Opinion ID: 1145441
Heading Depth: 3
Heading Rank: 1

Heading: New Mexico Case Law on Retirement Plan Benefits as Community Property Divisible at Divorce

Text: We begin our analysis with a review of significant New Mexico cases dealing with the subjects of valuation, division, and distribution of a community's interest in retirement benefits upon dissolution of the spouses' marriage. In LeClert v. LeClert, 80 N.M. 235, 236, 453 P.2d 755, 756 (1969), this Court first held that retirement benefits are a form of employee compensation and are community property to the extent they are attributable to employment during coverture. In that case we affirmed an order directing payment to the nonemployee spouse of one-half of the community share of the employee spouse's (the husband's) military retirement benefits as received. The husband had been ordered to retire from the military, so there was no issue over whether his benefits were vested or matured. We commented: [The husband's] retirement pay to which he was to become entitled [on retirement] cannot be considered a mere expectancy....  Id. [6] Several years after deciding LeClert, we issued our opinion in Copeland v. Copeland, 91 N.M. 409, 575 P.2d 99 (1978), which remained the leading case on the subject of this opinion until it was modified in Schweitzer. Copeland involved the division and distribution of vested but unmatured retirement benefits. We first concluded that unmatured benefits are community property subject to division upon dissolution, 91 N.M. at 412, 575 P.2d at 102, reasoning that it would be inequitable to consider such benefits to be a mere expectancy simply because they are subject to divestment by death, see id. at 411-12, 575 P.2d at 101-02. We noted that [t]he cases are in agreement that at the time of the divorce the court must place a value on the pension rights and include it in the entire assets, then make a distribution of the assets equitably. Id. at 413, 575 P.2d at 103. Relying on cases from other community property jurisdictions, we pointed out that a determination of the discounted present value of the benefits at dissolution depends on a variety of factors, including, in addition to the possibility of the employee spouse's death, the possibility of termination of employment, the length of time remaining before the employee becomes eligible to retire and his or her interest matures, and the community's investment, if any, in the pension plan. Id. (citing Brown v. Brown (In re Marriage of Brown), 15 Cal.3d 838, 126 Cal. Rptr. 633, 544 P.2d 561, 567 (1976) (in bank); Ramsey v. Ramsey, 96 Idaho 672, 679, 535 P.2d 53, 60 (1975); and Wilder v. Wilder, 85 Wash.2d 364, 534 P.2d 1355, 1358 (1975) (en banc)). Quoting from Wilder, we recognized that [t]here can be no set rule for determining every case and as in all other cases of property distribution, the trial court must exercise a wise and sound discretion. Copeland, 91 N.M. at 413, 575 P.2d at 103 (quoting Wilder, 534 P.2d at 1358). We continued in Copeland: It would appear that a flexible approach to this problem is needed. The trial court should make a determination of the present value of the unmatured pension benefits with a division of assets which includes this amount, or divide the pension on a pay as it comes in system. This way, if the community has sufficient assets to cover the value of the pension, an immediate division would make a final disposition; but, if the pension is the only valuable asset of the community and the employee spouse could not afford to deliver either goods or property worth the other spouse's interest, then the trial court may award the non-employee spouse his/her portion as the benefits are paid. Id. at 414, 575 P.2d at 104. However, quoting from In re Marriage of Brown, 544 P.2d at 567, we cautioned that the trial court should observe the fundamental principle that property attributable to community earnings must be divided equally when the community is dissolved. 91 N.M. at 411, 575 P.2d at 101 (emphasis added). In the years following Copeland, this Court issued several opinions applying or expanding on these principles. See (in chronological order) Ridgway v. Ridgway, 94 N.M. 345, 610 P.2d 749 (1980); Hurley v. Hurley, 94 N.M. 641, 615 P.2d 256 (1980), overruled on other grounds by Ellsworth v. Ellsworth, 97 N.M. 133, 637 P.2d 564 (1981); Hughes v. Hughes, 96 N.M. 719, 634 P.2d 1271 (1981); Hertz v. Hertz, 99 N.M. 320, 657 P.2d 1169 (1983). In Ridgway, we considered the proper valuation of a noncontributory profit sharing plan. We first noted that Copeland had held that, in dividing a pension plan which is vested but unmatured, a spouse is entitled to a community interest for such portion of the plan as was earned during coverture and that, in valuing the unmatured pension benefits for purposes of division of assets, a determination of the present value of such benefits should be made. 94 N.M. at 347, 610 P.2d at 751. We went on to hold, however, that there was insufficient evidence to enable the trial court to determine the present value of the spouses' interest in that plan, so the court had not erred in using the undiscounted current, actual value of the interest at the date of the divorce. Id. In Hurley, we simply reaffirmed the Copeland principle that a spouse is entitled to his or her community share of that portion of a retirement plan which is vested but unmatured as of the date of divorce. 94 N.M. at 645, 615 P.2d at 260. We also noted that Ridgway set forth alternative methods of valuation and payment that may be applied by the trial court in determining and distributing the community interest. Id. Hughes relied on Copeland to hold that a wife's interest in her husband's future federal civil service disability benefits was based on contributions made by the community during coverture, which was not related to when the husband's right to the disability benefits vested. We also said: The significance of Copeland for this case is that the Court was willing to divide the husband's future retirement benefits at the time of the divorce even though the right to receive them had not yet actually vested completely. The possibility existed in Copeland that the husband would never actually receive his full retirement benefits, yet the Court included those benefits among the community assets divisible upon dissolution of marriage. 96 N.M. at 723, 634 P.2d at 1275 (emphasis added). Hertz is the last Supreme Court case in Copeland 's progeny (before Schweitzer ). [7] That case, involving the proper valuation of a profit sharing plan, announced no new principles but followed Ridgway as holding that, in order to determine a community interest in a profit sharing plan, a district court may use an undiscounted, current actual value on the date of the divorce, if the present value of the plan cannot be ascertained by substantial evidence. 99 N.M. at 328, 657 P.2d at 1177 (emphasis added). We feel that it is the district court's duty to try to determine a reasonable value of the community interest in a profit sharing plan.... The correct approach ... is to value the community interest in the profit sharing plan as of the date of divorce. Id. (emphasis added). In 1985, this Court decided Schweitzer and in the process announced an abrupt departure from the principles of Copeland and its progeny. The issue was whether a beneficiary of the estate of a previously divorced nonemployee spouse, who upon her divorce had been awarded a share of her husband's monthly retirement benefit on a pay as it comes in basis, was entitled to continue to receive the benefits, which purportedly had been devised to the beneficiary by the decedent. In other words, was a deceased former spouse's right to receive her share of community property retirement benefits a devisable property right? We answered that it was not. We held that community property retirement benefits that are awarded on a pay as it comes in basis are only inheritable or devisable up to the amount of the community contributions, if any, to the plan. An order dividing benefits on a pay as it comes in basis terminates, we held, on the death of either spouse unless the amount contributed by the community, if any, has not yet been paid out in benefits. Schweitzer, 103 N.M. at 615, 711 P.2d at 892. There was thus no issue in Schweitzer about how a nonemployee spouse's community interest in a retirement plan should be distributed, or otherwise dealt with, upon divorce. Nevertheless, the Court stated: We now modify Copeland prospectively to hold that upon dissolution of marriage, unless both parties agree otherwise, the trial court must divide community property retirement benefits on a `pay as it comes in' basis. Id. [8] After stating the actual holding of the case  that an order dividing benefits on a pay as it comes in basis terminates upon the death of either spouse (unless any amount contributed by the community has not yet been paid out in benefits)  the Court went on to explain the rationale for requiring distribution of all community retirement benefits on a pay as it comes in basis. We said that the reason for this requirement is to assure equity and fairness. Otherwise, the court could award a lump sum benefit in one case which would grant to the non-employee spouse an amount that might not ever be received if either spouse died before the projected benefits had been paid out; and on a pay as it comes in basis in another case, which would operate to the benefit of the employee spouse whose retirement income would not have to be divided after the non-employee spouse's death. The inequality would be compounded if the employee spouse died first, having received only a portion of his or her divided share but having paid the ex-spouse the present value of all of his or her estimated lifetime share under the lump sum decree. Id. We shall return to this rationale below.