No. 84-197

IN THE SUPREME COURT OF THE STATEOF MONTANA
1984

JANET SOWELL,PlaintiffandAppellant,

TEACHERS' RETIREMENT SYSTEMOF THE STATEOF FIONTANA, and CAROLYNWHEELON, Defendants and Respondents.

APPEAL FROM: District Court of the Eighteenth ~udicial District, In and for the County of Gallatin, The Honorable Thomas Olson, Judgepresiding.

COUNSELOF RECORD:

ForAppellant: Monte D. Beck argued, Bozeman,Montana

For Respondents: J. MichaelYoung argued for Teachers' Retirement, Dept. of Administration,Helena,Montana Kirwan & Barrett; Stephen Barrett argued forWheelon, Bozeman, Montana

Submitted: November 1,1984 Decided: December 27, 1984

Filed: 

### [If.!: ' '

## 1984

ClerkMr. Justice Frank B. Morrison, Jr. delivered the Opinion of the Court. This is an appeal from a judgment entered pursuant to findings of fact and conclusions of law filed by the Eighteenth Judicial District Court in and for Gallatin County. Plaintiff, the surviving widow of Larry Sowell,brought this action to declare her rights with respect to the retirement and death benefit account of Larry Sowell, deceased. The trial court entered judgment for Carolyn Wheelon and Janet Sowellappeals. Larry Sowell (Larry),amusic professor at Montana State University, died of cancer on October 7, 1982. Larry was first married to Carolyn Wheelon (Carolyn), on December 18, 1955. They had three children, all of whom are now a-dults. La.rrybecame amember of Teacher's Retirement System (TRS)in 1966 while still married to Carolyn. Larry designated Carolyn as beneficiary on a form provided by the TRS. That designation remainsunchanged to thisdate. Larry and Carolyn were divorced in September of 1973. After the 1973 divorce, Larry married Janet Sowell (Janet)

## , and they were married at the time of Larry's death, eight years later. Several days prior to Larry's death, and while in the hospital, he wrote and executed a valid holographic will leaving allofhis estate to Janet. At the time of Larry's divorce from Carolyn, a property settlement agreementwas executed providing for the disposition of themarital property. Carolyn's lawyer prepared the agreement. Larry received an automobile and all his tools, personal clothing and effects. Carolyn received as part of the property settlement agreement most of the rest of the marital assets. The principal asset was $39,000 equity in the home,which was given to Carolyn. Larrywas required tocontinue a Business Men's insurance policy with his children remaining as beneficiaries until they married or reached majority. Both Larry and Carolyn individuallyhad retirement accounts through their respective employers. Carolyn was employed by the Bozeman Public Schools. After the divorce, Carolyn withdrew her accumulated contributions from her account. The property settlement agreement provided that the divisionofpropertywas:

11 

# . . in full settlement, satisfaction and relinquishment of all rights of dower, support, maintenance, succession, homestead, inheritance or heirship, which he or she may at this time or hereafter might be otherwise entitled to, in and to all property, both real and personal, which the otherparty nowhas ormay hereafter acquire

# ..." Testimony from Janet indicated that she and Larry had discussed the TRS. She stated that Larry advised her she would receive the death benefits should he predecease her. Both periodically reviewed forms listing beneficiary information and accumulation amount sent semi-annually by the TRS. In each case, theword beneficiary was followedby "spouse.

### " Janet testified that Larry specifically told her that since shewas his spouse, shewas alsohisbeneficiary. Larry's original membership form, dated September 12, 1966, designated Carolyn Sowell as beneficiary. During the sixteen years Larry was a member, he was apparently never provided a copy of the original form showing the named beneficiary. Rather, the TRS sent biannual statements of a member's a.ccountwhich did not show the specifically named beneficiary, but rather listed categories such as spouse, son, daughter,etc. Carolynwas notified ofher right to benefits as Larry's designated beneficiary following Larry's death. Larry's TRS account then amounted to $20,171,ofwhich more than $15,000accrued during his marriage to Janet. Janet, who is the widowed "spouse" of Larry, also applied for the benefits. Her applicationwas denied by the TRS. The trial court found that Larry may have intended for Janet to receive his teacher's retirement account,but that such intent must be coupled with an affirmativeact to change the beneficiary before Janet could prevail. Absent the coupling of intent and affirmative act, the trial court held that thedesignated beneficiary controlled dispositionof the proceeds of the account. Judgment was entered in favor of CarolynWheelon. We are presented with the following issues on appeal: 1. Did the property settlement agreement divest CarolynWheelon ofher interest in the TRS a.ccount? 2. Does the clear and convincing evidence show that it
was Larry Sowell's intent to leave the proceeds of the account to Janet Sowell and, if so, is such clear evidence of intent sufficient without the presence of an affirmative act to accomplishthat result? 3. What effect,if any, does awife's marital interest in her husband's pension fund have upon the ownership of the proceeds of the account following her husband'sdeath? Appellant contends that the property settlement agreement relinquished Carolyn's interest in the TRS account. The property settlement agreement does not specifically refer to Carolyn's designationasbeneficiary,but rather,relinquishes Carolyn's rights of "dower, support, maintenance, succession, homestead, inheritance or heirship" and her right to "all property, both real and personal which the other party now has or may hereafter acquire." This language does not specifically cover Carolyn's inchoate right to acquireproperty upon the happening of a future event.A similar question was addressed by this Court in Soha
v. West (1981),196 Mont. 95, 637 P.2d 1185. In that case, the husband purchased an insurance policy naming hiswife as firstbeneficiary and hisparents as alternatebeneficiaries. A very short time later the parties were divorced. The husband then died. The formerwife remained the first-named beneficiary. An actionwas instituted tc declare the rights of the respective parties to the insurance proceeds. The trial court entered summary judgment in favor of the former wife who was named as first beneficiary. In the Soha case, the decedent's parents argued that the property settlement agreemententered intoby the partieswas a relinquishmentby the former wife of any interest in the insurance proceeds. The applicable language from the property settlement agreementwas similar to the language before us in this case. The Soha agreementprovided: "In consideration of the execution of this a.greement, and the terms and conditions thereof, each party hereto releases and forever discharges the other party, his or her personal representative, and assigns from any and all right, claims,demands and obligations except as herein specifically provided and each party is forever barred from having or asserting any such right, claim, demand or obligationat any timehereafter for any purpose



# .

# . ..I1 Soha, 637P.2d at 1187. This Court noted that there is a division of authority
on whether a property settlement zgreement affects beneficiary rights under a life insurancepolicy. The Court noted the division without adopting eitherposition. Rather,
we remanded the case for a factual hearing on the intent of the parties at the time theproperty settlement agreementwas executed. We distinguish the case at bar from Soha in that the proceeds in the TRS account are to be paid according to the provisions of yj 19-4-1001, MCA. That sectionprovides, inpart:"Allowances for death of member. (1) If a member d.iesbefore retirement, his accumulated contributions shallbe paid to his estate or suchperson as he may have nominated by a written designation filed with the retirementboard prior to his death in themannerprescribed by theboard." Pursuant to the provisions of the controlling statute, the proceeds of the Teacher's Retirement System account can only be paid to onenominatedby awritten designationor, in the absence of such nomination, to the decedent's estate. Here, there was a written designation nominating Ca.rolyn Wheelon. The operation of the TRS is governed by statute, including the payment of death benefits. We feel that the stability of the system depends upon adherence to the statutory scheme. Therefore,we hold that theperson nominated in the written designation is entitled to theproceeds except as discussed in the next issue. Appellant contends that the evidence clearly showed decedent's intent was to have his surviving widow, Janet Sowell, take the proceeds and all other property owned by him. Appellant argues the holographic will clearly and unequivocally shows such intent. Respondent argues that if any exception be made to the provisions of .§ 19-4-1001,MCA, the exception be limited to the situation where intent is coupled with an overt act seeking to accomplish a change in the written designation so that all that remains to be done is a ministerial act. The court's aredivided concerning whether thedesignated beneficiary a.bsolutelycontrols dispositionof the survival benefits. Some courts take the position that the named beneficiary controls under all circumstances. See,Rogersv. Rogers (Fla. 1963), 152 So.2d 183; Kurtz v. Dickson (Va. 1953)

## , 76 S.E.2d 219. Other courts have adopted a view that literal compliance with the regulation is not necessary.However, before a deviation from the written nominationwill be permitted, those courts require that an intent to change designation be coupledwith some specific affirmative action evidencing a desire tomake the change. Watenpaugh v. State Teacher's Retirement System (Cal. 1959), 336 P.2d 165; Aguilar 

### v. United States (9th Cir. 1955), 226 F.2d 414. Appellant does not prevail on appeal under the more liberal view permitting one not named to take under limited circumstances. Here the trial court found there was no affirmative action evidencing decedent's desire to make a change. There is substantial credible evidence to support this finding on the part of the trial court. The record shows decedent never took steps to have the beneficiary changed on the forms. The third issue presented to the Court iswhether Janet Sowell had a marital interest in her deceased husband's pension trust which was vested and entitled her to claim against the designated beneficiary. It is well established in Montana that retirement, annuity, pension and profit-sharing benefits earned by either spouse during the marital relationship are part of the marital estate and subject to equitable division upon divorce. In re the Marriage of Glasser and Glasser (Mont. 1983), 669 P.2d 685, 40 St.Rep. 1518; In re the Marriage of Kis and Kis (1982), 196 Mont. 296, 639 P.2d 1151. This Court has notbeen called upon todetermine whether
a surviving spouse has avested interest in thepension funds accumulated by decedent. We have found no case from a foreign jurisdiction directly on point. In Valdez v. Ramirez

(Texas 1977), 558 S.W.2d 88, the court held that under the community property laws of Texas, a wife was entitled to one-half of the retirement benefits as an "earned propertyright.

### " Likewise, the California Supreme Court in Life Insurance Co. of North America v. Cassidy (Cal. 1984)

### , 676 P.2d 1050, held that the interest of a surviving spouse in life insurance proceeds could not be defeated by a gift of the proceeds to a third-party named as beneficiary without the surviving spouse's consent. The California court held that a. spouse placed in this position could recover his or her community share in theproceeds. Even though Montana recognizes that thepension fund of
one spouse must be included in themarital estate at the time of a divorce action,we have not adopted the community property concept in this state. Property canbe owned and separately controlled by one spouse without thepermissionof the other. We hold that,consistent with this separate ownership concept, a spouse has the right to nominate the beneficia-ry of retirement account proceeds without consultation or permission from the other spouseand candesignate a beneficiary other than the spouse. Although the retirement account proceeds must be included as a marital asset at the time of divorce, at the time of death those proceeds can be excluded from the decedent's estate and from any claim by the survivor. We affirm the jud.gmentof District Court.

We concur:Justices

Mr. Justice John C. Sheehy,dissenting: Inmy opinion,the marital dissolution agreement settled the rights of both parties f~lly and finally. Iwould therefore disregard the lack of changeof beneficiary in this case.

Mr. Justice John Conway Harrison joins in the dissent of Mr. Justice Sheehy.

Mr. Justice Daniel J. Shea dissents and will file a written dissent later.DISSENT OF MR. JUSTICE DANIEL J. SHEA

NO. 84-1.97

SOWELL V. TEACHERS' RETIREMENT SYSTEM?4r.JusticeDaniel J. Shea,dissenting:

T dissent. 7: would reverse the judgment of the trial court and order that plaintiff, Janet Sowell, is entitled to the retirement benefits of her deceased husband. I believe the majority applied the wrong law in reaching its result, and if it had applied the correct law, it would have reached the opposite result. Al-thoughit isnot dispositive of the entire issue,Soha
v. West (Mont. 1981), 637 P.2d 1185, does apply, and its application requires a starting point from which it was the duty of the first wife (thedefendant here), to prove that after the divorce and property dissolution,Larry Sowell by his conduct and words, intended that she remain the beneficiary of his retirement fund. Not a scintil-laof evidence supports this conclusion (certainlynot substantial evidence) and therefore the second wife, Janet Sowell, is entitled to thebenefits of the retirement fund. When the parties signed the property settlement agreement, they agreed that it was a final settlement, and that each would make no claim on the other'sproperty. T~arry Sowell had a retirement fund and his first \rife had a retirement fund (inanother system). At the time of divorce, these retirement funds became marital assets. Although not disposed of in the settlement agreement, based on the authority of Soha, supra, Larry's retirement fund no longer
was a marital asset and his first wife's retirement fund was
no longer a marital asset. Therefore,each no longer had a claim to the other's after the distribution agreement was approved by the trial court. 

### The first wife withdrew herretirement fund; unfortunately,Larry Sowelldid notwithdraw his, and even more unfortunatel-y,he did not withdraw the
name of hjs first wife as the designated beneficiary. As a legal.consequence,however,thisdid not impose theburden of proof on the secondwife. Mot a scj-ntillaof evidence supports a finding that after the property settlement,Larry Sowell,by his acts and words, intended to leave the name of his first wife on the retirement fund as the designated beneficiary. To the contrary, all the circumstantial evidence supports a conclusj.on that Larry Sowe11 intended his second wife to receiveall of 

### - hisproperty upon his death. The majority, in effect, a.ppliesthe wrong presumption. They require Janet Sowell, the second wife, to prove that Larry Sowell, by his acts and words, evinced an unequivocal intent to remove the first wife as the designated beneficiary. While I believe the record does demonstrate this intent, nonetheless, the majority in effect presumes that even after the marital settlement agreement, the first wife is entitled to the property simply because her name remained as the designated beneficiary. I would, on the otherhand, apply apresumption that should apply under Soha, supra. We should have applied a presumption that Larry Sowe11 did intend that his first wife no longer have an interest in the retirement fund because she released this right as a result of the settlement agreement. Therefore,
even if the first wife's name remained as the designated beneficiary after the settlement agreement was approved by the trial court, Iwould require the first wife toprove that Larry Sowell, by his acts and words after the property settlement, evidenced an unequivocal intent to continue heras the designated beneficiary of - his retirement fund. That proof ismanifestly lacking. I therefore would vacate the jud.gment and ord.er the benefits to go to the second wife, Janet Sowel.1.