The California Court of Appeals for the First District considered the characterization of benefits from the California Public Employees' Retirement System (CalPERS) purchased by the husband during the marriage, but based on services performed prior to the marriage. The case, In re the Marriage of Green, was a matter of first impression for the court. The trial court found that the benefits were the husband's separate property, but the appellate court reversed that ruling. It ruled that the benefits were community property, and remanded the case for determination of allocation between the parties.
The husband, Timothy Green, served in the United States Air Force for four years between 1982 and 1986. He joined the fire department in Dublin, California in 1989, and he married Julie Green in 1992. His employer participated in CalPERS, which included a program that allowed an employee who served in the military to purchase up to four years of additional CalPERS service credit. He exercised this right in 2002, using around $11,000 of community funds to purchase the credits.
The wife petitioned for divorce in 2008. The parties disputed whether to characterize the military service credits as separate or community property. The husband argued that the credits were separate property, because his right to the credits arose before the marriage. The wife claimed that they were community property because they were obtained during the marriage using community funds, and she sought a separate account for fifty percent of the credits. The trial court ruled that the credits were separate property, but ordered the husband to reimburse the wife about $6,700 for half of the community funds used to make payments.
The appellate court cited In re Marriage of Brown, 544 P.2d 561 (Cal. 1976), which established that both vested and non-vested pension rights acquired from employment during a marriage are community property. The court drew a distinction between pension rights that had not vested, calling them contingent assets subject to contractual obligations, and “expectancies,” which are potential future benefits that a person might receive. While contingent assets are subject to division in a divorce, expectancies are not. The military service credits, according to the court, were only expectancies before the husband actually purchased them in 2002. After the purchase, the military service credits became contingent assets, and therefore were community assets subject to division.
On the question of allocation of the military service credits, the court held that the wife’s request for fifty percent was not appropriate. At the time of the parties’ separation and divorce, the husband had several years of payments remaining for the credits. The court applied the “time rule” described in In re Marriage of Lehman, 955 P.2d 451 (Cal. 1998), which allows a court to find that only the portions of a retirement account accrued during the marriage are community property. It remanded the case to the trial court to determine the proper allocation of the military service credits.
Thomas Huguenor, a divorce attorney certified in family law by the State Bar of California’s Board of Legal Specialization, has 35 years of experience guiding the people of San Diego through the family law process. For a free and confidential consultation, contact us online or at (858) 458-9500.
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