Court Opinion

ID: 9747363
Source: CourtListenerOpinion
Date Created: 2023-08-27 15:12:55.740944+00
Date Added: 2024-06-11T12:50:33.091484
License: Public Domain

BECK, Judge,
concurring and dissenting:
I agree with the majority’s resolution of the cohabitation issue, see Thomas v. Thomas, 335 Pa.Super. 41, 483 A.2d 945 (1984), and with the majority’s determination that a *87portion of the employee-spouse’s pension benefits constitutes marital property subject to equitable distribution.
However, I disagree with the majority’s conclusion that upon remand to the lower court, the marital property portion of the pension benefits should be given deferred distribution because the pension benefits are too speculative for present valuation and immediate offset distribution. Instead, I should hold that upon remand, the lower court must obtain actuarial testimony as to the present value of the pension benefits and determine whether an award to the employee-spouse of the entire marital property portion of the pension benefits can be immediately offset by an award to the nonemployee-spouse of other marital assets of comparable worth. If on remand the lower court finds that the pension benefits are not amenable to immediate offset distribution, the lower court should then decide how to effect deferred distribution of the marital property portion of the pension benefits.
At the core of our decision stands the legislative recognition of Section 401 of the Divorce Code (“Code”), Act of April 2, 1980, P.L. 63, 23 P.S. § 401, that marriage is, inter alia, an economic partnership whose assets, upon dissolution of the marriage, may be equitably divided and distributed between the parties after the court’s due consideration of “all relevant factors ... [such as the] contribution or dissipation of each party in the acquisition, preservation, depreciation or appreciation of the marital property, including the contribution of a party as homemaker.” Section 401(d)(7) of the Code; Bacchetta v. Bacchetta, 498 Pa. 227, 445 A.2d 1194 (1982); see also Section 102(a)(6) of the Code, 23 P.S. § 102(a)(6).1
*88Barring the exceptions listed in Section 401(e) of the Code, “[a]ll property, whether real or personal, acquired by either party during the marriage ... regardless of whether title is held individually or by the parties in some form of co-ownership” is marital property subject to equitable distribution. Section 401(f) of the Code. The only reference in Section 401(e) to pension benefits appears at Subsection (6) which excludes certain veterans’ benefits from marital property “except ... where [the] veteran has waived a portion of his military retirement pay in order to receive Veteran’s Compensation.” Hence, apart from Section 401(e)(6) of the Code, pension benefits, even if presently uncollectible, constitute marital property to the extent that they are attributable to employment performed during the marriage and are thus “acquired during the marriage.” See King v. King, 332 Pa.Super. 526, 481 A.2d 913 (1984); accord, Kikkert v. Kikkert, 177 N.J.Super. 471, 427 A.2d 76 (App.Div.1981).
While the present uncollectibility of a pension benefit does not prevent the benefit’s inclusion as marital property,2 the contingencies affecting the employee-spouse’s realization of the benefit must be assessed in the court’s valuation of the benefit and subsequent equitable distribution of the parties’ marital property. Accurate appraisal of the pension benefit is especially important because in most marriages, the pension benefit and the marital residence comprise the two major marital assets.3
*89I. Immediate Offset Distribution
Where it is probable that the employee-spouse will overcome obstacles to realization of the benefit,4 the benefit is assigned a present value
estimated to be the amount of monies the employee would take in return for giving up his right to an unknown number of future payments. This amount is discounted by actuarial calculations reflecting contingencies that could affect future pay outs, with such discounts being given for mortality, inflation, interest, probability of continued employment and probability of vesting.
Skoloff, How to Evaluate and Distribute Employee Benefits in a Divorce, Nat’l L.J., February 13, 1984, at 25.
Since marital property consists only of property acquired by either party during the marriage, a coverture fraction must be applied to the present value of the pension benefit in order to determine the percentage of the pension benefit attributable to the marriage. King. The numerator of the coverture fraction is the period of the employee-spouse’s pension plan participation during the parties’ marriage, from the date of marriage to the date of separation (23 P.S. § 401(e)(4)) and the denominator of the fraction is the total period of the employee-spouse’s pension plan participation. Multiplying the present value of the pension benefit by the coverture fraction yields the portion of the pension benefit which is marital property.
The court must then decide whether the marital property portion of the benefit is amenable to immediate equitable distribution between the parties. If at the time of the entry of a distribution order, an award of the pension benefit to the employee-spouse could be immediately offset by an award to the nonemployee-spouse of other marital property of comparable value (usually the marital residence), the *90pension benefit is subject to present division and distribution.
An award of all the pension benefits to the employee-spouse and an award of other marital property to the nonemployee-spouse protects both spouses from problems that can occur. Such problems include the establishment and maintenance of contact between the nonemployeespouse and the pension plan administrator and the fact that the employee-spouse could choose certain benefit options that would defeat the nonemployee-spouse’s entitlement. See discussion of deferred distribution disadvantages, infra.
The advantages of immediate offset distribution are that the parties receive a final resolution of their litigation.5 Moreover, the nonemployee-spouse is protected against any attempts by the employee-spouse to change pension plan beneficiaries. Finally, the court is not required to retain jurisdiction in order to allocate the pension benefits when they are received or to enforce an award of a percentage of the benefits as they are received.
The chief disadvantages of immediate offset distribution are that a pension benefit may be offset by a liquid asset and thus afford the nonemployee-spouse greater immediate economic opportunities than those of the employee-spouse and that the risk of nonpayment of the pension benefit is born principally by the employee-spouse. With respect to the risk of nonpayment, it must be remembered, however, that the present value of the pension benefit reflects actuarial discounts for contingencies that might prevent realization of the benefit so that the nonemployee-spouse does, to some extent, share the risk of nonpayment by receiving an immediate offset of property that may prove less than the worth of the pension benefits ultimately received by the employee-spouse. Additionally, “the pension may be taxed *91as an annuity, ... in part at ordinary income rates ... while the nonemployee spouse’s ‘equivalent’ asset, e.g., a home, may be taxed at capital gain rates ... or not at all. . . .” Kalinoski, supra, at 3036.
II. Deferred Distribution
Where there exists a substantial probability that the employee-spouse will not overcome the contingencies affecting realization of the pension benefit, the pension benefit is too speculative for present valuation and immediate offset distribution. Additionally, where the pension benefit can be presently valued but there are insufficient other marital assets of comparable worth to award to the nonemployeespouse, the benefit cannot be equitably divided and distributed through an immediate offset. In either of these instances, the court must defer valuation and distribution of the pension benefit until the benefit becomes payable.
Deferred distribution cannot be based upon the present value of the pension benefit at the time of the marital dissolution. As we explained in King,
[i]f the non-employee spouse is to wait until the pension enters pay status to receive [a] share of the marital property, [the non-employee spouse] should not receive only that portion of the benefit that it seemed likely [the non-employee spouse] would receive at an earlier date [i.e., the present value of the benefit at the time of marital dissolution]. Instead, [the non-employee spouse] should receive that portion of the actual payment attributable to the years of the marriage.
Id,., 332 Pa.Super. at 535, 481 A.2d at 917. Hence, “the total benefits entitlement of the employee spouse” must be ascertained by the court.
To determine the percentage of the pension benefits entitlement ascribable to the marriage, the court must apply a coverture fraction whose numerator is the period of the employee-spouse’s pension plan participation during the parties’ marriage from the date of marriage to the date of separation and whose denominator is the total period of the employee-spouse’s participation in the pension plan. Multi*92plying the total pension benefits entitlement by the coverture fraction yields the portion of the pension benefits entitlement which is marital property.
Division and distribution of the marital property portion of the pension benefits entitlement may occur in two distinct ways. At the time of marital dissolution, the court may equitably divide the marital property portion of the benefits entitlement by determining the nonemployeespouse’s percentage share of the benefits marital property. Deferred distribution of the benefits is then accomplished by distributing to the nonemployee-spouse the predetermined percentage share of the pension benefits when the benefits are paid. Alternatively, the court may reserve both equitable division and distribution- of the marital property portion of the pension benefits entitlement until the pension benefits are payable.
The advantages of deferred distribution are that both parties bear the risk of nonpayment of the pension benefits and that the court can base its division and distribution of the pension benefits upon the payments that are actually made rather than upon an actuarial calculation [present value] of the payments that may be made.
However, the disadvantages of deferred distribution are numerous. Deferred distribution forces parties who desire to dissolve their relationship by divorce to continue to deal with one another, and deferred distribution continues to burden the court. In our highly mobile society it may be difficult to resolve the distribution because the residence of the parties and the situs of the pension fund may no longer be in the forum where equitable division was had.
The following scenarios illustrate some additional avenues by which a nonemployee-spouse’s right to a portion of the pension entitlements may be defeated. The nonemployee-spouse may predecease the employee-spouse whereupon the employee spouse might receive a windfall, since the employee spouse might resume full right to the benefit entitlements. An employee-spouse may choose a straight life annuity option which guarantees maximum benefits for *93the life of the employee but ceases all payments upon the employee’s death. The employee-spouse may remarry and elect a joint survivor annuity which, upon the death of the employee-spouse, will pay the annuity to the employee’s new spouse as survivor. If the employee-spouse’s pension plan has a death benefit, the employee-spouse can attempt to thwart the nonemployee-spouse’s right to an equitable portion of the pension entitlements by naming a new beneficiary of the death benefit. While the employee-spouse may secure restoration of the death benefit beneficiary status through a court action, the fact remains nevertheless that such litigation is not only costly in time and money for the nonemployee-spouse and the court but also delays the desired final resolution of the parties’ rights.
Additionally, deferred distribution requires the court to continue supervision and enforcement of the marital property award and may result in the proliferation of administrative problems as, for example, proper notification to pension plan administrators of any restrictions on payment of plan benefits stemming from the marital property award.
III. Conclusion
Comparing the advantages and disadvantages of immediate offset distribution with those of deferred distribution leads to the inescapable conclusion that whenever possible, a court should utilize immediate offset distribution of pension benefits and thereby finally determine the parties’ marital property rights.
I now examine the facts of the instant case to ascertain whether the marital property portion of the employee-spouse’s pension benefits is susceptible to distribution under the preferred method of immediate offset.
At the master’s hearings of December 30, 1981, and March 31, 1982, the employee-spouse testified that he had been employed as a steam fitter for twenty-five years, Record at 22-23, and that accordingly, he was participating in the pension plan of the Plumber and Pipefitters National Union. Record at 46. The employee-spouse explained that his pension benefits would vest in 1984. Record at 93. *94Furthermore, the employee-spouse stated that at the time of the hearings he was fifty years old (date of birth — November 21, 1931), Record at 32, and that his pension benefits would not mature (become payable) before he reached the age of 65 unless he became disabled and attained the age of 55. Record at 46.
Thus, as of the date of the hearings, the employee-spouse had worked for twenty-five years as a steam fitter and needed only two additional years of work in that capacity in order to have his pension benefits vest (become nonforfeitable). The employee-spouse did not offer any evidence tending to suggest the probability of his not being able to complete the two years of employment necessary for vesting {e.g., work in a faltering industry) or of his not being able to survive until maturation (payment) of the benefits {e.g., poor health). Given the scant evidence of record, I cannot rule, as does the majority, that the employee-spouse’s pension benefits are too speculative for present valuation by an actuary.
Consequently, I should remand this case to have the parties present the lower court with actuarial calculations regarding the likelihood of the employee-spouse’s receipt of the pension benefits and the concomitant present value, if any, ascribable to the pension benefits. Upon receipt of the additional evidence, the court could then ascertain whether the pension benefits are amenable to present valuation. If the benefits are capable of being presently valued, the court could then determine whether there are sufficient marital assets available for distribution to the nonemployee-spouse to offset an award of the pension benefits to the employee-spouse or whether deferred distribution is necessary due to a lack of assets whose worth is comparable to that of the pension benefits.6

. We quote with approval the excellent opinion of Honorable R. Stanton Wettick, Jr., in Salac v. Salac (No. 2310-78, Allegheny County Court of Common Pleas, filed March 21, 1984), slip op. at 10:
Equitable distribution of virtually all property acquired during the marriage rests upon the concept of marriage as a shared enterprise or joint undertaking in which both parties contribute to the acquisition and preservation of marital assets.... A property division based on the concept of marriage as a shared enterprise means that full recognition is to be given to non-economic contributions and *88that distribution is not intended to be based primarily on the dollar value of the services each party contributed to the marriage.
(Citation omitted.)

. Pension benefits are not collectible until they are vested and have matured. Pension benefits are nonvested “so long as the right to receive these benefits will be forfeited by discharge, voluntary termination, or death____ A vested interest matures when the employee can meet all requirements for immediate payment of retirement benefits.” Salac, slip op. at 3; Kalinoski v. Kalinoski, 9 Fam.L.R. 3033 (1983).

. In discussing the public policy issues relating to pensions and in describing the mathematical formulas to be used in dividing the pension, we have relied on Salac; King; Kalinoski; Skoloff, How to Evaluate and Distribute Employee Benefits in a Divorce, Nat’l.LJ., February 13, 1984, at 25; Troyan, What’s Wrong with the ‘Accrued *89Benefit’ Method of Valuing Pensions upon Divorce, 4 Fairshare 10 (1984); Troyan, Pension Evaluation and Equitable Distribution, 10 Fam.L.R. 3001 (1983).

. An actuary is needed to determine the statistical probabilities of vesting and maturation of the pension benefits. King; Kalinoski.

. “Long-term and deferred sharing of financial interests are obviously too susceptible to continued strife and hostility, circumstances which our courts traditionally strive to avoid to the greatest extent possible." Kikkert, 177 N.J.Super. at 478, 427 A.2d at 79.

. The sole evidence now of record concerning the value of the pension benefits consists of confusing and incomplete testimony offered by the employee-spouse. Record at 46-49. Since the record does not contain accurate and complete information regarding the value of the pension benefits, I cannot hold that deferred distribution will ultimately prove necessary because the parties lack assets to offset the *95pension benefits (the parties’ chief marital asset is the marital residence appraised at $18,500 as of January 31, 1982, Record at 16, 18, 90).