quently and had amassed credit uрon dissolu and are to distribution $12,600. in the amount of debt Grubb, P.2d Marriage tion. In re 745 permit did not immediate distribution assets (Colo.1987). recent in In In our decision pension pres- on a net of husband’s (Colo. Marriage re P.2d against other ent value basis to be offset 1995),2 explained different methods of It was uncon- in the marital estate. assets advantages and the distribution parties’ vested but unmatured tested that disadvantages of method in detail. each pensions in the were interests Hence, the here will be brief. discussion awarded wife nine- property. trial court (%) one-half teen-thirtiеths There three methods that are pension benefits on an as-received basis —a can use distribute jur- total of 31.7%. The trial reserved (2) (1) value; upon dissolution: net over the husband’s isdiction (3) distribution; juris reserve deferred event husband took Turner, Dis Equitable Brett R. diction. See early buy- or laid off due to cut backs was (2d § 1994 & Property 6.11 ed. tribution of out benefits. The trial of his retirement used, Supp.). If first method is her PERA benefits court awarded wife all of pension is distribut present value of the net according to the contributions which it valued immediately against offset other ed way by made wife tоward property in the marital estate. Under as of the date dissolution. withheld methods, distribution is de remaining two Last, trial ‘“to court ordered husband is layed. If the distribution method deferred beneficiary as retire- maintain [wife] nonem- court devises the employed, prior in the of his ment funds event demise ployee’s percentage share ” Kelm, (quot- at 37 retirement.’ The nonem- receipt of benefits. advance court). ing applying ployee’s share determined if and when the benefits court’s rule” formula appeal of the trial “time On husband’s Alternatively, juris- distribution, reservе are received.3 receipt Marriage benefits. The coverture re was with In actual Hunt consolidated 1995), Raimer, (Colo. half, raised representing 909 P.2d is then divided fraction issue. the same equal attributable division of the is as follows: The formula incorporates a “cover- 3. The “time numerator, comprises a fraction” which ture length Service Years of (in years) creditable of time months or During Monthly x x Benefit ½ during towards the accumulated service Taxes) (After Total denominator, Years of length marriage, over the (in years) Service of total until months permits a trial wait until diction court to ee’s benefits for the rest of her life. his or actually government plans benefits are received and to divide Id. incorporate Some as- last, pects at that both them time. This method allows a defined defined benefit and flexibility any plans. trial court consider contribution Id. at That 7.10[2][c]. changes in plans circumstances that have tran- here —PERA is the ease are CSRS hybrid spired period plans. the interim between considered receipt benefits. statutorily governed and PERA are CSRS description pension plans. A brief the CSRS and §§ See 5 8331 to U.S.C. (1994); -1404, plans §§ warranted in order to under- -8351 24-51-101 to 10B (1988 above, stand the mechanics of court’s Supp.). distri- C.R.S. & 1995 As noted presented bution and the issues here. There both combine characteristics of con- defined categories pension plans, are broad plans. tribution defined benefit The em- plans benefit ployee employer prede- defined and defined contribu- a contribute plans. plans usually tion Defined benefit are plan termined amount towards under the (non-contribu- solely by employer respective statutory funded CSRS and PERA tory plans).4 plan Benefits a under such are schemes.5 Benefits under plans both are pursuant computed containing to a according formula calculated to a formula.6 for- variables, mula, turn, example, length employee’s three-years is linked to the monthly highest salary. highest salary of service and the averaged during the total Divorce, Oldham, Separation J. years employment.7 See Thomas PERA and CSRS § Property the Distribution years 7.10[2][b] vest after five service (1995). military A pension plan is a past classic are not to forfeiture that time.8 example of a plan. employees defined benefit eligible Covered are receive by way annuity of a lifetime when contrast, In a defined contribution is mature, plans upon age.9 retirement which “one states the owner’s interest as a Turner, in plan balance a R. apportioning account.” Brett husband’s bene- fits, § Equitable Property Distribution 6.10 at court utilized rule” the “time (2d 1994). ed. fifty Contributions are made percent formula and awarded wife by employer into the account nineteen-thirtieths of husband’s future retire- and/or (a employee pursuant prescribed tо a formula. ment benefit total of 31.7% of the basis). § employee’s Oldham See on ‍​​​​‌‌‌‌‌​​​​‌‌‌​‌​‌​​‌​‌​‌​​​‌‌​‌​‌​​​‌​​‌‌‌‌‌​‍an repre- 7.10[2][a]. as-received The fraction contributions immediately years vest the value sents husband’s nineteen service readily years of the account is thirty ascertainable since over separate account is for each maintained em- total service husband claimed he would ployee. Upon retirement, Id. the balance in retiring. achieve before used The trial court employee’s purchase thirty-year figure account is pеr- used was because it annuity employ- an which testimony funds the retired suaded husband’s that he was Sometimes, however, employee op- 4. paid, has the were whether earned from one or more required (contributory employers, periods tion or is to contribute that are associated with three plans). credit”). of twelve consecutive months of service 8334(a)(1) (1994); § § 5 U.S.C. See 24-51- 8333(a) (1994) ("An § employee 5. 8. See 5 U.S.C. 401(1.7), (1995 Supp.). 10B C.R.S. complete years must least 5 service civilian eligible annuity before he is for an under this 24-51-101(51), subchapter.”); § (1994); 24-51-603(l)(a), § 10B C.R.S. § 5 U.S.C. See (1988) (" (1995 'Vested benefit’ Supр.). means an entitlement 10B C.R.S. monthly upon a to future benefit which credit.”). completion of five of service 8331(4) (1994) ("'average pay’ § 7. See U.S.C. largest resulting means the annual from rate averaging employee's age pay plans an ... rates basic 9. Retirement under both on is based any statutorily over effect service”); 3 consecutive of creditable established schedule. See U.S.C. 24-51-602, 24-51-101(25)(a)(I), (1994); (1995 § § 10B C.R.S. 10B C.R.S. (1988 average Supp.) (highest Supp.). plans permit & employee Both to retire average high- "[o]ne-twelfth means earlier and receive reduced benefits at time plans annual salaries est which contributions mature. of distribution to the two possible date different methods at the earliest going to retire Last, husband contends that wife’s receive would on he thirty years in death should not have ex- share “maximum benefits” —after fifty percent of contributions made fixed cover- ceeded employment. The during the husband’s actual fraction in advance of ture jurisdiction in date and reserved took retirement or event husband A. early buy-out cut laid off due to backs

was argues application of Husband any If of thesе his retirement benefits.10 permits improperly the “time rule” formula place, the trial court were to take events i.e., separate property, in his wife to share presumably amend the “time would to his enhanced benefits attributable changed circumstances. reflect post-dissolution calculat efforts and benefits accomplished changing This would be his ed on the basis of earn the coverture fraction. denominator ings. position Husband takes characterized only eligible pen to receive ben- court’s distribution had been amassed as of the sion benefits that as “a of deferred distribu- efits combination retained an date of decree. Husband jurisdiction and valuation.” tion reserve the of his benefits expert to determine Kelm, 878 at 36. employment at time if he had terminated the trial valued wife’s PERA bene- The court scenario, that of dissolution. Under husband had according to the amount she contrib- fits eligible not be to benefits until would receive way plan by of uted toward the withheld age sixty-two. Thereby, of the he reached dissolution, salary as of a total the date high three-year expеrt “froze” husband’s the $3,100. the The trial court awarded of salary earnings prior to to husband’s dissolu entirely Finally, the to wife. pension benefits tied to tion and excluded to name wife as trial court ordered husband earnings. post-dissolution On the basis of beneficiary of a credit the sole service, years the of nineteen prior to retirement. the event of his death expert period, the calcu during achieved that that be to re

lated husband would monthly annuity III. ceive disbursements $897. expert proposed present-day a valu The also grounds Husband raises three reversal $41,435.78 if pension of ation of husband’s property disposition. court’s of the trial age to work until husband continued First, court’s husband contends that trial (at time com fifty-eight which he would have permits wife to use of coverture fraction service). pleted years post- benefits that accrue share increased rejected court husband’s pension to bene- The and also share dissolution holding that trial court did argument, “the post-dissolution earnings. linked Sec- fits to determining that ond, its PERA not abuse husband contends that wife’s ben- trial fractional share the retirement inaccurately valued benefits were not as of date inequitably applied efit should be calculated trial court court on the ‍​​​​‌‌‌‌‌​​​​‌‌‌​‌​‌​​‌​‌​‌​​​‌‌​‌​‌​​​‌​​‌‌‌‌‌​‍testi- Marriage has based its formula Court In its "Decree of Dissolution Orders,” mony that will be entitled to receive [husband] ruled as follows: Final court pay [hus- of service. If retired after the evi- The Court finds determines from subject or is to a reduction band] retires Civil dence has a Service Re- [husband] that benefit, buy-out of his retirement in force (CSRS) System has benefit which tirement immediately brought be to this matter must been 100% specifically Court. Cоurt attention of the that be [wife] Court and determines finds [husband] the event terminates orders that in portion of this retirement awarded a fractional through employment the CSRS retirement his marriage upon benefit based Court, notify program, [wife] he is adopted the date of the Decree. The (10) days. In such her counsel within ten x awarded [wife] the Court is that ‘&ths event, system pay ordered CSRS pay gross x .50 amount of retired Registry Fund into [husband] time will be entitled at the of retire- [husband] by Court Order. this court to be disbursed ment. attempt but as the date of earliest to freeze value of the at possible with full benefits.” the time of and at dissolution the same time The court reap P.2d at 37. rewards deferred distribution is upheld also the calculation of the wife, coverture patently unfair to who must wait finding appears fraction it “[s]inee Similarly, pro- receive her share. husband’s husband’s benefit would not increase posed present day valuation of his years, if he works more than 30 the [trial] upon based his continued until jurisdiction properly court reserved to con- thirty-year mark is if de- irrelevant contingencies.” sider Id. [certain] Hence, ferred distribution methоd is used. agree we first with the Marriage In In re 909 P.2d 525 appeals’ conclusion—the (Colo.1995),we addressed the issue now be- invoked the “time formula. us and fore held that increas- es are marital disagree we with the sec and are if to division distribution is ond appeals’ of the court of conclusion delayed under either the deferred distribu- appropriately the trial court fixed jurisdiction Specifi- tion reserve methods. denominator of the coverture fraction thir cally, adopted the “marital foundation” ty jurisdiction and reserved if certain contin theory that, and held under the Uniform gencies opts If arose. to continue Act, Dissolution of pen- enhanced working period beyond for a of time sion benefits due to increases in rank are thirty-year mark, the denominator the cov- “acquired” during under section erture fraction should reflect in 14-10-113(2), (1987), 6B if C.R.S. distribution period employment. Ultimately, creased delayed. corollary, As a we held that if wife’s share of the under the cover- is distributed ture fraction in proportion should decrease to method, present post- under the net value prop husband’s continuеd in efforts order to in enhancements essence are erly apportion increased the benefit.11 Simi separate property. treated as This dichoto- larly, if thirty years, husband works less than mous compensate treatment to serves the resulting wife’s share in the decreased bene non-employee spouse delayed for the distri- fits will correspondingly increase the because bution and also the risks associated with the thirty. denominator will less than delay. Accordingly, explicitly approved we the use of the rule” formula “time which not addition, In appeals court the incorrect- only compensates non-employee spouse the ly stated that husband’s CSRS benefits delay for the but also internalizes the notion past would not thirty-year increase the mark. pension enhancements fact, In comput- partially CSRS benefits are employee due are built advances percent ed from “2 employee’s] of [the aver- during efforts marriage undertaken the age pay multiplied so much total of his years. years.” service as exceeds 10 5 U.S.C. 8339(a)(3) Although (1994). § in military benefits, Hunt we considered Overall howev- pension plans er, neither capped eighty percent had vested nor are aver- of the 8339(f) matured at analy- age pay the time of employee. § 5 U.S.C. (1994). equally applicable sis we set forth opts there is If working to continue plans presently past us. thirty years, any before Husband’s increase in Hunt, explained 11. As we his or her efforts. continued This is so because length the "time rule” is based formula alleviates fraction on the concerns as during to what years of the enhancement is related employment nonemployee’s employee's (or to either service) or ef- military employee versus the employee forts spouse If the spouse’s (or employment military total ser- beyond continues to work the date on vice). employee spouse’s As the total which he or she is to receive increase, (or service) military benefits, and the trial court orders distribution nonemployee spouse’s share of the receipt as of the date of eligibility, of benefits rather than necessarily decreases. adequately the marital fractiоn com- Hunt, 909 P.2d at 534-35. pensates employee spouse and rewards the Determining complicated. much increases tion is more attributable PERA present value of wife’s Hunt under the be shared wife should “applying a of actuarial and entails series rationale. relating to assumptions the em- investment Leaving denominator undetermined probable ployee’s expectancy life retire- receipt of eliminates the until statutorily age to contractual or ment jurisdic- court to “reserve need for the trial Carew, Tips, Bill awarded benefit.” Tricks tаkes retire- event husband tion” Traps: Valuing Under Colorar Benefits to a reduction in force ment or Plan, 527, Law. do’s PERA Colo. In early buy-out his retirement benefits. Nordahl, (1993); Marriage see In re also fact, attempt to fu- court’s address trial 838, (Colo.App.1992). P.2d hus- which would shorten contingencies, ture Having value wife’s failed period employment, would have band’s PERA the trial court likewise failed unnecessary had trial court correct- been proper to offset the amount from distribution method ly ‍​​​​‌‌‌‌‌​​​​‌‌‌​‌​‌​​‌​‌​‌​​​‌‌​‌​‌​​​‌​​‌‌‌‌‌​‍applied the deferred under estate the net method. in the first instance. trial court abused its discretion and affirming erred in the trial court B. distribution of PERA benefits. court trial court awarded wife’s reject husband’s assertion We entirely wife valued precluded using from that the trial court of disso wife’s PERA benefits as date parties’ different methods distribute according to her contributions towards lution explained As employ the six of her over court to distribute method uses ($3,100). doing, the In so ment effecting equitable distribution of Mar noted its “Decree of Dissolution choosing In lies within its sound discretion. in “has riage and Final Orders” method, a distribution consid costs, attorney fees сurred substantial court particular needs and circumstances of ers the approving expert witness fees.” 14-10-113(1), parties. 6B C.R.S. See distribution, that: noted Gallo, (1987); see In re also required court is to value [trial] not (Colo.1988). radically Pensions parties’ respective retirement divide the another, to one proportion different relative any long as the plans by set method so here, may very well the two warrant as Here, the re equitable. wife’s division is pensions In particular, treatment. different significantly less tirement benefits were relatively for low value are well-suited husband’s benefits. than the Since Hunt, and offset. See immediate distribution major benefits were the assets (“A pension bene P.2d at division of estate, the marital the trial court divided at the time present fits on net value basis equitably. them in appropriate, example, for of dissolution is Kelm, 878 P.2d at 37. of the is those cases where value spouse employee has small because the Although agree PERA bene- that wife’s years during relatively qualifying worked few insignificant fits seem relative spouse employee that the trial court we find CSRS (footnote relаtively pay.”) rate of omit low in valuation wife’s PERA bene- erred its ted). ig- valuation fits. trial court’s method dis- the nature of PERA benefits. As nores C. above, PERA cussed combines elements Last, we hold that and defined contribution defined benefit Therefore, in requiring its husband plans. present value of wife’s abused percent solely designate her as the one hundred is not based on wife account beneficiary lump-sum as of a credit under as of the date contributions his death. Pursu pure contri- in the event of be the case with a defined CSRS would (1994), Rather, an em- plan. present calcula- ant to 5 section 8342 U.S.C. bution ERICKSON, ployee desig- entitled to concurring part CSRS can Justice in beneficiary lump-sum dissenting part: nate a to receive a in employee. credit death of the III(C) agree part majority I with of the lump-sum comprises credit the unrefunded opinion, holding that “the trial court abused consisting portion amount of the em- requiring desig- its discretion in ployee’s salary purposes withheld CSRS wife percent nate as the one hundred benefi- deposited employee dur- amounts ciary lump-sum credit [Civil under the service, ing earlier but does not inter- include System] Service Retirement in event of aggre- thereby est “if the service covered maj. op. his death.” See I at 551. also gates year or “for less” the fractional agree, principle, proposition with the stat- part of the month in the total service.” 5 III(B) part majority opinion: ed in of the 8331(8) (1994). U.S.C. namely, “[p]ensions radically different proportion may relative to one another” war- Although appeals reversed and rant different methods of distribution. See portion of remanded this the trial court’s disagree id. at because I with distribution, property we find that the court 111(A) part majority opinion, of the I cannot appeals accurately depict failed to wife’s 111(B) agree practice. with proper share death benefits. The court trial court instructed the on remand 111(A) majority opinion, provide lump-sum “to receive a majority applies holding re In Mar- pre-dissolution distribution contri- (Colo.1995) (ad- riage Instead, butions.” P.2d at 37. dressing unvested, pensions) unmatured percentage share of death if vested, presented the situation here of but retiring husband dies before bе the should I disagree unmatured continue to her percentage same as share in his holding with the of Hunt that: if he survives to receive the benefits. an increase in benefits attributable logic applies same both scenarios. post-dissolution ... increases is Hence, the applica- “time rule” formula is the property nonemployee spouse when the ble measure for wife’s share of husband’s bears a risk that the death benefits. The “time rule” formula also vest, will not as with the distribu- deferred appropriate ensures wife will receive the jurisdiction methods, tion and reserve but percentage interest, a factor that the court not risk when the failed to take into account its entirely by employee borne spouse un- attempt to amend the court’s erroneous der the net value method. remand, ruling. Consequently, on apply court should have been instructed to J., (citation (Erickson, Id. at 550 dissenting) percentage the same to divide the omitted); see id. at 536. percentage credit as the used to divide the holding inequi- of is particularly Hunt pension benefits husband will be to when, here, dispari- table as the above-stated receive if he survives until retirement. ty occurs within disbanding the unit. marital case, In this the dissolution court used the IV. present net value method of distribution for pension the and variant of the de- reasons, For foregoing the in we affirm ferred distribution method of distribution for part part judgment in and reverse the of the pension. husband’s holding the When of the appeals. court of return with We the case coupled in this Hunt manner with the to instructions remand the case to the trial 111(B) here, majority’s holding part in the property court for distribution consistent post-dissolution рension increases one opinion. with this spouse will be property deemed marital sub- division, ject post-dissolution the while LOHR, JJ., in pension ERICKSON and spouse concur increases of the other will not and, thus, dissent in part. property be marital not pension spouses portion the of the benefits inequitable this agree I cannot with division. property. be As determined to ex- result. Hunt, fully my plained in dissent to the more 111(A) I dissent to Parts Accordingly, the division of marital between III(B) majority opinion. of the to the of the spouses is committed court, to be the court’s based LOHR, сoncurring in Justice statutory criteria codi- consideration the dissenting part: in 14-10-113(l)(a)-(d), 6B fied at C.R.S. section majority’s agree in substance with the I (1987). By requiring trial courts divide (1) in the de this case determinations equally, regard to the these without benefits distributing distribution method ferred the ma- specific parties, of the circumstances through the implemented as pension jority impermissibly limits the traditional dis- formula, ap rule” could be “time the trial courts and interferes with cretion of prop identify and the marital plied to equitable ability to the trial courts’ effect vested, erty portiоn of the husband’s but property. Despite the distribution of marital benefits; (2) unmatured, pension civil service contentions, maj. op. at majority’s parties to the disso same 14-10-113(1) statutory criteria section may differently proceeding lution be treated are not in the court’s selection of considered their to the re depending on value relative present or future method of distribution. (3) assets; and mainder of the marital (Lohr, J., Hunt, See 909 P.2d at 546 dissent- may applied rule” also be “time ing). Accordingly, adop- I dissent from the payment avail any lump-sum pension benefit aрplication rule” formu- tion and “time as a result of the death one able prescribes equal that it la the extent ‍​​​​‌‌‌‌‌​​​​‌‌‌​‌​‌​​‌​‌​‌​​​‌‌​‌​‌​​​‌​​‌‌‌‌‌​‍separately I to ex spouses. write property portion the marital division of my continuing disagreement, first set press thereby compromises opinion in my dissent to the court’s forth equitable ability to fashion an the trial court’s (Colo. re 909 P.2d 525 the marital assets. division of 1995), majority’s requirement with the It clear from the record is not property portion the marital present the trial court consid- case whether equally divided between the еvenly statutory requisite ered criteria through the inclusion of the third spouses parties portion of n dividing between formula,1 component “time as benefits classified multiplier. remand, Consequently, property. on majority’s I concurred Hunt with the require trial court to consider I would components application the first two 14-10-113(1) be- factors identified in section portion “time rule” formula to determine the hus- dividing the marital fore military pension benefits be distributed In all other re- band’s benefits. necessarily includ- property, as marital majority’s agree resolution spects I with enhancements, ed benefit presented by ease. this issues I in the case with the concur majority’s applicability extension of components first of this formula to vested, unmatured however, disagree, with the I

issue here. component third

rigid application n formula, multiplier, “time rule” equal mandates division between adopted by majori- Years of Service 1. The "time rule" formula During Marriage Monthly x x Benefit ½ ty in the determination of the Hunt for (AfterTaxes) prop- to be classified as marital Years of Total Service erty that marital and for division of (Colo. spouses the deferred distribu- between the under In re 1995). is as follows: tion method

Case Details

Case Name: In Re the Marriage of Kelm

Court Name: Supreme Court of Colorado

Date Published: Feb 26, 1996

Citation: 912 P.2d 545

Docket Number: 94SC184

Court Abbreviation: Colo.