Opinion ID: 1143506
Heading Depth: 3
Heading Rank: 3

Heading: Award of Specific Items.

Text: Kenneth also challenges several specific items in the trial court's award. He claims it was error for the court to credit Marla for her contribution of premarital assets, to order Kenneth to make loan payments on real property awarded to Marla, and to distribute Kenneth's nonvested pension.
Kenneth claims that giving Marla a credit for contribution of premarital assets amounts to giving her a double recovery. He claims that any separate property she brought to the marriage has been commingled, has been treated as joint property and has benefited both spouses. In effect, Mrs. Laing is enjoying the benefits of this [$25,500] twice; once during their twenty year marriage and now through divorce in her receipt of most of the Laing's marital assets. This argument apparently assumes that Marla's $25,500 contribution was something that could be enjoyed only once before it is used up. In reality at least $15,000 was invested in various real properties which presumably appreciated in value over the twenty-year marriage. Kenneth correctly argues that where the parties by their actions during marriage have demonstrated their intent to treat certain separate property as joint holdings, a court will consider the property to be a marital asset. Carlson v. Carlson, 722 P.2d 222, 224 (Alaska 1986). But, treating assets as marital property means only that the property is available for equitable division under AS 09.55.210(6). [6] Wanberg, 664 P.2d at 571. Kenneth himself testified that the proceeds from the sale of Marla's house were eventually used to purchase property here in Alaska. The trial court did not treat the Alaska property as Marla's separate property, it considered all of this property to be available for distribution. This is all that is required by Wanberg. This court has often stated that the criteria listed in Merrill are not exhaustive and the trial court is free to consider additional factors which may be relevant in a particular case. Wanberg, 664 P.2d at 575 n. 22; see also Burcell, 713 P.2d at 805 n. 3; Brooks, 677 P.2d at 1233. A spouse's contribution of substantial separate property to the marriage may be such a relevant factor. In this case, the court did not make a dollar for dollar credit for Marla's contribution, rather it awarded her a partial credit which was taken care of by the uneven property division and the order that Kenneth make loan payments on property awarded to her. Given the equities of the case, this award was not unjust.
Kenneth asserts that the order requiring him to make payments on property awarded to Marla was in effect an order requiring him to pay alimony. The trial court stated that this order was based in part on a recognition of Marla's contribution of premarital assets. As discussed above, such a credit is proper. Despite the trial court's statement that no spousal support is awarded because of the [disparate] property division, the order that Kenneth make loan payments for a year is indeed equivalent to an award of temporary alimony. Although alimony is not favored, it can be awarded when just and necessary. AS 25.24.160(3). This court has held that the same Merrill factors used when making a property division provide guidance in determining whether an award of alimony is proper. Messina v. Messina, 583 P.2d 804 (Alaska 1978). In this case, the court reviewed the Merrill factors and determined that a greater share of the marital assets should be awarded to Marla. The record indicates that Marla's salary would not cover the payments due on the property awarded to her. The court ordered Kenneth to make the payments for almost two years. This was to ensure that the property it awarded to Marla would not be lost in foreclosure before she had a chance to reorganize her financial affairs in accordance with her changed circumstances. The award was of limited duration and for a specific purpose. Bussell v. Bussell, 623 P.2d 1221, 1224 (Alaska 1981). In these circumstances, the support award appears both just and necessary and the trial court did not abuse its discretion. Messina, 583 P.2d at 804-05. [7]
The trial court awarded Kenneth his pension with a present value of $27,000 and awarded Marla offsetting marital assets. Kenneth challenges the award on the grounds that there was insufficient evidence to support the $27,000 figure and that Marla's share should not have been awarded in a lump sum. We first address the issue whether the trial court properly characterized Kenneth's nonvested pension as marital property.
This court has considered pensions in the equitable division of marital assets. See, e.g., Morlan v. Morlan, 720 P.2d 497, 498 (Alaska 1986) (pension rights should generally be awarded to the employee spouse if there is other marital property of appropriate worth which can be awarded to the non-employee spouse); Chase v. Chase, 662 P.2d 944, 946 (Alaska 1983) (trial court has discretion to consider military retirement in effecting an equitable and just property division); Monsma v. Monsma, 618 P.2d 559, 561 (Alaska 1980) (federal employee retirement benefits statute did not preempt state marital property law so that trial court correctly considered federal benefits to be a marital asset); Cose v. Cose, 592 P.2d 1230, 1233 (Alaska 1979) (Matthews, J., concurring) (stating that while existing federal law excluded Railroad Retirement benefits from characterization as marital property subject to division, [a]s a matter of state law it is clear that retirement pay must be considered in dividing marital property.). Alaska thus follows the majority rule that vested pension and retirement benefits are subject to division by a divorce court. Annotation, Pension or Retirement Benefits as Subject to Award or Division by Court in Settlement of Property Rights Between Spouses, 94 A.L.R.3d 176, 182 [hereafter Annot., Pension Rights ]. Whether the majority rule can also be applied with regard to Kenneth's nonvested [8] pension rights is a question of first impression in Alaska. Jurisdictions are split on this issue. Those in which nonvested pensions are held not to be divisible marital property rely primarily on the notion that such interests are too speculative and cannot be said to constitute a property right. See, e.g., Wilson v. Wilson, 409 N.E.2d 1169, 1178 (Ind. App. 1980); Ratcliff v. Ratcliff, 586 S.W.2d 292, 293 (Ky.App. 1979); cf. Copeland v. Copeland, 91 N.M. 409, 575 P.2d 99, 101-02 (1978) (although pension there at issue was vested, court stated in dicta that an unvested pension cannot be said to constitute a property right because the benefits rest upon the whim of the employer.). The trend, however, is to consider pensions as marital property regardless of whether they have vested. See generally 1 J. McCahey, Valuation and Distribution of Marital Property § 18.03[3], at 18-29 (1985). See, e.g., Van Loan v. Van Loan, 569 P.2d 214, 215-16 (Ariz. 1977); In re Marriage of Gillmore, 29 Cal.3d 418, 174 Cal. Rptr. 493, 495, 629 P.2d 1, 3 (Cal. 1981); In re Marriage of Hunt, 78 Ill. App.3d 653, 34 Ill.Dec. 55, 62, 397 N.E.2d 511, 518 (1979); Ohm v. Ohm, 49 Md. App. 392, 431 A.2d 1371, 1375 (1981); Janssen v. Janssen, 331 N.W.2d 752, 754 (Minn. 1983); Weir v. Weir, 173 N.J. Super. 130, 413 A.2d 638, 640 (1980); Damiano v. Damiano, 94 A.D.2d 132, 463 N.Y.S.2d 477, 481 (1983); Cearley v. Cearley, 544 S.W.2d 661, 666 (Tex. 1976); Wilder v. Wilder, 85 Wash.2d 364, 534 P.2d 1355, 1357 (1975); Leighton v. Leighton, 81 Wis.2d 620, 261 N.W.2d 457, 464 (1978); see contra, e.g., Wilson v. Wilson, 409 N.E.2d 1169, 1178 (Ind. App. 1980); Ratcliff v. Ratcliff, 586 S.W.2d 292, 293 (Ky.App. 1979); Boyd v. Boyd, 116 Mich. App. 774, 323 N.W.2d 553, 556-57 (1982). Supporting this trend is the reasoning that the contingent nature of a nonvested pension presents simply a valuation problem, not bearing on the non-employee spouse's entitlement to a just share of the marital assets. See, e.g., In re Marriage of Brown, 15 Cal.3d 838, 126 Cal. Rptr. 633, 639, 544 P.2d 561, 567 (1976); Wilder v. Wilder, 534 P.2d at 1358; 1 McCahey, supra p. 16, § 18.03[3] at 18-28. Pension benefits are generally viewed as deferred compensation for services rendered and the employee spouse's right thereto is a contractual right. Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705, 708 (1981); Brown, 126 Cal. Rptr. at 637, 544 P.2d at 565. The fact that a contractual right is contingent upon future events does not degrade that right to an expectancy. Brown, 126 Cal. Rptr. at n. 8, 544 P.2d at 566 n. 8. One commentator provides another persuasive reason for characterizing even nonvested pensions as divisible marital assets: The non-employee spouse's contribution to the pension asset is exactly the same whether the pension be labeled a mere expectancy, or a contingent future interest. L. Golden, Equitable Distribution of Property 172 (1983) (emphasis in original). We are persuaded that the contingencies that may prevent the employee spouse from ever collecting his or her nonvested pension should not bar the non-employee spouse from recovering a share if the pension is in fact paid out. Indeed, a contrary rule would frustrate the statutory command that Alaska courts effect a just division of the marital assets. AS 25.24.160(a)(4). This obviously requires that the trial court consider the financial circumstances of each party. Cose, 592 P.2d at 1233 (Matthews, J., concurring), cited with approval in Monsma, 618 P.2d at 561 n. 3; see generally Merrill, 368 P.2d at 547-48 n. 4; Malone v. Malone, 587 P.2d 1167 (Alaska 1978). It would be wholly inconsistent with this policy to ignore the existence of so substantial an asset as a party's pension rights. In this regard, we adopt the rule representing the current trend and recognize nonvested pension rights as a marital asset.
The trial court assigned a present value of $27,000 to Kenneth's pension, awarded it to him and awarded Marla offsetting assets. Kenneth asserts that there was insufficient evidence to support the present value figure adopted by the trial court. For the reasons stated below we reject generally the present value method of dividing nonvested pensions and remand the case. Courts have used two primary methods of valuing and dividing pension benefits, whether vested or nonvested, upon divorce: the present value approach and the reserved jurisdiction approach. Johnson, 638 P.2d at 708; Brown, 126 Cal. Rptr. at 639, 544 P.2d at 567; Deering v. Deering, 292 Md. 115, 437 A.2d 883, 891 (1981). [9] In the present value approach, a court faced with a nonvested pension factors the contingencies to collection into a reduced to present value calculation. [10] A similar reduction to present value can easily be obtained for a vested pension. The court determines a fraction of the present value representing the marital contribution to the accrued pension benefits. The numerator of this fraction is the number of years the pension has accrued during the marriage; the denominator is the total number of years during which the employee spouse's pension has accrued. [11] See, e.g., Johnson, 638 P.2d at 708 & n. 4; Hunt, 34 Ill.Dec. at 63, 397 N.E.2d at 519. Once this calculation is complete, the court may award the pension interest to the employee spouse and give the non-employee spouse an offsetting amount of other assets. Morlan, 720 P.2d at 498; Hunt, 34 Ill.Dec. at 63, 397 N.E.2d at 519. Citing the goal that a property settlement should provide a final resolution of a divorcing couple's financial affairs, a number of courts have stated that the present value approach is preferred where a present value can be attached to the pension and where there exist other marital assets sufficient to satisfy the non-employee spouse's claim without undue hardship on the employee spouse. Johnson, 638 P.2d at 709; Taylor v. Taylor, 329 N.W.2d 795, 798-99 (Minn. 1983); Kuchta v. Kuchta, 636 S.W.2d 663, 666 (Mo. 1982); Kikkert v. Kikkert, 177 N.J. Super. 471, 427 A.2d 76, 79-80 (Ct.App.Div.), aff'd 438 A.2d 317 (N.J. 1981); Holbrook v. Holbrook, 103 Wis.2d 327, 309 N.W.2d 343, 350 (App. 1981). We nonetheless find this method unacceptable. Since the non-employee spouse receives his or her share in a lump sum at the time of the divorce, the method unfairly places all risk of possible forfeiture on the employee spouse. While the probability of forfeiture is supposedly factored in to reduce the present value amount determined at the time of the divorce, it is clear that the non-employee spouse has taken only a reduction in the amount of the award whereas the employee spouse loses the entire amount awarded to the non-employee spouse in the event of forfeiture. We find this approach to be inherently unfair. In the other scheme used by the courts for valuation and division of a pension, the reserved jurisdiction approach, the trial court retains jurisdiction and orders the employee spouse to pay to the former spouse a fraction of each pension payment actually received. [12] See, e.g., Johnson, 638 P.2d at 708; Brown, 126 Cal. Rptr. at 639, 544 P.2d at 567. This scheme more evenly allocates the risk of forfeiture between the parties, although it also runs counter to our expressed preference for finalizing a couple's financial affairs as soon as possible. See, e.g., Bussell, 623 P.2d at 1224 (holding it preferable to account for a party's financial needs through the property settlement rather than by awarding alimony); Messina, 583 P.2d at 805 (same); see also AS 25.24.160(3) (alimony should be awarded only if just and necessary). However, reserving jurisdiction does not necessarily mean that a protracted pay-out to the former spouse will follow vesting. Once vesting occurs, that portion of the pension which is marital property can be calculated as of the time of the divorce. The non-employee spouse's share of this figure may, in appropriate cases, be payable in a lump sum or in installments which do not particularly have to be keyed to the time that the pension benefits are actually received. We are persuaded that reserving jurisdiction more closely parallels the societal goals of retirement benefits generally  that is, to provide financial security to participants. A present lump sum award to the non-employee spouse calculated on a pension which has not vested does not necessarily promote this purpose. The fact is that nonvested pensions are sometimes forfeited, often for reasons which properly should be within the power of the employee to decide, and sometimes for reasons which are entirely beyond the control of the employee. There is no reliable way to factor the contingency of forfeiture into a present value calcuation. Thus, we are willing to accept a degree of continued financial entanglement insofar as that may be necessary to effect a just division of nonvested pension rights. We adopt the following approach for dividing nonvested pension rights after divorce. First, because the nonvested pension may, by definition, be forfeited in its entirety, it should not be considered when the trial court makes the initial property division at the time of the divorce. If and when the employee spouse's pension rights vest and if the parties are unable to reach an agreement on their own, the non-employee spouse may at any time thereafter seek an order dividing the pension. This is to be done in the same manner as if the pension had been vested at the time of the divorce. Realistically, there is such a variety of pension plan designs that it is impossible to develop any one detailed formula that will produce an equitable result in every instance. Once the pension has vested, the trial court can determine whether the present value or the retained jurisdiction approach is appropriate in a given case and adapt that approach to the specific circumstances presented. See, e.g., Morlan, 720 P.2d at 498. As one possible resolution, we direct the trial court on remand to investigate the applicability of the Retirement Equity Act of 1984 (REACT), Pub.L. No. 98-397, 98 Stat. 1426 (1984). REACT applies to retirement benefit plans covered by the Employee Retirement Income Security Act of 1974 (ERISA), Pub.L. No. 93-406, 88 Stat. 829 (1974). The record does not indicate whether Kenneth's UNOCAL pension was such a plan. Under REACT, a qualified domestic relations order (QDRO) can be filed with the administrator of the employee spouse's pension plan. 29 U.S.C. 1056(d)(3). If and when the employee spouse's pension vests and matures, the plan administrator makes appropriate payments directly to the non-employee former spouse in accorance with the QDRO. 29 U.S.C. 1056(d)(3)(A). See generally Troyan, Pension Evaluation for Marriage Dissolution Actions: A Pension Evaluator's Perspective, in McCahey, supra p. 16 §§ 45.26-45.39, at 45-105 to 45-136. REACT thus solves the problem of continuing financial entanglement between former spouses. Moreover, because payments are made directly by the plan, the non-employee spouse is sure to receive the payments to which he or she is entitled. [13] In certain circumstances, REACT allows the non-employee spouse to convert his or her share of the benefits to pay status independently of the employee spouse. 29 U.S.C. § 1056(d)(3)(E). [14] We reverse and remand for a reevaluation of Kenneth's nonvested pension. If Kenneth's UNOCAL plan is not covered by ERISA, we direct the trial court to retain jurisdiction so that an appropriate division may be made if and when Kenneth's pension becomes vested.