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LAW AND THE FAMILY

Equitable Distribution of Pension Benefits

By Joel R. Brandes and Carole L. Weidman

New York Law Journal (p. 3, col. 1)
April 25, 1995

          DOMESTIC RELATIONS LAW Sec.236(B)(1)(c) defines marital 
     property as ``all property acquired by either or both spouses during 
     the marriage.'' Therefore, a spouse's right to an equitable share in 
     the other party's pension or retirement benefits is dependant on the 
     meaning given to the term ``property.'' The marital partnership 
     concept and the language of DRL Sec.236(B)(5) support a broad view 
     as to what constitutes ``property.'' The legislative intent was to 
     give a comprehensive meaning to ``property'' and to exclude from 
     equitable distribution only that which is clearly separate property.
         In Majauskas v. Majauskas,*1 the Court of Appeals held that 
     vested rights in a noncontributory pension plan are marital property 
     to the extent they were acquired between the date of the marriage 
     and the commencement of the matrimonial action, even though the 
     rights are unmatured at the beginning of the action.
         In Majauskas, the trial court had granted the wife a divorce and 
     awarded her custody of the two children and maintenance of $43 per 
     week, to be reduced, if she obtained employment, by $1 a week for 
     every $3 of gross earnings. The court also awarded child support of 
     $60 per child per week, to be increased in proportion to any 
     increase in the husband's gross salary from his police department 
     job. The trial court held that the husband had a vested but 
     unmatured right to a pension that would permit him to retire at half 
     pay on Feb. 20, 1983, at the earliest.*2 It held that those rights 
     were marital property subject to equitable distribution. The current 
     value of the portion to which the wife was entitled was $14,102.40.
         The trial judge directed that the wife be paid, at the husband's 
     option, either $14,102.40 within 30 days or, at any time before 
     retirement $14,102.40 plus interest from the date of judgment, or 
     ``[one half] of the percentage that the months they were married 
     bears to the total of months that [the husband] was employed, as a 
     policeman, prior to his retirement.''
     
     Insufficient Record
     
         The Appellate Division concluded that the record was 
     insufficient to determine the propriety of the lump sum award and 
     modified the decision of Special Term to delete the alternative 
     provisions for a lump sum payment.*3 The court provided that 
     payments be made from the husband's retirement benefits, when 
     received, and that they be measured against the payment received by 
     the plaintiff, less taxes. The percentage of the payment was 
     modified to compare the number of months the parties had been 
     married to the number of months' credit the husband earned toward 
     his pension at the time of his retirement. The court also deleted 
     from the judgment the provisions for future increases of child 
     support and decreases of maintenance.
         The Court of Appeals held that the modifications ordered by the 
     Appellate Division were either correct as a matter of law, or were 
     committed to the discretion of the Appellate Division and, thus, 
     beyond its power to review. The court also held that a matrimonial 
     court in the exercise of the discretion vested in it by DRL 
     Sec.236(B) may order distribution to one spouse of an equitable 
     portion of that part of the present value of the other spouse's 
     pension rights earned during marriage. Alternatively it may provide 
     that upon maturity of the pension rights the recipient pay a portion 
     of each payment received to his or her former spouse or may, if it 
     determines that valuation or other problems make equitable 
     distribution impractical or burdensome, order a distributive award 
     in lieu of equitable distribution.
         In the Court of Appeals, the husband argued that pension rights 
     are not marital property, and that an award of any part of those 
     rights violates the constitutional prohibition against diminishment 
     or impairment of the benefits derived from the pension system of a 
     civil division of the state.
     
     Arguments Rejected
     
         The Court of Appeals rejected the husband's argument that the 
     explicit reference to loss of pension rights upon dissolution of the 
     marriage in DRL Sec.236(B)(5)(d)(4) requires the conclusion that 
     they cannot be marital property. It also rejected his further 
     arguments that pension rights are not acquired until after they 
     mature, which would be after the commencement of the action; that 
     they are only a contingent right to future income; that if they 
     constitute property, they originated prior to the marriage; and that 
     payment of a part of his future pension income constitutes 
     impermissible ``double-dipping.''
         The court stated that those arguments misconceived the 
     Legislative intent behind the enactment of DRL Sec.236(B) and the 
     nature of rights under a pension plan. Against the statutory 
     background, an employee's interest in such a plan, except to the 
     extent that it is earned before marriage, or after commencement of a 
     matrimonial action, is marital property. To the extent that they 
     result from employment time after marriage, and before the 
     commencement of a matrimonial action, they are contract rights of 
     value, received in lieu of higher compensation that would otherwise 
     have enhanced either marital assets or the marital standard of 
     living and, therefore, are marital property.
         The court noted that the husband's argument did not require a 
     contrary conclusion, as the reference to ``loss of inheritance and 
     pension rights upon dissolution of the marriage as of the date of 
     dissolution'' referred to the loss of the non-employee's independent 
     rights, which are essentially equivalent to inheritance rights, not 
     to the loss of the employee-spouse's pension rights acquired during 
     marriage. Insofar as the ``double-dipping'' argument was concerned, 
     the court said that this ignored the provisions of the statute that 
     require that in determining distribution, the court must consider 
     any award of maintenance made, and in determining the amount, the 
     court must consider ``marital property'' distributed pursuant to 
     Sec.236(B)(5).
         In its recent decision in Burns v. Burns*4 the Court of Appeals 
     extended Majauskas to non-vested pensions. The husband argued on 
     appeal, relying on the Court of Appeals' failure to reach the issue 
     in Majauskas that the trial court erred by rendering a distribution 
     to the wife of $6,102 based on his non-qualified, non-vested pension 
     from which he could receive no benefits until he reached age 55.
         Mindful of the purposes underlying the Equitable Distribution 
     Law and the broad legislative definition of marital property, the 
     Court of Appeals concluded that non-vested pensions are also subject 
     to equitable distribution, because they often represent deferred 
     compensation for service performed over a number of years that 
     encompasses the marriage. Finding that valuation issues do not 
     present an insurmountable barrier to a fair distribution the Court 
     stated:
        The presence of several contingencies before vesting may operate 
     to reduce the fact finder's estimate of the present value of the 
     asset. Alternatively, where the asset's present value cannot be 
     determined at all at the time of the divorce, the court may, in the 
     exercise of its discretion, devise an order that allocates a portion 
     of each future payment to the non-titled spouse. It held that the 
     trial court did not err in assessing a present after-tax value for 
     the husband's non-vested pension and in directing that the wife be 
     awarded half of that amount because the husband was only two years 
     away from vesting at the time of trial and there was no evidence 
     that he was planning to leave the firm.
     
     Disability Pension
     
         The question whether there is a spousal interest in a disability 
     pension, and if so, to what extent, is a difficult one, complicated 
     by the definition of ``separate property'' in DRL 
     Sec.236(B)(1)(d)(2), which embraces ``compensation for personal 
     injuries.'' It is further complicated by the distinction between an 
     ``ordinary disability'' pension and an ``accidental disability'' 
     pension.
         It is consistent with the policy expressed in the Equitable 
     Distribution Law to make a distinction between items of damage for 
     mental pain and suffering and items of reimbursement for medical 
     expenses, and lost earnings, and to hold that the former is separate 
     property. The statutory definition of ``separate property'' found in 
     DRL Sec.236(B)(1) (d) (2) provides, in part that the term separate 
     property shall mean ``(2) compensation for personal injuries.''
         In West v. West*5 the action was remitted to the trial court for 
     a determination of the ``extent to which the plaintiff husband's 
     disability pension was marital property'' because the portion 
     attributable to compensation for the husband's personal injuries was 
     held to be separate property. The Appellate Division quoted from its 
     opinion in Damiano v. Damiano*6 to the effect that the difference 
     between a disability pension and a retirement pension lies in the 
     extent to which the former is compensation for personal injuries and 
     thus is separate property and not subject to equitable distribution. 
     ``However,'' said the Court, ``where a disability pension may in 
     part, represent deferred compensation, it is indistinguishable from 
     a retirement pension and is, to some extent, subject to equitable 
     distribution.''
         The decision in West does not distinguish between ordinary 
     disability pensions and accidental disability pensions, and merely 
     finds that certain disability pensions ``may, in part, represent 
     deferred compensation.'' In West the Court relied on the use of 
     length of service in calculating the amount of the pension. The 
     court did not answer the question whether an accidental disability 
     pension has a component that represents deferred compensation.
         In Mylett v. Mylett*7 the Appellate Court held that disability 
     payments received by an injured police officer before the vesting of 
     his pension, are, to the extent that the payments represent deferred 
     compensation, marital property. The court did not however, examine 
     the statutory scheme distinguishing between accidental disability 
     pensions and ordinary disability pensions, except to notice ``that 
     to the extent these payments represent deferred compensation, they 
     are indistinguishable from ordinary retirement pensions subject to 
     equitable distribution.''
         In Dolan v. Dolan*8 the Court of Appeals held that to the extent 
     the husband's disability pension represented ``deferred 
     compensation'' related to the length of employment occurring during 
     the marriage, it constituted marital property subject to equitable 
     distribution.
         The parties were married in 1966 and had three children. In 
     1969, the husband worked for the New York City Department of 
     Sanitation. In 1978, he injured his back falling from a sanitation 
     truck. He could not work for five weeks or perform his normal 
     routine when he returned to work. Eventually he retired on an 
     ordinary disability pension pursuant to Sec.13-167 of the 
     Administrative Code of the City of New York, effective in April 
     1980. When he retired, he accumulated about 11 years of service with 
     the department, entitling him to pension benefits of $811.84 per 
     month from the New York City Employees' Retirement System. He 
     subsequently worked for Marist College where he enrolled as a full-
     time student.
         The husband commenced a divorce action in 1984. After trial, the 
     Supreme Court granted a divorce to the wife and concluded that 47.62 
     percent of the husband's ordinary disability pension was marital 
     property subject to equitable distribution. The remaining 52.38 
     percent was a disability payment and thus was separate property not 
     subject to equitable distribution.
         In allocating retirement benefits and disability benefits, the 
     Supreme Court compared the pension benefit the husband would have 
     received had he retired in the normal course with the allowance he 
     received under the ordinary disability retirement provision. If the 
     husband had 15 years of service, he would have had vested regular 
     pension benefits computed under the formula for determining standard 
     retirement allowances and his pension would have been considerably 
     less, ie, it would have equalled 47.62 percent of the ordinary 
     disability plan.
         The Supreme Court concluded that 47.62 percent of the ordinary 
     disability pension was pure pension and thus was marital property of 
     which the wife was entitled to 50 percent. The Supreme Court also 
     determined that the wife was entitled to 23.81 percent of any future 
     increase in the monthly pension payment from the date of the 
     commencement of the action. The Appellate Division affirmed the 
     Supreme Court's determination. It concluded that because the 
     ordinary disability pension benefits the husband was receiving had a 
     10-year service requirement, such benefits were not solely 
     compensation for injuries but were, in part, an award for length of 
     service.
     
     Deferred Compensation
     
         The Court of Appeals affirmed on the basis that part of the 
     pension benefits constituted a form of deferred compensation derived 
     from employment. In this case, the husband was retired, pursuant to 
     the retirement for ordinary disability provision of Sec.13-167 of 
     the Administrative Code, which entitled a member of the City Civil 
     Service to receive an ordinary disability pension if he or she ``is 
     physically or mentally incapacitated for the performance of duty and 
     ought to be retired,'' provided he or she had ``ten or more years of 
     city service and was a member or otherwise in city service in each 
     of the 10 years preceding his or her retirement.''
         In this case, the Court of Appeals concluded that ``an employee 
     may receive an ordinary disability pension, even if the disability 
     was not the result of a job related accident, provided the employee 
     satisfies the length of service requirement.'' The Court 
     distinguished the ``regular pension'' and the ``ordinary disability 
     pension'' from the ``accident disability'' pension, which does not 
     have a length of service requirement, and is ``separate property'' 
     stating:
         By contrast, a civil service member qualifying for a pension for 
     ``accident disability'' does not have to satisfy a length of service 
     requirement. Rather, the only requirement for entitlement to an 
     ``accident disability'' pension is that the employee be ``physically 
     or mentally incapacitated for the performance of city-service, as a 
     natural and proximate result of such city-service,'' and that the 
     ``disability was not the result of willful negligence'' on the part 
     of the employee (Administrative Code Sec.13-168 [a]). Thus, the 
     statutory scheme distinguishes between eligibility for ``regular,'' 
     ``ordinary disability'' and ``accident disability'' pensions on the 
     basis of length of service; entitlement to a ``regular'' pension 
     vests upon 15 years of service (Administrative Code Sec.13-173.1) 
     and an ``ordinary disability'' pension upon 10 years of service 
     (Administrative Code Sec.13-167[a][1]), whereas there exists no 
     length of service requirement for an ``accident disability'' 
     pension.*9
         The Court of Appeals reasoned that the husband was being 
     compensated for his length of service in the Department of 
     Sanitation, in addition to being compensated for the injuries he 
     sustained. It was surely implicit by virtue of the service 
     requirement for the ``ordinary disability pension,'' that there was 
     a desire to provide employees, whose injuries prevented them from 
     working until normal retirement age, some form of compensation for 
     their injuries while also awarding them a portion of the deferred 
     compensation they would have been entitled, but for the injuries. 
     The Court of Appeals thus held that to the extent the husband's 
     ordinary disability pension represented deferred compensation, it 
     was indistinguishable from a retirement pension and therefore, to 
     that extent, was subject to equitable distribution.
         Dolan infers that, in contrast, a lack of length of service 
     requirement for the ``accident disability'' pension equates to 
     compensation intended solely for the employee's personal injuries. 
     This intention to compensate the employee solely for his or her 
     personal injuries is how the Court of Appeals distinguished an 
     accidental disability pension from an ordinary disability pension 
     and makes it ``separate property.'' Moreover, the length of service 
     requirement is the fundamental distinction between an ordinary 
     disability pension and an accidental disability pension and 
     validates the intention to provide some deferred compensation that 
     rightfully qualifies for the marital property category.
         Mylett and  West were each decided by the Appellate Division 
     before the Court of Appeals decision in Dolan v. Dolan. The earlier 
     cases analyzed the pensions differently from the Court of Appeals 
     decision in Dolan. The decisions in West and Mylett concluded that a 
     portion of the pensions represented deferred compensation because 
     length of service on the job was used in calculating the amount of 
     the pension. 
         The decision in Dolan concluded that length of service on the 
     job is not a factor in determining entitlement to the pension, but 
     rather ``entitlement'' is based solely on an on-the-job ``personal 
     injury'' qualifying as accidental disability as a result thereof. 
     What distinguishes an ``accidental disability pension'' from an 
     ``ordinary disability pension'' and makes it purely compensation for 
     personal injury is that ``entitlement'' is based only on an onthe-
     job personal injury. The Court of Appeals, in Dolan, strained to 
     distinguish the ``ordinary disability'' pension (with a length of 
     service/deferred compensation component) that is ``marital 
     property,'' from the ``accidental disability pension,'' (which has 
     no length of service/deferred compensation component). If its 
     analysis is followed to its logical end it leads to the inescapable 
     conclusion that such a pension is ``compensation for personal 
     injuries,'' which is ``separate property.''
     
     notes
     
         (1) Majauskas v. Majauskas (1984) 61 NY2d 481, 474 NYS2d 699, 
     463 NE2d 15.
         (2) See Majauskas v. Majauskas, 110 Misc2d at 324, 441 NYS2d at 
     901.
         (3) See Majauskas v. Majauskas (1983, 4th Dept) 94 AD2d 494, 497-
     498, 464 NYS2d 913, 915916.
         (4) 84 NY2 369, ---- NYS2d ---- (1994).
         (5) 2d Dept 1984, 101 AD2d 834, 475 NYS2d 493.
         (6) 2d Dept. 1983, 94 AD2d 132, 463 NYS2d 477
         (7) 2nd Dept. 1990, 163 AD2d 463, 558 NYS2d 610.
         (8) 1991) 78 NY2d 463, 577 NYS S2d 195, 583 NE2d 908.
         (9) Sections 363 and 384-d of the New York State Retirement and 
     Social Security Law, which govern pensions of state employees 
     contain similar provisions regarding ``accidental disability'' and 
     ``ordinary disability'' pensions.
----------------
Joel R. Brandes and Carole L. Weidman have law offices in New York City 
and Garden City. They co-authored, with the late Doris Jonas Freed and 
Henry H. Foster, Law and the Family, New York (Lawyers' Co-Operative 
Publishing Co., Rochester, N.Y.) Mr. Brandes and Ms. Weidman coauthor the 
annual supplements.