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By Robert E. Holmes Jr.
Introduction
More than 100 years ago the United States Supreme Court noted that "[t]he whole
subject of the domestic relations of husband and wife, parent and child, belongs to the laws
of the States and not to the laws of the United States." In re Burrus, 136 U.S. 586, 593-94
(1890). This 19th century vision of government proved to be incorrect. It so happens that
federal laws enacted to protect the retirement benefits of married persons have profoundly
and often adversely impacted domestic relations laws in community property states such as
Texas. Oftentimes retirement benefits are the most valuable, if not the only, assets
accumulated during marriage. By one estimate, the 80 million residents of the 9 community
property states have more than $1 trillion in retirement benefits. Boggs v. Boggs, ____ U.S.
____, (1997). Not surprisingly, so many people and so much money gave rise to some
divorce-related issues. In Texas there were many questions, such as whether unvested
retirement plan interests could be divided; there was a question how to value plan interests
when the employment giving rise to the interest lasted longer than the marriage. Texas state
courts addressed and resolved those issues expeditiously. But the federal government stepped
into the fray, passing legislation which preempted Texas community property laws, causing
unimagined and undoubtedly unintended problems, mostly for the women of Texas. Amendments to
such federal laws passed with the intent to ease those problems only started another cycle of
problems. For the most part, those problems fell on the shoulders of women who were
penalized for fulfilling the traditional and expected roles of homemaker and career
facilitator for their husbands. This paper presents an overview of the resolution of the
state and federal issues, as well as the problems yet remaining with the division of
retirement plan interests in Texas.
Overview of Community Property
The concept of community property originated when Germanic tribesmen agreed to give
their wives a share of the spoils of war in recognition of the women's contribution. These
Goths carried this concept with them when they conquered Spain, and the Spanish explorers
brought it to the new world. Not surprisingly, most states with community property systems
had an early Spanish influence.
Justice Stewart summarized well the nature of community property when he stated:
Community of property between husband and wife is that system whereby the
property which the husband and wife have is common property, that is, it
belongs to both by halves." W. deFuniak & M. Vaughn, Principles of Community
Property § 1, p. 1 (2d ed. 1971) (hereinafter Principles). This definition of
the property rights of a married couple was first recognized in written form in
693 A.D. in Visigothic Spain, id., § 2, p.3, and now prevails in eight states
of the Union...Fundamental to the system is the premise that husband and wife
are equal partners in marriage. Id., § 2, p.5; W. Reppy and W. deFuniak,
Community Property in the United States 13 (1975). Each is deemed to make
equal contributions to the marital enterprise, and each accordingly shares
equally in its assets. Principles § 11.1, p.28. Hisquierdo v. Hisquierdo, 439
U.S. 572, 592 (1979)(Justice Stewart dissenting)
The concept of the spouses having an equal ownership in property acquired during
marriage, regardless of their respective direct contributions to the acquisition, differs
dramatically from the concept of marital property at common law. Section 3.002 of the Texas
Family Code defines community property as all property acquired by either spouse during
marriage which is not separate property. Separate property is that which was owned or
claimed before marriage or acquired during marriage by gift, devise, or descent or as a
recovery for personal injuries sustained during marriage other than recovery for loss of
earning capacity. VERNON'S ANN.TEX.CONST., ART. XVI, §15; TEX.FAM.CODE.ANN. §3.001. In
short, if something is "property" and is not separate property, it must necessarily be
community property. Hilley v. Hilley, 342 S.W.2d 565, 567 (Tex. 1961).
Division of Community Property Upon Death or Divorce
During marriage each spouse holds an undivided interest in all property owned by the
community estate of the spouses. At the death of one of the spouses, their respective
interests are divided equally. TEX.PROB.CODE ANN. § 385. However, at time of divorce
community property may be divided in any manner which is "just and right." TEX.FAM.CODE ANN.
§7.001. This can be equal, extremely disproportionate, or anything in between. The court
has broad discretion in ordering a division of community property. Bell v. Bell, 513 S.W.2d
20, 22 (Tex. 1974); see also Hedtke v. Hedtke, 112 Tex. 404, 248 S.W. 21 (1923). The court
may take into account many factors in determining a just and right division, including fault
in the breakup of the marriage, the parties' comparative financial circumstances, health,
income-producing abilities, etc. See, e.g., Cooper v. Cooper, 513 S.W.2d 229
(Tex.App.-Houston [1st Dist.] 1974, no writ). The court cannot divest a spouse of his or
her separate property. Cameron v. Cameron, 641 S.W.2d 210 (Tex. 1982). Eggemeyer v.
Eggemeyer, 554 S.W.2d 137 (Tex. 1977).
Statutes Applicable to Retirement Benefits
Retirement plan interests accumulated during marriage are community property to be
disposed of as part of the just and right division of the community estate at time of
divorce. TEX.FAM.CODE.ANN. §7.003.
The Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §1001 et seq., is the controlling federal statute on retirement benefits. It applies generally to all retirement plan interests as well as various other employment-related benefits. In addition, there are other federal statutes dealing with specific types of retirement plan interests, such as military or railroad retirement pay, which are discussed below. A 1984 amendment to ERISA permitted the alienation of retirement benefits in limited circumstances. It has been important in the evolution of Texas case law. Retirement Equity Act of 1984 ("REA"), Pub. L. 98-397, 98 Stat. 1426. Finally, the Internal Revenue Code establishes the framework for creating retirement plans and the factors which distinguish qualified plans from nonqualified plans.
Overview of Retirement Benefits
A retirement benefit is an earned property right in the nature of deferred
compensation. See, e.g., Whorrall v. Whorrall, 691 S.W.2d 32 (Tex.App.-Austin 1985, writ
dismissed). Retirement plans can be either "qualified" or "non-qualified," depending upon
whether they meet certain requirements imposed by the Internal Revenue Code.
Qualified plans are governed by the limitations and protections of ERISA. See 29 U.S.C. §§ 1001-1461. To be "qualified" a plan must meet certain minimum requirements for participation, vesting, funding, and nondiscrimination. It must be available to all employees who meet those requirements and must be funded in equal percentages of salary. For instance, if a contribution of 15% of salary is made on behalf of one employee, then a similar percentage of salary contribution must be made on behalf of all other eligible employees. A qualified plan cannot discriminate in favor of highly-compensated employees. I.R.C. § 401. The advantage of having a plan which meets the Internal Revenue Code requirements of a qualified plan is that contributions made to such a plan, whether by employer or employee, are tax deductible. Qualified plan interests can be divided at time of divorce by a "qualified domestic relations order" ("QDRO"). Once signed by the court granting the divorce, the QDRO is then forwarded to the administrator of the plan being divided for a determination as to whether the order meets all the necessary requirements. If necessary, a defective order can be corrected or superseded by the original trial court. TEX.FAM.CODE ANN. §9.104. Once approved, the plan administrator will allocate and pay the plan benefits in accordance with the terms of the QDRO. Prior to ERISA and the advent of QDROs, the nonemployee-spouse had to rely on the employee-spouse to timely forward his or her (usually her) share of the monthly benefit.
Nonqualified plans are typically designed to coexist with qualified plans, as a way of providing additional retirement benefits to the highly-compensated executives of a company. Such plans circumvent the limitations and requirements of ERISA and the Internal Revenue Code but receive less favorable tax treatment. Since these plans are not governed by ERISA, the plan administrator is not required to recognize a domestic relations order dividing benefits between the spouses; however, in many instances, the administrator will agree to make payments to the nonemployee-spouse after divorce.
There are two general types of qualified plans: defined benefit and defined contribution. Defined benefit plans calculate the amount of the payment to be made to the retired employee by reference to years of service and level of compensation at time of retirement. Many such plans offer the employee a variety of payment options including early retirement, joint and survivor payments, and lump-sum payments. In accordance with ERISA, the employer must contribute to a defined benefit plan at a set rate, starting when an employee becomes a participant in the plan and ending at or before retirement, so that the benefits will gradually accrue. By contrast, contributions to a nonqualified defined benefit plan are not mandatory. Typically the payments called for under such a plan are made from anticipated cash flow. As a result, the possibility of a nonqualified plan not being funded is much greater than with a qualified plan. A qualified plan will include provision for the accrued benefits to vest incrementally. Once a benefit becomes vested, it is not subject to forfeiture if the employee is terminated prior to retirement. Unvested benefits of a terminated employee are reallocated among the remaining participants in the plan.
Defined contribution plans include profit sharing plans, stock purchase plans, thrift plans, and salary deferral plans, some of which are commonly referred to as 401(k) plans. Under a defined contribution plan, an individual account is maintained to receive the contributions made by the employee, the employer, or both. The contributions made by the employer are tax deductible to the employer in the year of payment. The contributions made by the employee are not taxed as personal income until the funds are withdrawn from the plan by the employee. The employee is always 100% vested in his account and many such plans include a mechanism for tax-free borrowing by the employee.
The Texas Issues: Divisibility
It is now well established in Texas jurisprudence that retirement benefits are a
property right which, to the extent such right is earned during marriage, is subject to
division upon the dissolution of marriage. Ex parte Burson, 615 S.W.2d 192 (Tex. 1981);
Cearly v. Cearly, 544 S.W.2d 661, 665-66 (Tex. 1976). The claim that retirement benefits
were gifts to the employee-spouse, and thus indivisible separate property, was rebuffed by
the Texas Supreme Court in Cearly, where it was said: "despite an earlier view that
retirement and pension plans were gifts bestowed by benevolent employers on retiring
employees, they are now regarded as a mode of employee compensation earned during a given
period of employment." Cearly, supra, 544 S.W.2d at 662.
A claim that all of a retirement plan interest was separate property based on the "inception of title" doctrine, i.e., because employment began before marriage, also failed. Even where a retirement plan commenced before the date of marriage, a spouse's right to receive benefits earned during marriage is not separate property. Dewey v. Dewey, 745 S.W.2d 514 (Tex.App.-Corpus Christi 1988, writ denied).
A claim that retirement benefits were not divisible because there was no immediate right to possession of the benefits was likewise rejected. Despite the fact that there is no immediate right to possession of retirement benefits by either spouse upon divorce, such benefits are contingent earnings of the community subject to division "when, if and as the payments are eventually made." Cearly, supra, 544 S.W.2d at 665-66.
Even retirement benefits attributable to disability were determined to be divisible
community property by the Texas courts. Busby v. Busby, 457 S.W.2d 551, 555 (Tex. 1970)(military disability retirement benefits accrued during marriage constitute community property subject to division); Marshall v. Marshall, 511 S.W.2d 72 (Tex.App.-Houston [1st Dist.] 1974, no writ)(disability benefits are subject to division on divorce); Simmons v. Simmons, 568 S.W.2d 169 (Tex.App.-Dallas 1978, writ dism'd)(long-term monthly disability benefits provided by an employer are community property subject to division).
Some of these state court rulings are no longer the law, having been squashed by federal court decisions applying the preemption of ERISA as discussed below. However, a review of Texas cases reveals a strong inclination by the Texas courts to divide between divorcing spouses all post-employment payments relating back to services performed during marriage. In addition, the Texas Supreme Court, at a time when it was not yet de rigueur to consider retirement plan interests in a divorce proceeding, issued a reminder to the bench: "Trial judges of this state, sitting in divorce suits, should inquire as to the existence of insurance or retirement programs to the end that the final judgment disposes of all property valuables of the community." Busby v. Busby, 457 S.W.2d 551, 554 (Tex. 1970).
The Texas Issues: Calculating the Divisible Amount
Having established that retirement benefits were divisible, it became necessary for
the Texas courts to determine the "community portion" since only rarely did a case on appeal
present a couple married during the entirety of the employment of the employee-spouse. More
typically, employment began before marriage or would continue after divorce, or both. As a
result, a portion of the retirement benefit would belong to the separate estate of the
employee-spouse. The first solution to the problem of determining the community portion was
announced in Taggart v. Taggart, 552 S.W.2d 422 (Tex. 1977). Mr. Taggart's retirement
benefits were accumulated over his working life of thirty years. He was married to Mrs.
Taggart for twenty of those thirty years. The court determined that two-thirds of the benefit
paid to Mr. Taggart when he retired was community property. Thus was born the so-called
"Taggart formula" for determining the amount to be paid the nonemployee-spouse: a fraction
with the numerator being months married while employed as a participant in the plan and the
denominator being total months employed as a participant in the plan, multiplied by the
amount of the monthly payment received at retirement, multiplied by the percentage awarded to
the nonemployee-spouse. This formula appeared in virtually every divorce decree dividing
retirement benefits signed in the six-year interval between the issuance of the Taggart
opinion and the advent of Berry v. Berry, 647 S.W.2d 945 (Tex. 1983), discussed hereinbelow.
In application, assuming a twenty-year marriage, a thirty-year employment, a $1,000 monthly
pension benefit and a 50-50 division of the community component, the result: 20/30 x $1,000 x
.5 = $333.33. The objective of the courts was to avoid divesting the employee-spouse of any
separate property component of the retirement benefit.
Since the Taggart formula factored only the amount of time employed and did not take into account many other factors which affect the value of retirement benefits, inequitable results occurred. Typically, an employee's income is highest during the last years before retirement. Therefore, the Taggart formula operated unfairly to the employee-spouse who continued working after divorce and received promotions and pay increases. Similarly, it was unfair to a nonemployee-spouse if the employee-spouse had a few years of low income early service prior to marriage. The problem with the Taggart formula was that it divided retirement benefits as of date of receipt by the employee-spouse, rather than valuing them as of date of divorce.
The inequities of the Taggart formula were addressed and resolved in Berry v. Berry, 647 S.W.2d 945 (Tex. 1983). The Texas Supreme Court held: "When the value of retirement benefits is in issue, the benefits are to be apportioned to the spouses based upon the value of the community's interest at the time of divorce." Id. at 947. This decision corrected the inequity in the application of the Taggart formula. The share for the nonemployee-spouse would be calculated based on the value of the benefit at time of divorce, rather than time of retirement.
In May v. May, 716 S.W.2d 705, 710-712 (Tex.App.-Corpus Christ 1986, no writ), the Corpus Christi Court of Appeals compared the application of Berry and Taggart. The court concluded that where a spouse was already retired at time of divorce, the Taggart formula was proper, but where a spouse continued working after divorce, the Berry formula applied, thereby harmonizing the two different holdings.
Unquestionably, the employee-spouse divorced after Berry is better off than the employee-spouse divorced under Taggart, assuming continued employment with promotions and pay increases. It has often been held, however, that Berry would not be applied retroactively to decrees of divorce which were final prior to its pronouncement. See, e.g, Baxter v. Ruddle, 794 S.W.2d 761 (Tex. 1990); Anderson v. Anderson, 707 S.W.2d 166 (Tex.App.--Corpus Christi 1986, writ ref'd n.r.e.). An apportionment of retirement benefits in a divorce decree, even if improper, is not subject to collateral attaack and will be enforced. Baxter v. Ruddle, supra, 794 S.W.2d at 763. See also Wilson v. Uzzell, 953 S.W.2d 384, 390-391 (Tex.App.-El Paso 1997, n.w.h.), holding that retroactive relief is not available to parties for decrees finalized prior to Berry through relitigation of the division of benefits or through clarification orders.
Texas courts have consistently held that the Berry formula does not apply to the division of retirement benefits accumulated in defined contribution plans. Baw v. Baw, 949 S.W.2d 764 (Tex.App.-Dallas 1997, no writ); Pelzig v. Berkebile, 931 S.W.2d 398, 402 (Tex.App.-Corpus Christi 1996, no writ); Hatteberg v. Hatteberg, 933 S.W.2d 522, 531 (Tex.App.-Houston [1st Dist.] 1994, no writ); Iglinsky v. Iglinsky, 735 S.W.2d 536, 538 (Tex.App.-Tyler 1987, no writ). The reason is that the trial court can easily determine the value of a defined contribution plan at any time before retirement simply by looking at the account balance of the employee-spouse. Baw, supra, 949 S.W.2d at 768. The proper calculation of the community's interest in a defined contribution plan is to simply subtract the value of the plan on the date of marriage from the value of the plan on the date of divorce. Hatteberg, supra, 933 S.W.2d at 531.
In Bloomer v. Bloomer, 927 S.W.2d 118, 120-21 (Tex.App.-Houston [1st Dist.] 1996, writ denied) the 1st Court of Appeals in Houston held that neither the Berry nor Taggart formula would apply to valuing military reserve retirement because the amount of benefit is based upon the total number of points the retiree accumulated by performing reserve duty. The points are not evenly accrued based upon the mere passage of time, but are strictly determined by the amount of activity. Thus, even though the reservist may have been a member of the reserves for a longer period during marriage than before or after marriage, the majority of the benefits points could have been acquired while single. The court ruled that the community portion would be calculated as the number of points accumulated during marriage divided by the total number of points accumulated. Id. at 121. In Rankin v. Bateman, 686 S.W.2d 707 (Tex.App.-San Antonio 1985, writ ref'd n.r.e.), the court held that the valuation of the community's interest in military retirement pay is to be based on the retirement pay which corresponds to the rank actually held by the service member on the date of divorce.
Some post-divorce increases in retirement benefits properly belong to the nonemployee-spouse, such as cost of living adjustments associated with the nonemployee-spouse's interest in the benefits. In re Reinauer, 946 S.W.2d 853 (Tex.App.-Amarillo 1997, writ denied); Sutherland v. Cobern, 843 S.W.2d 127 (Tex.App.-Texarkana 1992, writ denied); Harrell v. Harrell, 700 S.W.2d 645 (Tex.App.-Corpus Christi 1986, no writ); Neese v. Neese, 669 S.W.2d 338 (Tex.App.-Eastland 1984, writ ref'd n.r.e.). These increases are not attributable to the post-divorce time, toil and effort of the employee-spouse. Even so, there has been some inconsistency in rulings on this point. See Phillips v. Parish, 814 S.W.2d 509 (Tex.App.-Houston [1st Dist.] 1991, writ ref'd) (increases which are not attributable to the continuing employment should be divided between the parties). Compare Dunn v. Dunn, 703 S.W.2d 317 (Tex.App.- San Antonio 1986, no writ); May v. May, 716 S.W.2d 705 (Tex.App.-Corpus Christi 1986, no writ)(nonemployee-spouse may not share in any post-divorce cost of living increases).
Since the enactment of ERISA, as amended by the REA, and the implementation of Qualified Domestic Relations Orders, valuation is less often an issue than it used to be. In many cases, at time of divorce the value of an employee's interest in a defined benefit is actuarially calculated by the plan administrator, and the parties' respective interests are apportioned and segregated. Increases are applied to each segregated portion in accordance with the agreements of the parties or the ruling of the trial court as expressed in the terms of the order. In due course, the benefits, including any increases, are paid directly to each of the former spouses by the plan administrator.
Early ERISA and Its Application to Texas
Under ERISA, as originally enacted in 1974, anti-alienation, anti-assignment was the
rule. Moreover, by its own terms, ERISA preempted all state laws relating to any covered
employee benefit plan. 29 U.S.C. § 1144(a). Prior to the passage of the Retirement Equity
Act in 1984, the division of the community property portion of qualified retirement plan
interests was, therefore, prohibited by federal law. Nevertheless, Texas courts were
dividing retirement benefits upon divorce and getting away with it. The rationale was that
an implied exception to ERISA's anti-alienation provisions existed with respect to the
division of the community property on divorce. See Ryan v. Ryan 626 S.W.2d 103
(Tex.App.-Beaumont 1981, writ ref'd n.r.e.); General Dynamics Corp. v. Harris, 581 S.W.2d 300
(Tex.App.-Waco 1979, no writ).
In 1984, the Retirement Equity Act was passed, codifying this implied exception. The act amended ERISA to permit the division of retirement benefits by state courts as part of the division of community property in a divorce. Before that would happen, Texas citizens were hurled into a storm of litigation concerning railroad and military retirement benefits.
The Collision Between Anti-alienation and Community Property: Hisquierdo
The federal government kept pushing toward a direct collision between community
property principles and anti-alienation principles. Except when the United States Supreme
Court ruled directly that a specific retirement benefit was not divisible under community
property law, state courts continued with business as usual on the implied exception theory.
In 1978, the first collision occurred. The United States Supreme Court ruled
that retirement benefits paid under the Railroad Retirement Act of 1974 were
not divisible under community property laws. Hisquierdo v. Hisquierdo, 439
U.S. 572 (1979). The court held that the express language of the act provided
that the entitlement of a spouse to a share of the retirement benefits ended
when a couple was divorced. 45 U.S.C. § 231d(c)(3). The court determined
that any scheme requiring Mr. Hisquierdo to pay a portion of his retirement
benefits to his ex-wife, as and when he received them, would injure the
objective of the federal program. The court held that Congress intended the
retirement benefit for Mr. Hisquierdo only. Id. At 583. The court also
forestalled any attempt to offset this glaring inequity. It prohibited giving
the nonemployee-spouse some other community property as compensation for the
expected retirement benefits. According to the court, this would be an
impermissible anticipation of benefits. Id. At 588.
The enunciated rationale for application of federal supremacy seemed strained:
"It is for Congress to decide how these finite funds are to be allocated. The statutory balance is delicate. Congress has fixed an amount thought appropriate to support an employee's old age and to encourage the employee to retire. Any automatic diminution of that amount frustrates the congressional objective. By reducing benefits received, it discourages the divorced employee from retiring. And it provides the employee with an incentive to keep working, because the former spouse has no community property claim to salary earned after the marital community is dissolved. Id. at 585.
After noting the increasing importance of retirement benefits in American life and the increasing frequency of divorce, the court expressed concern about the onerous impact of its decision on former spouses with no other expected pension benefits. Id. At 590. By way of justification, the court indicated that former spouses of railroad retirees could garnish the retirement benefit for collection of spousal support. This must have been cold comfort to the former spouses of Texas, where spousal support was nonexistent.
In the wake of Hisquierdo there was no gap remaining through which Texas courts
could squeeze to find a way to divide railroad retirement benefits. Accordingly, the Texas
Supreme Court did what it had to do in Eichelberger v. Eichelberger, 582 S.W.2d 395 (Tex.
1979). It held that railroad retirement benefits were not divisible upon divorce and that no
offsetting asset could be awarded to the nonemployee-spouse. Id. at 401. The manifest
unfairness of this does irreparable violence to the concept of community property. Women bore the full brunt of
this violence. There can be no rational explanation for denying the wife of a railroad
worker a share in retirement benefits while wives of all other workers were given their fair
share. At least Texas courts could and did refuse to give retroactive effect to Hisquierdo.
Ex parte Lucher, 728 S.W.2d 823 (Tex.App.-Houston [1st Dist.] 1987, no writ). In that case,
husband's railroad retirement benefits were divided in a divorce predating Hisquierdo. Mr.
Lucher, contending that his divorce decree was void as to the division of the retirement
interest, stopped paying a portion of the benefits to his former wife. The court rejected
Mr. Lucher's contention that Hisquierdo should be applied retroactively:
"There is nothing in the holding in Hisquierdo that suggests that the United
States Supreme Court intended to invalidate, or otherwise render unenforceable,
a prior valid state court judgment. Nor does case law support the retroactive
application of the Hisquierdo ruling. Indeed, Texas law is to the contrary."
Id. at 825.
This was a scene which would be played out over and over again in Texas as former
spouses were bounced around by forces outside the state and outside their control. For those
players, timing was everything; identical facts yielded opposite results, depending on the
moment.
Amazingly, Hisquierdo is still in effect.
The Progression: McCarty and the USFSPA
On June 26, 1981, the United States Supreme Court decided McCarty v. McCarty, 453 U.S.
210 (1981). A 6-3 majority held that military retirement was not divisible under state
community property laws. Writing for the majority, Justice Blackmun (also the
author of Hisquierdo) determined that the application of community property
principles to military retirement pay threatened grave harm to clear and
substantial federal interests. Id. at 232. Once again, the court ruled that the
benefit was intended by Congress for the serviceman only. Id. at 233. Alienation might
impair the existence of a youthful military, since division of retired pay would discourage
retirement. Id. at 235. Once again, the court recognized that the plight of an ex-spouse of
a retired service member is often a serious one, id., at 235, but one which could be remedied
by garnishment for purposes of support.
Given Hisquierdo, McCarty should have been expected. Instead, it was viewed as a shocking overreach by the federal government. Quick action was demanded from Congress. Congress responded. On September 9, 1982, the Uniformed Services Former Spouses' Protection Act (USFSPA), 10 U.S.C. § 1408, was enacted and became effective on February 1, 1983. It reversed the effect of McCarty and authorized courts to divide military retirement pay at time of divorce in accordance with the laws of the jurisdiction, to the extent of payments beginning after June 25, 1981. In Cameron v. Cameron, 641 S.W.2d 210 (Tex. 1982), the Texas Supreme Court approved a division of military retirement benefits.
Though short-lived, McCarty resulted in a seemingly endless backwash of litigation in Texas. The decision in McCarty was applied to Texas in Trahan v. Trahan, 626 S.W.2d 485 (Tex. 1981), where the court held that military retirement benefits were not subject to division upon dissolution of marriage pursuant to Texas community property laws. Trahan was pending before the Texas Supreme Court at the time the decision in McCarty was handed down. Texas courts did, however, hold that McCarty would not be applied retroactively to reopen divorce cases finalized prior to McCarty. Segrest v. Segrest, 649 S.W.2d 610 (Tex. 1983). An exception was Ex parte Buckhanan, 626 S.W.2d 65 (Tex.App.--San Antonio 1981, no writ) where the court ruled that a pre-McCarty decree dividing military retirement pay was void by reason of retroactive application of McCarty. The next year the same court ruled that McCarty would not be retroactively applied. Ex parte Hovermale, 636 S.W.2d 825 (Tex.App-San Antonio 1982, no writ). Divorcing Texans and their lawyers were reeling from wave after wave of inconsistent decisions.
After the 1983 promulgation of the USFSPA, the Texas Supreme Court approved partition as the means to divide military retirement benefits in divorce cases which had been finalized during the interval between McCarty and the effective date of the USFSPA, provided the benefits had not been expressly awarded to the serviceman in the divorce decree. Koepke v. Koepke, 732 S.W.2d 299 (Tex. 1987); Harrell v. Harrell, 692 S.W.2d 876 (Tex. 1985).
The proviso that partition was available only if the benefits had not been expressly awarded in the original decree launched a new spate of litigation to determine whether benefits had been adjudicated in the prior order. See, e.g., Harrell v. Harrell, 700 S.W.2d 645 (Tex.App.-Corpus Christi, 1986, no writ) (language in decree "denying all other relief requested" was not an adjudication of the parties' interest in military retirement pay). By contrast, in Allison v. Allison, 700 S.W.2d 914 (Tex. 1985), it was held that the divorce decree had made an express award of all military retirement benefits to Mr. Allison, foreclosing any right of Mrs. Allison to sue for partition for the benefits. The parties had been divorced in 1981, after McCarty and before the USFSPA. There was no consistency in the decisions imposed upon hapless litigants. Whether military retirement pay was divided was determined not only by the vagaries of the trial court but also by the timing of the divorce and the boilerplate language included in the divorce decree.
As a result of the USFSPA, the business of dividing military retirement pay among spouses divorced after McCarty was booming. So much so that in Steel v. United States, 813 F.2d 1545 (9th Cir. 1987), the federal court was asked to and did decide that the USFSPA did not extend subject matter jurisdiction over division of military retirement pay to the federal courts. It held that the act merely authorized courts already having jurisdiction over the division of marital property to treat military retirement benefits in accordance with applicable state law. Id. at 1548.
Unwilling or unable to leave well enough alone, in 1990 Congress amended the USFSPA to limit the jurisdiction of a court to partition military retired pay when the divorce decree was signed before June 25, 1981, if the decree did not treat, or reserve jurisdiction to treat, the issue of the military retired pay. 10 U.S.C. § 1408(c)(1). In sum, partition relief would be available to post-McCarty divorcees, but not to persons who divorced prior to McCarty but had neglected to divide military retired pay. Furthermore, this amendment was expressly given retroactive application to judgments issued before the date of its passage:
"The amendment...shall apply with respect to judgments issued
before, on, or after the date of the enactment of this Act. In
the case of a judgment issued before the date of the enactment of
this Act, such amendment shall not relieve any obligation,
otherwise valid, to make a payment that is due to be made before
the of the two-year period beginning on the date of the enactment
of this Act." Pub.L. No. 101-510, § 555(e), 104 Stat. 1569, 1570
(1990), amended by Pub.L. No. 102-190, §1062(a)(1), 105 Stat. 1475
(1991).
This created a special class of persons divorced prior to McCarty by a
divorce decree which did not divide the military retired pay, but whose
interest in the pay was partitioned by a subsequent order signed after June
25, 1981. All the retired serviceman had to do was make the payments due for
the first two years following enactment of the amendment, then assert that the
partition order was void pursuant to this amendment which was, after all,
expressly made retroactive. Here was a new reason for litigation in Texas.
Among the first to step in was Jack Trahan, already a veteran of military
retired pay litigation. In Trahan v. Trahan, 894 S.W.2d 113 (Tex.App.-Austin
1995, writ denied), the Austin Court of Appeals decided that a partition order
signed after 1981 where the parties were divorced prior to 1981 was res
judicata as to the parties' rights to the military retired pay, despite the
retroactive language of the amendment. Id. at 118. Soon thereafter, the
Amarillo Court of Appeals followed suit, holding that since the partition
order had been finalized before the amendment to the USFSPA, the doctrine of
res judicata would apply. Ex parte Kruse, 911 S.W.2d 839 (Tex.App.-Amarillo
1995, no writ).
In stark contrast is the saga of the Buys. They were divorced in 1970 but made no effort, or so they thought, to divide the interest in Mr. Buys' military retirement pay until Mrs. Buys filed suit to do so in 1990. The San Antonio Court of Appeals held that Mrs. Buys' suit for partition was barred by the 1990 USFSPA amendment (898 S.W.2d 903). In 1994 the Texas Supreme Court granted Mrs. Buys' writ application. In its opinion, Buys v. Buys, 924 S.W.2d 369 (Tex. 1996), the Texas Supreme Court ruled that the 1970 divorce decree had, in fact, adjudicated the retirement pay issue, awarding it to Mrs. Buys via a residuary clause which stated:
"All of the other properties, financial assets and belongings of
the parties hereto, whether separate or community, not
specifically set aside to the defendant [Norbert Buys] under
Paragraph I, above shall be and is hereby specifically set apart,
assigned, given, granted and conveyed to plaintiff [Alene Buys] as
the separate property of the plaintiff herein and the defendant
herein expressly releases, assigns, gives, grants and conveys to
the plaintiff herein all the defendant's right title and interest
in and to the property hereby set apart to Plaintiff that he now
has or may have, free of and waiving any and all claims at law or
in equity that he has or may have, in whole or in part to such
property."
Thus, Mrs. Buys' action was not a prohibited partition suit but an action for
enforcement of her existing property right. It appeared the Texas Supreme
Court might not bow to federal preemption on this issue, stating: "Also, we do
not consider and express no opinion on whether the 1990 amendment preempts a
community property state court's ability to partition 'tenancy in common'
military retirement benefits earned during marriage but not awarded in the
final divorce decree." Buys, 924 S.W.2d at 375.
The Persisting Problem: Disability Benefits
Originally, the Texas Supreme Court held that military disability retirement
benefits accrued during marriage constituted community property subject to division. Busby
v. Busby, 457 S.W.2d 551, 554 (Tex. 1970). The rationale is that when disability
payments arise by a contract right vested during marriage, the disability benefits are
characterized as community property, even though paid after divorce. Simmons v. Simmons, 568
S.W.2d 169 (Tex.App.- Dallas 1978, writ dismissed)(holding that long-term monthly disability
benefits provided by an employer were community property subject to division); Marshall v.
Marshall, 511 S.W.2d 72 (Tex.App.-Houston [1st Dist.] 1974, no writ)(holding that disability
benefits were community property subject to division). The same rule applies even where
disability payments to a spouse are the proceeds of a disability insurance policy purchased
during marriage with community funds. Andrle v. Andrle, 751 S.W.2d 955, 956
(Tex.App.-Eastland 1988, writ denied)(holding that disability insurance proceeds were
community property subject to division). The theory is that the right to disability
compensation is not a right to payment for damages suffered by injury, but an earned and
vested property right acquired during marriage. Marshall, supra, 511 S.W.2d at 74. As such,
it is community property subject to division upon divorce.
However, with respect to Veteran's Administration disability benefits,
Texas has imposed a federal preemption upon itself on the way to holding that
such benefits are not subject to division at divorce. Ex parte Burson, 615
S.W.2d 192 (Tex. 1981); Ex parte Johnson, 591 S.W.2d 453 (Tex. 1979);
Arrambide v. Arrambide, 601 S.W.2d 197 (Tex.App.-El Paso 1980, no writ). This
line of cases holds that title 38 of the United States Code preempted state
community property law dividing such benefits. The statute states:
"Payments of benefits due or to become due under any law
administered by the Veterans' Administration shall not be
assignable except to the extent specifically authorized by law,
and such payments made to or on account of, a beneficiary shall be
exempt from taxation, shall be exempt from the claim of creditors,
and shall not be liable to attachment, levy, or seizure by or
under any legal or equitable process whatever, either before or
after receipt by the beneficiary." 38 U.S.C. § 3101(a).
The Texas Supreme Court noted that preemption of the state community property law was necessary because of the strong prohibition against attachment and anticipation of the benefits. Ex parte Johnson, supra, 591 S.W.2d at 456.
In 1989 the United States Supreme Court in Mansell v. Mansell, 490 U.S. 581 (1989), ruled that the USFSPA did not grant state courts the power to divide Veteran's Administration disability benefits since the amendment specifically excepted disability benefits from the definition of disposable pay. Id. at 584- 89. For once, the United States Supreme Court's action did not send Texas jurisprudence reeling, because Texas had already imposed a different federal preemption upon itself. The Texas Supreme Court did decide in Berry v. Berry, 786 S.W.2d 672 (Tex. 1990), that Mansell would not be applied retroactively to render divorce decrees or partition orders disposing of Veteran's Administration disability benefits finalized prior to Mansell subject to collateral attack. See also, In re Reinauer, 946 S.W.2d 853 (Tex.App.-Amarillo 1997, writ denied); Jones v. Jones, 900 S.W.2d 786 (Tex.App.-San Antonio 1995, writ denied)
There is, however, a serious problem emanating out of all this. A former serviceperson may, at any time and at his or her sole option, elect to forego regular military retirement pay in exchange for disability benefits from the Veteran's Administration. Since Veteran's Administration disability benefits are not even considered property for purposes of divorce, Ex parte Burson, supra, 615 S.W.2d at 194, they certainly are not divisible if taken in lieu of retirement pay. By the voluntary act of waiving regular military retirement for the Veteran's Administration disability benefits the service person can effectively modify a divorce property agreement with respect to allocation of the monthly income attributable to prior military service. See, id. at 195. The Burson court determined that a serviceperson has that right by federal law. Id. at 196.
Texas appellate courts now consistently hold that trial courts do not have the authority to divide military retirement pay waived for Veteran's Administration disability benefits. In re Reinauer, 946 S.W.2d 853 (Tex.App.- Amarillo 1997, writ denied); Gallegos v. Gallegos, 788 S.W.2d 158 (Tex.App.-San Antonio 1990, no writ). However reasonable that may superficially appear, the result can be far from fair to the nonemployee-spouse when the option to exchange retired pay for disability pay is taken after divorce. The trial court will have already divided the community estate based on the existing retired pay option. After the fact, the serviceperson can unilaterally cause a reduction in the former spouse's share, for which there is no redress, while his or her own portion actually increases by reason of the dollar-for-dollar exchange of taxable benefits for nontaxable benefits. Given the tortuous and so often unfair twists and turns of military retired pay jurisprudence in Texas and the other community property states, the danger of asking Congress to remedy this injustice is patent. However, this is yet another inequity women in Texas are asked to bear.
The new ERISA arena
Prior to 1997, a nonemployee-spouse had at least some community
property interest in the employee-spouse's private
retirement plan which was subject to testamentary
disposition by the nonemployee-spouse. Allard v. Frech, 754
S.W.2d 111 (Tex. 1988). The court in Allard stated: "Thus,
we hold that in light of the settled marital property rule
in Texas that a spouse has a community property interest in
that portion of the retirement benefits of the opposite
spouse earned during their marriage, the retirement benefits
in this case were properly characterized as community
property, and thus, one-half of such benefits was properly
included in the wife's estate." Id. at 114.
This testamentary interest did not include the payments to a surviving spouse under a defined benefit plan. Valdez v. Ramirez, 574 S.W.2d 748 (Tex. 1978). The court ruled:
"The civil service act provides for no payment to persons outside
the employee's immediate family. It would be contrary to the
whole contract, policy, and plan of the Retirement Act for nearly
one-half of Mrs. Valdez's monthly payments to be taken from her
and awarded to her deceased husband's adult children. This would
subvert the underlying purpose of the Act, which is to provide
financial support and security to aged employees and their
immediate family" Id. at 750.
The question of whether ERISA preempts state laws allowing nonemployee-
spouses to transfer, by testamentary instrument, interests in undistributed
retirement plans has been specifically addressed in several recent cases with
differing results. Ablamis v. Roper, 937 F.2d 1450 (9th Cir. 1991)(finding
preemption); Meek v. Tullis, 791 F.Supp 154 (W.D. Louisiana 1992)(finding
preemption) and Boggs v. Boggs, 82 F.3d 90 (5th Cir. 1996)(finding no
preemption). Because of the differing results, the Supreme Court of the
United States granted writ of certiorari in Boggs v. Boggs, ____ U.S. ____
(1997), to consider the question.
After thirty years of marriage to Isaac Boggs, Dorothy Boggs died. At the time of Dorothy's death, their community estate had accumulated approximately $200,000 in retirement benefits from Isaac's employment. Dorothy's will gave one-third of her interest in all of the marital property outright to Isaac, along with a usufruct in the remaining two-thirds. At Isaac's death, whatever was left of that two-thirds interest would be shared among the Boggs' three sons. A year after Dorothy's death, Isaac remarried; he retired six years after Dorothy's death, and died ten years after Dorothy's death. His second wife, Sandra, survived him. At his death, the three sons of Dorothy and Isaac laid claim to their mother's interest in the retirement benefits accumulated during her lifetime. The second wife claimed that Louisiana community property laws were preempted by ERISA, and that she was entitled to everything accumulated during Isaac's 36 years of employment, including stock and defined contribution plan interests which had been rolled into an individual retirement account in Isaac's name, along with the monthly benefits payable under a defined benefit plan.
After paying the requisite lip service to the fundamental importance of community property law in defining the marital partnership in a number of states, the court proceeded to rule that once again community property law would have to yield to federal law:
"ERISA's express preemption clause states that the Act 'shall
supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan...' § 1144(a). We
can begin, and in this case end, the analysis by simply asking if
state law conflicts with the provisions of ERISA or operates to
frustrate its objects. We hold that there is a conflict, which
suffices to resolve the case. We need not inquire whether the
statutory phrase 'relate to' provides further and additional
support for the preemption claim. Nor need we consider the
applicability of field preemption..." Id at (slip op. at 7.)
The court relied heavily upon the policy reasons provided in ERISA for
protecting plan participants and their surviving spouses in reaching its
conclusion. In addressing the divisibility of the qualified joint and
survivor's annuity mandated by ERISA, the court stated that one objective of
ERISA is to "ensure a stream of income to surviving spouses". Id. at (slip
op. at 8.) The court also noted that the REA enlarged ERISA's protections
for surviving spouses, thus providing another reason for preemption:
"ERISA's solicitude for the economic security of surviving spouses
would be undermined by allowing a predeceasing spouse's heirs and
legatees to have a community property interest in the survivor's
annuity...Testamentary transfers could reduce a surviving spouse's
guaranteed annuity below the minimum set by ERISA...Perhaps even
more troubling, the recipient of the testamentary transfer need
not be a family member." Id. at (slip op. at 9-10.)
The court noted that the primary purpose of ERISA is to protect plan
participants and beneficiaries, citing Shaw v. Delta Air Lines, Inc., 463 U.S.
85, 90 (1983), 29 U.S.C. § 1001. In this instance, the Boggs' children were
neither. Only in narrow circumstances, such as pursuant to a qualified
domestic relations order issued in connection with a divorce, does ERISA
confer beneficiary status on a nonparticipant. 29 U.S.C. § 1055-1056, § 1169;
Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365, 376 (1990).
ERISA's silence as to the power of testamentary disposition over retirement
benefits was also a key factor in the court's decision. The court reasoned
that, "ERISA's silence with respect to the right of a nonparticipant spouse to
control pension plan benefits by testamentary transfer provides powerful
support for the conclusion that the right does not exist". Boggs, supra,
citing to Cf. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134,
147-48 (1985).
The court's holding that the Boggs' sons were not beneficiaries of any of the retirement benefits evidences its view that Dorothy Boggs did not accumulate any rights or interests in these plans despite thirty years of marital partnership with Isaac Boggs. As a matter of fact, the Boggs' sons were made the beneficiaries of all of Dorothy's interest in the plan benefits. Isaac Boggs necessarily thought that all of Dorothy's share of the retirement benefits would go to his children at his death. Had he known otherwise, perhaps he would have made other beneficiary designations, assuming he would have been allowed to do so by ERISA without Sandra's permission. Now all of Dorothy's interest is going to one who is a not a family member of Dorothy's or her children, and at the death of Sandra Boggs, whatever is left of Isaac's interest will go to Sandra's beneficiary. Given this litigation, the Boggs' sons are not likely to be named Sandra's beneficiaries. Now we have circled back to what the court feared as a possible and troubling outcome, a testamentary transfer to a nonfamily member, made possible by the court's refusal to recognize Dorothy's rights in the retirement benefits. It is worth nothing that the benefits included not only a monthly annuity payment, but cash on deposit in an IRA, and shares of stock. Had Dorothy and Isaac divorced before Dorothy's death, she would have received a portion of the IRA and the stock which would have been hers to dispose of at her death, whereas her portion of the monthly annuity payments would probably have terminated at her death. The differences between defined benefit plan interests and defined contribution plan interests are so substantial that it seems inappropriate and inadvisable to treat them as if they were interchangeable.
Conclusion
It is difficult to leave a review of the cases discussed in this paper without forming
this opinion: the federal government either does not understand the community property
system or it is, in fact, biased against women, particularly women who have filled the
traditional role of facilitating their husbands' careers and have earned no salary or
benefits for their services. In recognition of the community property system, it would be a
simple matter for Congress, at the outset, to temper anti-alienation provisions with an
exception for spouses in community property states. Alternatively, the United States Supreme
Court could have recognized an implied exception in the acts of Congress for the benefit of
spouses in community property states. These things have not happened. The United States
Supreme Court's rationale for its holdings in the majority opinions in Hisquierdo, McCarty
and Boggs is strained, particularly the notions that railroad workers and armed service
personnel will not retire if they have to split their retirement benefits with former spouses
and that accumulated benefits might end up with unrelated beneficiaries if spouses have
testamentary power over their community property interest. One fact is indisputable: none
of the case law on the subject involves protecting a woman's retirement benefits from her
former husband.
Although some of the problems have gradually been resolved, some serious issues remain to be resolved: 1) the ability of retired armed service personnel to waive retired pay in favor of Veteran's Administration disability benefits even after the military retired pay has been divided by QDRO; 2) the divisibility of railroad retirement, and 3) the inability of spouses to have testamentary capacity over their community interest in defined contribution plans, if not all types of retirement benefits.