Opinion ID: 2198073
Heading Depth: 1
Heading Rank: 5

Heading: Pensions Received as a Substitute For Social Security Are Subject to Division

Text: Husband argues that because Social Security benefits are not subject to equitable division, his WPD pensionwhich he receives in lieu of Social Security benefitsis exempt from the marital estate and from equitable division. Wife agrees that Husband's pension is received in lieu of Social Security benefits, but contends that pensions in lieu of Social Security are fundamentally different from actual Social Security benefits and, like other retirement benefits earned during the marriage, are marital property that is subject to equitable division. Despite the absence of any legal authority, the parties agreed, as did the Family Court, that Husband's WPD pension is in lieu of or the functional equivalent of Social Security benefits. [18] That characterization is based on the fact that, as a WPD police officer, Husband could not, and therefore did not, make any contributions to the Social Security system. [19] It is only in that sense that we refer to Husband's WPD pension plan as a substitute for Social Security benefits in this Opinion. Husband's contention raises an issue of first impression in this Court. Other state courts that have decided that issue are divided. Nine jurisdictions have determined that retirement plans that substitute for federal Social Security are subject to division as a marital asset. [20] Four jurisdictions do not treat such plans as marital assets. [21] We conclude that pensions, owned by a party to a marriage, that operate as a substitute for Social Security, such as the one at issue here, are marital property and as such are subject to equitable division upon dissolution of the beneficiary's marriage. The legislation creating the WPD pensions, and our case law interpreting that legislation, support that conclusion. Presently, all WPD pensions fall under one of three statutes: the 1978 City of Wilmington Police Pension Act; the 1984 City of Wilmington Police Pension Act; and the 1991 City of Wilmington Police Pension Act. [22] The statute that governed the WPD pension plan before the enactment of the 1978 City of Wilmington Police Pension Act, contained an anti-assignment provision virtually identical to that found in 42 U.S.C. § 407: (9) The right of any person to any payment under this act shall not be transferable or assignable at law or in equity, if [23] none of the monies paid or payable, or rights existing under this act shall be subject to execution, levy, attachment, garnishment or any other legal process or to the operation of any bankruptcy or insolvency laws. Despite the similarity of the quoted language with that of the Social Security Act, the Family Court concluded in Bledsoe v. Bledsoe that husband's WPD police pension was a marital asset subject to equitable division. [24] The Family Court reasoned that: I interpret the first part of that paragraph [[t]he right of any person to any payment under this act shall not be transferable or assignable at law or in equity] to mean that the employee police officer cannot transfer or assign his right to receive this pension. I interpret the second section which exempts the pension from execution, levy, attachment, garnishment, bankruptcy and other legal process to protect the pension from creditors [not from a former spouse]. . . . I rule that Husband's pension is a marital asset in which his former Wife is entitled to share. I also make the ruling with knowledge that the United States Supreme Court has protected railroad pensions Hisquierdo v. Hisquierdo, 439 U.S. 572 [99 S.Ct. 802, 59 L.Ed.2d 1] (1979) and military pensions, McCarty v. McCarty, 47 U.S.L.W. 4850 (1981). [25] In later-enacted WPD pension statutes, the above-quoted anti-assignment provision was modified. Those modifications evidence a legislative intent to permit equitable division of such WPD pensions by the Family Court in divorce proceedings. The 1978 City of Wilmington Police Pension Act, which governs Husband's pension, contains the following anti-assignment provision: Sec. 28A-57. Limitation on execution, attachment, etc. None of the benefits provided under this plan shall be subject to the claims of, or to the execution, attachments, or other legal process by a creditor of a participant or beneficiary. No participant or beneficiary under this plan shall have any right to alienate, encumber or assign any of the benefits provided in this division, or any interest arising out of or created by this plan. [26] (emphasis added) Consistent with the Family Court decision in Bledsoe, the 1978 anti-assignment provision exempts WPD pensions only from claims of (and legal processes involving) creditors, but not claims and legal processes of or involving former spouses. Later amendments to the WPD pension plan statute (which are not applicable to Husband) confirm that interpretation. The 1984 City of Wilmington Police Pension Act contains no anti-assignment provision and does not otherwise limit the execution or the attachment of WPD pensions. [27] Thus, a former spouse could reach a pension covered by the 1984 Act. The 1991 City of Wilmington Police Pension Act [28] contains an anti-assignment provision, that was last modified in 1998 to create an exception for orders of the... Family Court for a sum certain payable on a periodic basis. The current version provides: § 8803. Garnishment and assignment of benefits prohibited Except for orders of the Delaware Family Court for a sum certain payable on a periodic basis, the benefits provided by this chapter shall not be subject to attachment or execution and shall be payable only to the beneficiary designated and shall not be subject to assignment or transfer. (emphasis added) [29] The synopsis to the 1998 amendment recites that the modification will allow [the] Family Court to attach and execute collection of support obligations by means of attaching pensions administered by the State. [30] Although the synopsis appears to limit the scope of the exception, a statutory synopsis cannot change the meaning of an unambiguous statute. [31] We discern no ambiguity in the phrase orders of the Delaware Family Court for a sum certain payable on a periodic basis. That language, by its terms, covers such Family Court orders irrespective of the purpose for which they are entered: satisfaction of support obligations (as stated in the synopsis), equitable distribution upon dissolution of a marriage, [32] or some other purpose. In conclusion, under the 1978, 1984, and 1991 City of Wilmington Police Pension Acts, there is no statutory impediment to the division of WPD police pensions in divorce proceedings. The Family Court has divided WPD pensions in several cases, albeit summarily and without discussing the interplay between those pension plans and the Social Security system. [33] Husband relies on Peiffer v. Peiffer, a case where the Family Court held that a City of Seaford (Delaware) police pension that was in lieu of Social Security benefits was not divisible because [t]his Court does not award either party an interest in the other party's Social Security benefits [and][a]ccordingly, the Court cannot award [wife] an interest in a Social Security substitute. [34] Husband's reliance on Peiffer v. Peiffer is, however, misplaced. First, the successive amendments of the anti-assignment provision of the WPD pension statute (which progressively depart from the language of the anti-assignment clause of the Social Security Act) evidence that the Delaware General Assembly intended to treat WPD pension plans differently from Social Security. Second, the federal Social Security system is fundamentally different from a statecreated retirement system based on a pension plan, including those that are a substitute for Social Security. As the United States Supreme Court indicated in Flemming v. Nestor , the noncontractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments. [35] The reason is that the Social Security system is a form of social insurance, whereas a pension plan is a contractual arrangement. [36] An employee's right to Social Security benefits is not an accrued property right, [37] whereas employees who participate in a pension plan acquire vested contractual rights to the fruits of the pension fund upon fulfillment of the eligibility requirements for a pension. [38] Pension benefits, even where received as a substitute for Social Security, are, therefore, fundamentally different from Social Security which justifies the difference in their legal treatment. Those jurisdictions that do not regard substitute pensions as marital assets recognize that participation in such plans inflicts a double blow of sorts to persons in Husband's position, because the pension will become part of the marital estate and, thus, divided, yet there will be no Social Security benefit waiting to cushion this financial pitfall. [39] Similarly, it has also been pointed out that dividing such pensions might operate inequitably by penalizing public employees who do not participate in the Social Security system, yet would benefit private employees whose contributions to Social Security will not be considered marital property. [40] These arguments are not without force, but our system of property division is capable of effectively alleviating those concerns. The Family Court is statutorily required to equitably divide the marital property, in a way which will mitigate potential harm to the spouses. [41] Moreover, even though federal law preempts the direct division of Social Security proceeds, it does not preempt the Family Court from considering the existence and the amount of Social Security benefits in the course of an equitable property division, even where that consideration might lead the Family Court to alter its division of the marital estate. [42] In short, the Family Court is empowered to equitably divide marital property in cases involving pension plans that are a substitute for Social Security benefits, such as the one at issue here. For these reasons, we conclude that the Family Court correctly held that Husband's WPD pension was marital property and subject to equitable division like any other pension. Husband next claims that, even if the Family Court was correct in holding that his WPD pension was a marital asset subject to equitable division, that court abused its discretion by awarding Wife 50% of that pension. Where the law has been correctly applied, we review decisions regarding a division of marital property for abuse of discretion. [43] The Family Court has broad discretion in dividing marital property, in general, and pension plan benefits, in particular. [44] Thus, the issue is whether the trial court abused its discretion in awarding Wife 50% of the WPD pension. After ruling that Husband's WPD pension was subject to division, the Family Court expressly stated that it had to consider the inequities involved and avoid any imbalance that may result given that Husband is not entitled to a portion of Wife's accrued social security benefits. [45] The trial judge compared the respective economic positions of the parties, their employment history, annual income, and assets, and then awarded Wife a 50% share in that portion of Husband's WPD pension that was earned by Husband during the marriage. [46] Conversely, the Family Court applied the same formula and the same percentage in dividing Wife's State of Delaware Defined Benefit Pension Plan. Additionally, the Family Court awarded Husband 50% of Wife's Roth IRA account and her two 403(b) Plans. In these circumstances, we find no abuse of discretion in the overall division of the parties' pension accounts by the Family Court.
Husband next argues that the Family Court erred both as a matter of law and abused its discretion in dividing his compensatory time. This issue is also one of first impression before this Court. Under 13 Del. C. § 1513, all property acquired by either party subsequent to the marriage is marital property, unless it falls under one of four statutory exceptions (none of which are applicable here). [47] Because Husband may elect to convert to cash all his accumulated compensatory time, at any time during his employment, such compensatory time represents a vested property interest, and, having been acquired ... subsequent to the marriage, is therefore subject to division as a marital asset. [48] The question presented is whether the Family Court erred in the manner it chose for dividing that marital asset. Husband claims that the Family Court erred by not dividing the compensatory time on an if, as, and when basis. Specifically, Husband argues that only the hours, if any, that remain unutilized at the time he ceases employment with the WPD should be divided. [49] Husband's argument rests upon on an analogy between compensatory time and unused vacation and sick time. In Kerr v. Kerr, the Family Court held that both unused vacation and sick leave are deferred compensation, similar to a pension [and] are therefore [marital assets,] divisible to the extent that they were earned during the marriage. [50] The Family Court further held that in dividing such marital assets, the `if, when and as the benefits are paid' approach shall control. [51] Here, the record indicates that Husband accumulated his compensatory time by: (i) working overtime and taking additional assignments and (ii) by not taking vacation or sick time. In that sense, Husband's compensatory time is akin to vacation or sick leave time. But, the compensatory time at issue here is different from vacation and sick leave time in one significant respect. [52] Usually, vacation and sick leave time is convertible to cash only upon termination of employment. [53] Therefore, the receipt of the monetary benefit is contingent upon the spouse not using that accumulated vacation and sick time before the termination of employment, and the monetary value of the benefit is not known until that point. Here, in contrast, the compensatory time may be converted to a monetary benefit at any time during Husband's employment. Moreover, the monetary value of that compensatory time is readily ascertainable at any point in time. For these reasons, the Family Court correctly concluded that a division on an if, as, and when basis would be inappropriate. Had that approach been adopted, Wife could effectively be precluded from sharing in that marital asset, because Husband could cash in any remaining balance before terminating his employment, or could use that balance towards his early retirement. [54] Finally, Husband claims that the Family Court order improperly forces him to cash in a portion of his comp[ensatory] time to pay to [Wife]. This contention lacks merit, because the Family Court considered the possibility that Husband might want to preserve his compensatory time for vacation or retirement purposes, and gave Husband the option of deducting from his portion of the marital estatethe monetary value of Wife's entitlement to half of the compensatory time. [55] We conclude that the Family Court committed no legal error and did not abuse its discretion in dividing the monetary value of the compensatory time.