APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2097-05T3
JENNIFER LARRISON,
April 5, 2007
APPELLATE DIVISION
Plaintiff-Respondent,
v.
RICHARD LARRISON,
Defendant-Appellant.
____________________________________
April 5, 2007
Telephonically argued January 26, 2007 –
Decided
Before Judges Cuff,
See footnote 1
Fuentes and Baxter.
On appeal from Superior Court of New Jersey,
Chancery Division, Family Part, Ocean County,
Docket No. FM-15-866-05.
Timothy F. McGoughran argued the cause
for appellant (Lucas & McGoughran attorneys;
Mr. McGoughran and Stephanie Cañas Hunnell,
on the brief).
Victoria L. Rehrer argued the cause for
respondent (Rehrer & Rehrer, attorneys;
Ms. Rehrer, on the brief).
The opinion of the court was delivered by
FUENTES, J.A.D.
The principal issue we are required to determine in this appeal is whether
a police disability pension is subject to equitable distribution without any exemption for
that portion of the pension benefit intended as compensation for the disability. Defendant
also argues that the Family Part erred in declining to impute a reasonable
income to plaintiff, thereby improperly increasing his child support obligation; and in ordering
him to obtain and maintain life insurance in plaintiff's favor in the amount
of $275,000, as a means of protecting plaintiff's equitable distribution interest in his
pension benefits.
After carefully considering the record before us, and in light of prevailing legal
standards, we agree with defendant's position and reverse. We now reaffirm the principle
we first articulated in Avallone v. Avallone,
275 N.J. Super. 575 (App. Div.
1994). In addressing an equitable distribution claim against a disability pension, a reviewing
court must determine "which [portion of the pension] represents a retirement component in
which plaintiff would be entitled to share, and that portion which represents compensation
for defendant's personal disability and personal economic loss." Id. at 584.
Here, the trial court failed to conduct the analysis necessary to make this
determination. We thus vacate that portion of the final judgment of divorce ("JOD")
that subjected defendant's disability pension to equitable distribution. We also vacate the section
of the JOD that set the amount of defendant's child support obligation and
required defendant to maintain a life insurance policy in the amount of $275,000.
We remand these issues to the Family Part for further proceedings consistent with
this opinion.
We gather the following facts from the evidence presented at trial.
Defendant began working as a police officer for the Neptune Township Police Department on February 1, 1996. The parties were married on November 19, 1997. They had two children, both girls, who are now ages eight and five. The family resided in a single family dwelling in Forked River, Ocean County.
On May 1, 2004, defendant retired after becoming eligible for a monthly ordinary disability pension benefit from the New Jersey Police & Firemen's Retirement System (PFRS). At the time of his retirement, defendant's base annual salary was $81,997.83. On October 8, 2004, defendant received a net retroactive pension check of $8,905.55, and thereafter began receiving a regular monthly retirement benefit of $2,733.26, which represented forty percent of his final year's salary. See footnote 2
On January 4, 2005, plaintiff filed for divorce. After preliminary negotiations, the trial court ordered the following pendente lite relief:
a. Defendant to pay $186 per week in child support through Ocean County Probation, effective June 15, 2005;
b. Defendant to continue to pay roof expenses for the marital home;
c. Defendant to continue to pay [youngest daughter's] pre-school tuition of $150.00 per month;
d. Sale of the marital home to be considered a change in circumstances concerning
support;
e. Finding Defendant to have ability to pay more than $600 per month in
support.
The marital residence was sold on July 28, 2005, for $245,000. The net
proceeds from the sale were divided equally between the parties. At the time
of trial, defendant was employed full-time by the Township of Lacey Public Works
Department, and was earning $30,638.40, or $14.73 per hour. The parties agreed to
share joint legal custody of their two children, with plaintiff as the "parent
of primary residence." Defendant had parenting time with the girls "every other weekend
from Friday through Sunday, every Thursday for dinner and the Monday for dinner
during the week following the weekend he does not have the children." Defendant
was also responsible for providing the children with medical and dental insurance coverage;
and agreed to "provide [p]laintiff with information necessary for her to obtain COBRA
benefits available to her through his employment."
The case was tried over a five-day period before the Family Part. Each party presented expert testimony in the area of pension evaluation. Both sides stipulated to the experts' qualifications, and to their capability to offer opinion testimony on this issue.
Plaintiff's Expert
William Troyan testified for plaintiff, and authored a report dated August 1, 2005, regarding defendant's pension. Troyan began his analysis by dividing the total period of time the parties were married while defendant was accruing a benefit, by the total period of service of defendant. Through this approach, he calculated that the marital coverture fraction, or the portion of the benefit attributable to the marriage, was 78.18%.
Based on a letter prepared by Peter J. Gorman, Executive Assistant, State of New Jersey, Department of Treasury, Division of Benefits and Pension, Troyan opined that defendant's pension was a "regular monthly retirement allowance" that contained no specific allocation for lost wages due to disability, and was therefore subject to equitable distribution.
Troyan acknowledged, however, that Gorman also referred to defendant's pension as an "ordinary disability retirement." He further recognized that, at the time of his retirement, defendant was not qualified for any pension other than the disability pension. Specifically, he stated that if defendant had retired at the same time without a disability, he would have only received a "refund of his contributions," which totaled $35,430.41.
Finally, Troyan specifically noted that despite his characterization of defendant's pension as a marital asset, subject to equitable distribution, plaintiff would not be entitled to a survivor benefit if the parties were divorced. He therefore suggested the use of an insurance policy as a means of protecting plaintiff's share of defendant's pension. In determining the present value of defendant's pension, Troyan used a gender-neutral mortality table, and did not take into account any disability or abbreviated life expectancy. He concluded that the total value of defendant's pension, for equitable distribution purposes, was $536,406.67.
Defendant's Expert
Kimberly Garrison testified on behalf of defendant, and authored her own report dated June 15, 2005, regarding defendant's pension. Although she acknowledged that defendant was currently receiving $2,733.26 per month, Garrison calculated an assumed monthly benefit of $1,127.32, based on a deferred pension. As she explained: "If he had terminated his job and waited until he was 55 and never [became] disabled in the first place, this was the amount of money to which he would have been entitled." According to Garrison, if a police officer retires at age fifty-five, but without ten years of service, he receives a pension based on the formula of "two percent times your years [of service] times your salary."
Applying this formula to defendant's case, Garrison made the following calculations: 0.02 x 8.25 (defendant's years of service) x $81,987 = $13,527.86 (annual benefit). She then divided $13,527.86 by 12 months, which resulted in a monthly benefit of $1,127.32. She determined defendant's mortality, using a gender-specific mortality table, and taking into account defendant's disability. Using the monthly benefit to determine the amount of benefits defendant would receive in his lifetime (based on a mortality table) commencing at age 55, Garrison concluded that the present value of defendant's benefits was $77,210.44.
She then reduced this value by multiplying it by 0.8250, which represented "a reduction for the probability of service to 100 percent vesting as equal to the portion already completed," and 0.7819, which represented "that portion of the value of the benefits attributable to the marriage." As a result, Garrison concluded that the valuation for equitable distribution, as of January 4, 2005, the date of the complaint, was $49,805.95. See footnote 3
To determine plaintiff's monthly benefit, Garrison assumed that the parties would share the value of the equitable distribution equally, resulting in $24,902.98 to each party. She then spread this benefit out over defendant's presumed lifetime, and included cost of living increases over the years, which resulted in a monthly payment to plaintiff of $90.49.
Garrison admitted that the pension plan does not provide for the remedy she recommended. She also noted, however, that the plan does not provide a procedure for splitting up a pension upon divorce. In this light, she argued that her recommendation was "a reasonable way to come up with a way to give parties a value if they are trying to trade assets."
Despite defendant's legal position to the contrary, Garrison admitted that no portion of the benefit was specifically allocated for disability or lost wage replacement. She argued, however, that the pension must be for disability, because if defendant had left his job for any other reason at that time, he would only receive a refund of his contributions.
Thus, she contended:
The fact that he's getting money today at age 36 – he's around that age – from now until 55, I don't know any other way to characterize it. Why would the State deem it's okay to start paying him over $1,000 more now, from now until he's 55, if it's not a form of compensation?
Although her report did not consider payment to plaintiff after defendant's lifetime, Garrison acknowledged that life insurance would be one way to protect her portion of the pension. Finally, she characterized the term "regular monthly retirement allowance," in the letter from the Department of Treasury, Division of Benefits and Pension, as simply referring to the fact that defendant was going to receive the payment every month, and did not indicate that he was receiving a regular pension as opposed to a disability pension.
Trial Court's Witness
Peter J. Gorman, Executive Assistant, State of New Jersey, Department of Treasury, Division of Benefits and Pension, testified at the request of the trial court. As noted earlier, Gorman had written a letter on August 2, 2005, in which he stated that defendant's "application for ordinary disability retirement with an effective retirement date of May 1, 2004, was approved by the Board of Trustees of the Police and Firemen's Retirement System (PFRS) with an approved, regular monthly retirement allowance of $2,733.26."
In his testimony before the trial court, Gorman testified that defendant's benefit is "a retirement benefit, but in order to qualify for that retirement benefit, you at least in this system have to have five years of service in and be declared to be totally and permanently disabled to such a degree that you can't do your police or firemen's job." (Emphasis added.) He emphasized, however, that this disability retirement plan is the same as the other plans, in that they "don't assign so much of the retirement benefit for lost wages or pain and suffering." In other words, although "the qualifications and the amounts [of the various plans] are different, . . . they're all avenues to receiving a retirement benefit."
With respect to defendant's disability pension, Gorman noted that, at least in part, the benefits paid are intended to replace lost wages. Specifically he stated:
I think it was an attempt to substitute and say, okay, disability is always unexpected; you were making [$]83,000; you shouldn't be penalized if you decide to go out up to that [$]83,000 or whatever the increases are. But if you go beyond it, you're, in effect, profiting, quote/unquote.
It is clear, however, that from the perspective of the Division of Pensions, "the benefit is not broken down by lost wages, pain and suffering."
The trial court articulated its findings and conclusions in an oral opinion delivered from the bench. With respect to the issue of defendant's pension, the court held that "defendant's pension is and will continue to be a monthly retirement benefit . . . and not a replacement for lost wages." The court found that "defendant has failed to provide the Court with any evidence that any of the marital coverture portion of his retirement benefit is exempt from equitable distribution." As a direct result of this finding, the trial court determined that:
[T]he marital coverture portion of the defendant's pension is subject to equitable distribution. A pension is an asset that may only be contributed to by one party but is a result of the marital [unit's] efforts to provide financial security in the future. The plaintiff is entitled to share in the pension benefits that accumulated during the marriage, as they are subject to equitable distribution. The distribution should commence from the date the defendant became eligible to receive the benefits.
In the course of reaching this decision, the court rejected defendant's argument based on Avallone. The court further discounted defendant's expert's testimony as "not credible," primarily because she based her report on a deferred retirement "when, in fact, it is clear that the defendant was approved for an ordinary disability pension." Conversely, the court found plaintiff's expert's report and testimony "to be highly credible and properly based upon Peter Gorman's August 2, 2005 letter and his later testimony."
Defendant's Disability Pension
We will now address defendant's argument challenging the court's ruling with respect to his pension benefits. The party seeking exemption from equitable distribution bears the burden of proof. Landwehr v. Landwehr, 111 N.J. 491, 504 (1988). Ordinarily, the "portion of a pension legally or beneficially acquired by either party during marital coverture is subject to equitable distribution." Claffey v. Claffey, 360 N.J. Super. 240, 255 (App. Div. 2003) (citing Kikkert v. Kikkert, 88 N.J. 4, 5 (1981)).
The coverture fraction represents the number of years during coverture that the pensioner spouse was a member of the pension plan, divided by the total number of years that the pensioner spouse was a member of that pension plan. The resulting coverture fraction represents that portion of the pension that is subject to equitable distribution.
[Id. at 256.]
N.J.S.A. 2A:34-23.1 requires a court to consider the following factors when determining the
question of equitable distribution:
a. The duration of the marriage or civil union;
b. The age and physical and emotional health of the parties;
c. The income or property brought to the marriage or civil union by
each party;
d. The standard of living established during the marriage or civil union;
e. Any written agreement made by the parties before or during the marriage
or civil union concerning an arrangement of property distribution;
f. The economic circumstances of each party at the time the division of
property becomes effective;
g. The income and earning capacity of each party, including educational background, training,
employment skills, work experience, length of absence from the job market, custodial responsibilities
for children, and the time and expense necessary to acquire sufficient education or
training to enable the party to become self-supporting at a standard of living
reasonably comparable to that enjoyed during the marriage or civil union;
h. The contribution by each party to the education, training or earning power
of the other;
i. The contribution of each party to the acquisition, dissipation, preservation, depreciation or
appreciation in the amount or value of the marital property, or the property
acquired during the civil union as well as the contribution of a party
as a homemaker;
j. The tax consequences of the proposed distribution to each party;
k. The present value of the property;
l. The need of a parent who has physical custody of a child
to own or occupy the marital residence or residence shared by the partners
in a civil union couple and to use or own the household effects;
m. The debts and liabilities of the parties;
n. The need for creation, now or in the future, of a trust
fund to secure reasonably foreseeable medical or educational costs for a spouse, partner
in a civil union couple or children;
o. The extent to which a party deferred achieving their career goals; and
p. Any other factors which the court may deem relevant.
As we described in Claffey, there are generally three methods of calculating a
spouse's interest in a pension plan: (1) a present-value offset distribution; (2) a
deferred-distribution; and (3) a partial deferred-distribution award. Claffey, supra, 360 N.J. Super. at
255. First, when applying the present-value offset distribution method, the court must determine
the present value of future benefits. Ibid.
Use of that valuation method involves calculations based upon the assumption that the
pensioner spouse terminated his or her participation in the pension plan as of
the date of filing of the complaint for divorce, and further assumptions of
the final average salary of the pensioner, the date at which the pensioner
will retire, and various assumed interest rates, mortality tables, cost-of-living adjustments and other
factors to determine the present value of annuities for the type of plan
being valued.
[Ibid.]
Notably, the present-value offset distribution method "is only to be used 'when there
are sufficient other marital assets against which to offset the non-pensioner's equitable distribution
interest in the pension, or sufficient income available to facilitate a reasonable buy-out
of the non-pensioner spouse's interest.'" Menake v. Menake,
348 N.J. Super. 442, 448
(App. Div. 2002) (quoting Risoldi v. Risoldi,
320 N.J. 524, 539 (1999)).
Second, if the court uses a deferred-distribution method, the court must base the
interest calculation on the coverture fraction. Claffey, supra, 360 N.J. Super. at 256.
Then the court must determine the non-pensioner spouse's equitable interest in the coverture
fraction, and enter an order distributing the interest at the time of the
retirement of the pensioner spouse. Ibid.
Finally, the court can employ the partial deferred-distribution method, which entails "'a current
valuation award of the appropriate share of the non-contingent portion of a pension
and a deferred distribution of the share of the contingent benefits if and
when they are paid to the employee spouse.'" Id. at 257 (quoting Moore
v. Moore,
114 N.J. 147, 151 (1989)). This method allows the non-pensioner spouse
to receive a share of the pension immediately, and also protects her right
"'to share future contingent benefits.'" Ibid. (quoting Moore, supra, 114 N.J. at 151).
In the case of disability pensions, such as the one at issue here,
we have held that the portion that serves to compensate the pensioner-spouse for
his disability and economic loss should not be subject to equitable distribution. Avallone,
supra, 275 N.J. Super. at 584. In Avallone, the parties divorced before the
defendant retired as permanently disabled from the Port Authority. Id. at 577. Because
the defendant had neither served long enough, nor reached the required age for
a regular pension, he received a disability pension from the New York State
and Local Police and Fire Retirement System. Ibid.
The trial court in Avallone initially ordered that the plaintiff receive half of
the defendant's monthly pension benefit, but then lowered her share of the benefit
slightly. Id. at 579.
The trial court concluded that if defendant had retired after twenty years of
service, he would have received a pension equal to one-half his final average
salary and that plaintiff would have been entitled to fifty percent of this
income. The trial court further concluded that since defendant's final average salary at
the time he went on disability was $45,906.24, plaintiff should receive one-half of
fifty percent of that figure, or $956.38 per month.
[Ibid.]
The pensioner-spouse appealed, arguing that his disability pension was analogous to an award
for personal injuries, or a worker's compensation award, which are both immune from
equitable distribution. Ibid.
We held that the non-pensioner spouse "should not be deprived of her right
to participate in such a significant asset merely because it has been characterized
as a disability pension rather than a retirement pension." Id. at 583. The
non-pensioner spouse is, however, only entitled to share the "portion of defendant's disability
pension which represents a retirement component," but not the "portion which represents compensation
for defendant's personal disability and personal economic loss." Id. at 584. We then
remanded for the trial court to make further findings consistent with our opinion.
Ibid.
Courts in several other states have applied a similar approach as in Avallone.
See Gragg v. Gragg,
12 S.W.3d 412, 417 (Tenn. 2000) (holding that, where
the facts warrant, "courts utilizing the analytical approach will separate the benefits into
a retirement component and a true disability component, with the retirement component being
classified as marital property and the disability component being classified as separate property");
Fox v. Fox,
592 N.W.2d 541, 545 (N.D. 1999) ("[D]isability payments do not
constitute marital property, because they are intended as replacement for income the disabled
spouse would be earning currently and would be able to earn in the
future had the spouse not become disabled."); Sherman v. Sherman,
740 S.W.2d 203,
207 (Mo. Ct. App. 1987) (holding that pensioner-spouse's disability benefits are not marital
property because they are a substitute for the husband's lost earnings occasioned by
his inability to work).
Based on the testimony from the representative from the Department of Treasury, Division
of Benefits and Pension, we are satisfied that defendant's benefits are intended in
part "to substitute" for lost wages, and his inability to continue working as
a police officer. The fact that defendant's retirement benefit is paid in the
same fashion as the other retirement plans is of no moment, because his
ability to receive such payments is expressly conditioned upon being disabled. Further, because
defendant will only receive his pension as long as he continues to earn
a lower salary than he earned as a police officer, it seems that
his pension serves, at least in part, to replace the salary that he
is now unable to earn as a police officer.
We recognize that the statute governing the pension plan does not set forth
a procedure for determining what portion of a pensioner's benefit is intended to
compensate exclusively for his disability. This omission, however, cannot result in unjustly and
improperly subjecting the full amount of a disability pension to equitable distribution upon
divorce. Confronted with this situation, the trial court should explore, with the assistance
of expert analysis, other options, including limiting the amount subject to equitable distribution
to defendant's contributions to his pension, which is what he would have received
had he left the police department at the time.
We do not foreclose, of course, other options which the parties may present.
The goal is to balance the non-pensioner spouse's legitimate claims to a marital
asset, without attaching funds intended to compensate the pensioner-spouse for his or her
disabilities.
See footnote 4
We also encourage the PFRS Board of Trustees to consider expressly identifying
which portion of a disability pension is intended to be exclusively compensatory. Absent
such a clear statement, the Board should consider promulgating guidelines to assist pensioners,
their spouses, and the courts as they grapple with the complexities of these
issues in the context of marital dissolution.
We turn next to the trial court's order requiring defendant to maintain life insurance in the amount of $275,000 to protect plaintiff's equitably acquired share of the pension benefits in the event of defendant's death. We begin our analysis of this issue by noting that "[a] deferred distribution . . . amounts to a contingency distribution dependent upon the survival of the pensioner spouse." Claffey, supra, 360 N.J. Super. at 261. Accordingly, if the pension does not provide survivor benefits to an ex-spouse, then her benefits cease when defendant dies. Ibid. As this court stated, "when he gets, she gets; when he dies, so does her benefit." Ibid.
Here, defendant's pension plan does not provide for survivor benefits to an ex-spouse. Therefore, if defendant predeceases plaintiff, she will no longer receive her share of his pension benefit. In this light, there is no legal support for the trial court's order directing otherwise.
Finally, we address the question of child support. Defendant argues that the trial court erred by not imputing income to plaintiff when calculating his child support obligation. Specifically, he argues that the trial court failed to consider plaintiff's potential earning capacity and employment history, and he contends that plaintiff's status as the primary caretaker of the children should not be considered when determining imputation of income. Finally, defendant argues that the trial court failed to consider that the children are now school age, thus permitting plaintiff to reenter the employment market place. Plaintiff takes issue with each of defendant's arguments.
When establishing child support, a trial court should apply the Child Support Guidelines, Pressler, Current N.J. Court Rules, Appendix IX-A to R. 5:6A at 2217 (2007). The trial court may only modify or disregard the guidelines if good cause is established for doing so. R. 5:6A. An important aspect of establishing appropriate child support is determining the parent's net income. Child Support Guidelines, Pressler, Current N.J. Court Rules, Appendix IX-A to R. 5:6A at 2226 (2007).
The Supreme Court has held that "when a parent, without just cause, is voluntarily unemployed or underemployed, income may be imputed to that parent to provide for the child's needs." Caplan v. Caplan, 182 N.J. 250, 268 (2005). To determine whether it should impute income to an unemployed or underemployed parent, the trial court should consider:
(1) what the employment status and earning capacity of that parent would have been if the family had remained intact or would have formed, (2) the reason and intent for the voluntary underemployment or unemployment, (3) the availability of other assets that may be used to pay support, and (4) the ages of any children in the parent's household and child-care alternatives.
[Child Support Guidelines, Pressler, Current N.J. Court Rules, Appendix 1X-A to R. 5:6A
at 2227.]
The guidelines further specify that "[t]he determination of imputed income shall not be
based on the gender or custodial position of the parent." Ibid. In addition,
"[w]hen imputing income to a parent who is caring for young children, the
parent's income share of child-care costs necessary to allow that person to work
outside the home shall be deducted from the imputed income." Ibid. After determining
the income of each parent, the trial court must use the guidelines worksheet
to calculate the exact amount of the child support order. Id. at 2280.
Here, the trial court imputed no income to plaintiff, other than the portion
of defendant's pension that it ordered she receive. The court found that plaintiff
occasionally worked part-time during the marriage, but has remained unemployed since the birth
of the children so that she could serve as a full-time caretaker. In
this light, the court determined that plaintiff could not be expected to return
to work until "her caretaking responsibilities for the children subside."
Although no evidence was adduced at trial regarding plaintiff's employment history, the parties
stipulated that, "[t]he Plaintiff is currently unemployed. The Plaintiff worked only part-time during
the marriage."
See footnote 5
Despite the absence of direct competent evidence with respect to plaintiff's
employment history, the trial court should have considered that the older child was
seven years old at the time of trial, and presumably attending school. The
youngest child attended pre-school. Despite this evidence, the trial court did not attempt
to determine whether plaintiff was capable of assuming some employment responsibility during the
time the children were at school.
Plaintiff acknowledged in her proposed findings of fact and conclusions of law that
"[a]t most, she will have the ability to become employed part time, given
her caretaking responsibilities for the children." Plaintiff is, of course, free to remain
unemployed, but "[t]he fact that no court will actually order [plaintiff] to go
to work does not mean that it cannot impute income to her." Bencivega
v. Bencivega,
254 N.J. Super. 328, 331 (App. Div. 1992). Given this record,
we are compelled to remand the issue of plaintiff's earning capacity for the
trial court to determine whether income should be imputed to her.
Conclusion
The sections of the trial court's final judgment of divorce: (1) subjecting defendant's police disability pension to equitable distribution; (2) directing defendant to maintain life insurance in the amount of $275,000; and (3) setting the amount of defendant's child support obligation, are vacated. The matter is remanded for further proceedings consistent with this opinion.
Reversed and remanded. We do not retain jurisdiction.
Footnote: 1
Judge Cuff did not participate in oral argument. However, with the consent
of counsel she has joined in this opinion. R. 2:13-2(b).
Footnote: 2
At the time of trial, an outstanding pension loan of $9,000 was
being deducted from defendant's monthly benefit, at a rate of $542 per month.
Footnote: 3
Garrison specifically noted that this valuation did not take into account the
outstanding pension loan.
Footnote: 4
On remand, the trial court should also make specific findings as to
whether pension loans should be considered as subject to equitable distribution.
Footnote: 5
In defendant's proposed findings of fact and conclusions of law, which he submitted
to the trial court before its opinion was rendered, defendant claimed that plaintiff
"has worked as a special police officer, as a liquor store clerk, and
at a swimming club." Such a submission is not a substitute for competent
evidence.
A-