Wanner-Brown v. Brown ( 2013 )

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Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
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THE SUPREME COURT OF THE STATE OF ALASKA
TAMMY WANNER-BROWN, )
) Supreme Court No. S-14814
Appellant, )
) Superior Court No. 3AN-11-09866 CI
v. )
) OPINION
CONRAD BROWN, )
) No. 6844 – November 22, 2013
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Eric A. Aarseth, Judge.
Appearances: Justin Eschbacher and G.R. Eschbacher, Law
Offices of G.R. Eschbacher, Anchorage, for Appellant. Carl
D. Cook, Law Office of Carl D. Cook, P.C., Anchorage, for
Appellee.
Before: Fabe, Chief Justice, Winfree, Stowers, Maassen,
Bolger, Justices.
STOWERS, Justice.
I. INTRODUCTION
Conrad Brown and Tammy Wanner-Brown married in 1992. In 2011
Conrad filed for divorce. A trial was scheduled to resolve both child custody and
property disputes. On the first day of trial, the parties filed an agreement resolving the
custody issues. The trial proceeded regarding the division of property. A major issue
involved Conrad’s State of Alaska retirement medical benefits. For purposes of defining
retirement benefits, the State has four “tiers.” What tier an employee belongs to is
dependent on the employee’s start date.1 The main difference between the tiers is the age
at which benefits may be received — Tier 1 employees can receive full retirement
benefits, including medical benefits, at the age of 55 while Tier 2 employees must wait
until the age of 60. Because a Tier 1 employee can begin receiving benefits five years
earlier, the total value of this status is worth much more than the value of Tier 2 status.
Before his marriage, Conrad had briefly worked for the State at a time when
all employees in his position were classified as Tier 1. Conrad cashed out his retirement
benefits when he left the position after six months. After he married Tammy, he became
re-employed with the State and completely re-earned his retirement benefits. Conrad
was still classified by the State as Tier 1 because of his prior employment with the State.
The present value of his medical benefits under a Tier 1 calculation was $248,350 as of
the date of trial.
The superior court decided Conrad was a Tier 2 employee for purposes of
valuing and distributing marital assets because “[t]he Tier 1 eligibility was earned prior
to the marriage” and “[t]he marital assets (i.e. time, risk, money) spent to allow the
plaintiff to vest with the State of Alaska were no different for a Tier 1 than for a Tier 2.”
The court determined that Conrad’s Tier 2 retirement benefits had a present value of
$170,879.39 and awarded these benefits to Conrad. The court awarded Tammy the
couple’s two rental properties and all of the marital debt, and ordered her to pay Conrad
an equalization payment of $11,590 within a year. The court also ordered Tammy to
1
Tier 1 includes employees who started before July 1986; Tier 2, before July
1996; Tier 3, before July 2006; and Tier 4, since July 2006. Public Employees’
Retirement System (PERS) Plan Comparison Chart,
http://doa.alaska.gov/drb/pdf/pers/perstieri-ivchart.pdf (last visited Nov. 13, 2013).
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refinance the two rental properties within one year to remove Conrad’s name from the
titles and debt.
Tammy appeals, arguing that: (1) Conrad’s retirement classification should
have been Tier 1, not Tier 2; (2) the court miscalculated the value of the medical benefits
even if they were Tier 2; (3) the court erred by not taking into consideration the cost of
selling one of the properties even though the property division had the practical effect
of requiring her to sell it; and (4) the court gave her an impossibly short time to refinance
the loans on the rental properties. We hold that the superior court erred by valuing
Conrad’s retirement medical benefits as Tier 2 instead of Tier 1 and remand for the court
to recalculate these benefits and reconsider its property division. Thus, we decline to
reach Tammy’s other points on appeal.
II. FACTS AND PROCEEDINGS
A. Facts
Conrad Brown and Tammy Wanner-Brown were married in September
1992. The couple had two children together, who are now ages 17 and 13. Tammy was
employed for many years as a general manager at a Days Inn in Anchorage, and Conrad
worked as a probation officer in Palmer. In 2010 Tammy’s reported wages were
$58,500 and Conrad’s reported wages were $47,547.
Before Conrad and Tammy separated, they had accumulated a significant
amount of debt. The family owned a home on which they owed $255,287.66. They also
owned two rental properties: a duplex on Duben Drive and a condominium on Reka
Drive. The duplex was built for the couple by Tammy’s father, and the condominium
was inherited from Conrad’s parents. Conrad and Tammy mortgaged both properties,
and they owed $254,378.77 on the duplex and $45,377 on the condominium. In
addition, the couple had $28,149 in credit card debt. Conrad and Tammy also had a loan
from Wells Fargo for $13,188.66, which they used to buy a travel trailer, and a debt to
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J.C. Penney on which they owed $1,142.22. They had car loans on both of their vehicles
— $8,303 on Tammy’s Hyundai and $8,270 on Conrad’s Chevy. Finally, the couple had
numerous smaller debts owed to service providers, banks, and various third parties. The
minimum payment for the credit card debt and the couple’s larger debts was $1,055 a
month.
In March 2011 Conrad left the family home. In June he ceased contributing
to the payments on the family’s debts, and the family home went into foreclosure.
B. Proceedings
Conrad filed for divorce in May 2011. Tammy asked the superior court for
an equitable division of the family’s property. She submitted a proposed property
division table in which the Reka condominium would be sold and the proceeds used to
pay off the couple’s debts. She also submitted an alternate property division proposal
in which Conrad would receive the Reka condominium and she would be paid an
equalization payment. In both proposals she suggested that the court value Conrad’s
medical retirement benefits at $248,350, and she included a statement from financial
planning expert witness Sheila Miller supporting this valuation. Conrad also submitted
two proposed property divisions. In the first he suggested that the court give no value
to his medical retirement benefits and that it award the Reka condominium to him. In the
second he proposed that his medical retirement benefits be valued at $148,651, that
Tammy receive the Reka condominium, and that she pay him a $25,281 equalization
payment.
The superior court conducted a trial regarding the value of Conrad and
Tammy’s real property, household items, and employment benefits.2 Miller testified at
length regarding Conrad’s retirement benefits. She explained that Conrad would receive
2
Conrad and Tammy came to an agreement on child custody issues.
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Public Employees’ Retirement System (PERS) medical retirement benefits from the State
when he turned 55. Miller described her calculations regarding the monetary value of
the medical retirement benefits Conrad would receive through his PERS account. Miller
stated that she had followed the procedure this court prescribed in Hansen v. Hansen,3
Ethelbah v. Walker,4 and Sparks v. Sparks5 for determining the value of those medical
benefits. She described how the benefits were “basically medical insurance provided at
the cost of the plan — the plan underwrites a hundred percent of the cost — to retirees
in the PERS system.”
Miller explained that the State has four tiers which determine the age at
which an employee can begin to receive his benefits. Because Conrad was classified by
the State as Tier 1, he will receive his medical benefits starting at age 55. Miller
described how one calculates the value of these benefits:
[Y]ou take the current premium, you apply inflation factors
for what you think it’s going to grow by, and then you apply
discount factors, to bring that future cash flow stream back to
a present value in today’s dollars, and total up the sum of the
numbers and you basically have a present value.
Miller also explained the actuarial computation method she used to compute
the benefits’ monetary value based on Conrad’s life expectancy. Under this method,
Miller looked at the probability that Conrad will live to a designated year, starting with
a 96.6% chance he will live to retirement at age 55 and continuing until a 0.00005%
chance he will live to be 110 years old. She then discounted the value of the medical
benefits to him each year by the probability that he will live to that age. Miller
3
Hansen v. Hansen, 119 P.3d 1005 (Alaska 2005).
4
Ethelbah v. Walker, 225 P.3d 1082 (Alaska 2010).
5
Sparks v. Sparks, 233 P.3d 1091 (Alaska 2010).
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concluded that the “present value” of the Tier 1 medical retirement benefits was
$248,350.
Miller also analyzed Conrad’s Tier 1 status. Miller explained that Conrad
was Tier 1, not Tier 2, because he had worked for the State for six months at a time when
his position was classified as Tier 1. Then Conrad resigned from State employment and
cashed out his retirement benefits. Conrad later married Tammy and subsequently
became re-employed by the State. At the time he became re-employed by the State, all
new employees in his position were classified as Tier 2, but Conrad retained his original
Tier 1 classification because of his original Tier 1 service with the State. However,
because he had cashed out his original retirement benefits, the time period for the vesting
of his benefits started over again. Thus, all of the vesting time that counted towards
Conrad’s earning of his future benefits occurred during the marriage. Miller reasoned
that “[Conrad’s] Tier 1 classification, as of the date of marriage, was worthless. There
was no value to it . . . . It became valued when he earned five years of service, which he
did during the marriage.” Miller noted that the vesting period for Tier 1 and Tier 2 are
exactly the same. Conrad was only able to acquire his Tier 1 status because he worked
for the State before the State created the Tier 2 classification.
The court “accept[ed] Ms. Miller’s testimony regarding the valuation of the
plaintiff’s retiree medical benefit.”6 However, the court rejected Tammy’s argument that
the marital retirement benefits should be valued as Tier 1 instead of Tier 2. The court
decided that “[t]he Tier 1 eligibility was earned prior to the marriage” because “[t]he
marital assets (i.e. time, risk, money) spent to allow the plaintiff to vest with the State of
Alaska were no different for Tier 1 than for Tier 2.” The court concluded that “[w]hat
the Plaintiff earned during his work for the State of Alaska while married was effectively
6
Conrad presented no expert witness at trial.
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a Tier 2 retirement as far as the defendant is concerned.” The court valued Conrad’s
Tier 2 retirement medical benefits as $170,879.36 and determined the benefits start when
Conrad becomes 60 years old.
The superior court found that an equal property division would be “fair and
equitable considering the current financial standing and income-earning capability of
each party.” Among other items, the court awarded Conrad his retirement medical
benefits. The court awarded Tammy both the Duben duplex and the Reka condominium,
all of the debt associated with these properties, all other marital debt, and ordered her to
pay Conrad an equalization payment of $11,590 within a year. Finally, the court ordered
Tammy to refinance the loans on both rental properties to remove Conrad’s name from
the titles and the debt. The court gave her 12 months to accomplish this and stated that
if “for some reason 12 months is not enough time” to complete the refinancing, she could
apply for more time if she could show she had diligently attempted to complete the
refinancing.
Tammy moved for reconsideration. She argued that: (1) the retirement
medical benefits should have been valued as Tier 1, not Tier 2; (2) the court
miscalculated the retirement medical benefits even if they were to be considered as
Tier 2; (3) the court should have deducted the cost of selling the Reka condominium
from her award because the award had the practical effect of forcing her to sell the
condominium to pay her debts; and (4) the court overlooked a material fact when it
ordered her to refinance within one year because the family home was currently
undergoing a short sale in lieu of foreclosure and she would not be able to refinance for
a minimum of two years. Conrad responded that his benefits should be considered
Tier 2, not Tier 1; that Tammy never raised the issue of the Reka sales expenses before
her motion to reconsider; and that because Tammy had mismanaged the property during
the marriage, she should now shoulder the burden of its depreciated value.
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The superior court ultimately declined to alter its original property
distribution. It found that the concerns about the sale expenses of the Reka condominium
were “post-trial factual issues that should have been addressed at trial.” It ruled that it
would only consider extending the time limit for refinancing after the original time limit
elapsed and Tammy showed she had made “due diligent efforts” to refinance, but the
court agreed to give Tammy an extra three months to make the equalization payments
“in anticipation of the sale or refinance of the Reka property.” Conrad moved for
attorney’s fees and Tammy opposed. Tammy filed a motion for relief from judgment
pursuant to Alaska Civil Rule 60(b); she also asked for more time to make the
equalization payment, and she requested an evidentiary hearing.
The court denied Conrad’s motion for attorney’s fees, Tammy’s request for
an evidentiary hearing, and Tammy’s request for Rule 60(b) relief. It granted Tammy
another three-month extension of time for the equalization payment, but stated that it
would not grant any further extensions “regardless of the status of sale or refinance of
the Reka property.” Finally, the court found that Tammy was choosing to sell the Reka
property, not being forced to, and that it would not “re-adjust its findings to correct for
her choices.”
Tammy appeals, arguing that: (1) Conrad’s retirement classification should
have been Tier 1, not Tier 2; (2) the superior court miscalculated the value of the medical
benefits even if they were Tier 2; (3) the superior court erred by not considering sales
costs for the Reka condominium because its property division had the practical effect of
requiring her to sell the property; and (4) she was given an impossibly short amount of
time to refinance the properties awarded to her.
III. STANDARD OF REVIEW
When dividing marital property, the court (1) characterizes the property as
marital or non-marital, (2) finds the value of the property, and then (3) divides the
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property equitably.7 The characterization of property as marital involves questions of
both law and fact.8 Questions of law are reviewed de novo using our independent
judgment; findings of fact are reviewed for clear error.9 “A finding of fact is clearly
erroneous when ‘a review of the record leaves the court with a definite and firm
conviction that the superior court has made a mistake.’ ”10 Once the court has
characterized the asset, its valuation of the asset is a factual determination that we also
review for clear error.11
We review the court’s actual division of the property — once it has
characterized and valued the property — for abuse of discretion.12 “An abuse of
discretion occurs if the court considers improper factors, fails to consider relevant
statutory factors, or assigns disproportionate weight to some factors while ignoring
others.”13
IV. DISCUSSION
The superior court concluded that Conrad’s Tier 1 retirement classification
was not marital property, and when it calculated the value of Conrad’s retirement
benefits, the court valued the benefits as though they were Tier 2. Tammy argues that
7
Beals v. Beals, 303 P.3d 453, 458-59 (Alaska 2003).
8
Id. at 459. 9
Id.
10
Chesser v. Chesser-Witmer, 178 P.3d 1154, 1156-57 (Alaska 2008)
(quoting Borchgrevink v. Borchgrevink, 941 P.2d 132, 134 (Alaska 1997)).
11
Beals, 303 P.3d at 459.
12
Hansen v. Hansen, 119 P.3d 1005 (Alaska 2005).
13
Id. at 1009.
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according to Hansen v. Hansen, the portion of retirement benefits that is acquired with
marital resources is marital property, regardless of when the tier classification was
achieved.14 Thus, Tammy contends, because the entire vesting period for Conrad’s
retirement benefits occurred during the marriage, the entire benefits are marital property,
including the Tier 1 classification. Tammy is correct.
We have held that medical retirement benefits obtained during a marriage
are marital property to be valued and divided upon divorce.15 “That the benefits cannot
be transferred is irrelevant because ‘market transferability is not a prerequisite to
determining value for property division.’ ”16
In Hansen we considered a situation very similar to the case here.17 One
spouse had a PERS retirement account which she had earned and cashed out prior to the
marriage.18 She repurchased her PERS benefits during the marriage with marital funds.19
We concluded that “[f]or purposes of valuing [the spouse’s] retirement health insurance
benefit, work she performed before the marriage must be treated as having been
14
Id.
15
Id. at 1015; see also Burts v. Burts, 266 P.3d 337, 341 (Alaska 2011);
Sparks v. Sparks, 233 P.3d at 1091, 1097; Ethelbah v. Walker, 225 P.3d at 1087-90;
Kinnard v. Kinnard, 43 P.3d 150, 156 (Alaska 2002). Conrad “disputes that any value
should be assigned to the retiree medical benefits because he will not receive the benefit
until he retires.” However, as the above cited cases clearly show, Alaska law requires
that retiree medical benefits earned during the marriage be given a value for purposes of
divorce property distribution.
16
Hansen, 119 P.3d at 1015 (internal punctuation omitted) (quoting Martin
v. Martin, 52 P.3d 724, 731 (Alaska 2002)).
17
Id. at 1014-16.
18
Id. at 1014.
19
Id. at 1014-15.
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performed during the marriage because [the spouse] used marital funds to buy back this
part of the benefit.”20 We then directed the superior court to determine the coverture
fraction, or the number of years worked during the marriage divided by the total number
of years worked to obtain the benefits, and to use this fraction to determine what percent
of the retirement benefits was marital.21 We stated explicitly that “[t]o the extent [the
spouse] used marital funds to buy back health benefits for work performed before the
parties began living together, that period of work must be treated as part of the period of
coverture.”22
Sheila Miller, Tammy’s expert on financial planning, testified that she
attempted to follow Hansen when valuing Conrad’s benefits. She reasoned that
Conrad’s “Tier 1 classification, as of the date of marriage, was worthless. There was no
value to it . . . . It became valued when he earned five years of service, which he did
during the marriage.” Thus, she concluded the entirety of the Tier 1 benefits was marital.
The superior court disagreed and found the Tier 1 classification to be pre-marital because
“[t]he marital assets (i.e. time, risk, money) spent to allow the plaintiff to vest with the
State of Alaska were no different for Tier 1 than for Tier 2.” Therefore, the court
decided, “[w]hat the Plaintiff earned during his work for the State of Alaska while
married was effectively a Tier 2 retirement as far as the defendant is concerned.”
We conclude that Conrad’s medical retirement benefits should have been
valued as Tier 1 because, as we stated in Hansen, if retirement benefits are cashed out
before the marriage and then repurchased or re-earned with marital assets, they become
20
Id. at 1015.
21
Id.
22
Id.
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marital property.23 Here, though Conrad’s Tier 1 status was earned prior to the marriage,
he re-earned the benefits during the marriage with marital resources (his time). As in
Hansen, the period of work during which the benefits were originally earned “must be
treated as part of the period of coverture.”24 Thus, the court erred when it classified
Conrad’s Tier 1 status as pre-marital property. Due to this error, the court’s valuation
of his benefits was clearly erroneous because its calculations were based on Tier 2 status.
We reverse the superior court’s Tier 2 finding and its related valuation of benefits and
remand for the court to recalculate the value of the medical retirement benefits under a
Tier 1 calculation. Because this new calculation will substantially change the value of
the marital estate,25 the superior court will need to reconsider its overall property division
to accommodate this change in valuation. We therefore do not reach the rest of Tammy’s
arguments.26, 27
23
Id.
24
Id.
25
Under the court’s Tier 2 valuation, the retirement medical benefits were
worth $170,879.36. Under Sheila Miller’s undisputed Tier 1 valuation, the benefits had
a present value of $248,350.
26
Though we do not reach Tammy’s argument that it was an abuse of
discretion for the superior court to give her only one year to refinance the couple’s two
rental properties, given that the family home had just undergone a short sale, which
clearly was going to negatively affect Tammy’s ability to refinance, we are concerned
that Tammy may have been ordered to accomplish a near impossibility. We remind the
trial courts that they should carefully consider the difficulties of refinancing after a party
has experienced a very negative credit event such as a short sale or a foreclosure when
ordering or otherwise effectively requiring a party to refinance marital property
following a divorce.
27
We are also troubled by the superior court’s decision not to consider the
(continued...)
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V. CONCLUSION
We REVERSE the superior court’s finding that Conrad’s Tier 1 medical
retirement benefits should be valued as Tier 2 and REMAND for a new valuation and
property division.
27
(...continued)
sales costs of the Reka condominium during the property division. The court knew that
the family home was underwater (the balance owed on the home loan exceeded the value
of the property) and that the home was in the process of being sold at short sale. The
court knew that Tammy’s credit score would be severely negatively impacted by this
short sale and by missed payments on the couple’s other debts, that it was awarding her
all of the couple’s debt, and that it was requiring her to make an $11,590 equalization
payment to Conrad within a year’s time. In her motion for reconsideration, Tammy cited
Tollefsen v. Tollefsen, 981 P.2d 568 (Alaska 1999) and argued that the superior court
erred by not considering in its property distribution the costs she would incur associated
with selling the Reka condominium. The superior court declined to change its property
distribution, stating that Tammy “has made business choices about how to manage the
Reka property. She elected to sell rather than rent or refinance. . . . The defendant’s
choices are just that, her choices.”
This decision and rationale appear to be at odds with our decisions in
Day v. Williams, 285 P.3d 256, 266-67 (Alaska 2012) (holding that the superior court’s
failure to consider the costs associated with a forced sale of real property prevented the
property distribution from being just and fair), Fortson v. Fortson, 131 P.3d 451, 461
(Alaska 2006) (holding that if “a court order or external conditions force a party to sell”
some of the property she has been awarded, the court must consider the costs associated
with the sale), and Tollefsen, 981 P.2d at 572 (holding that “although the superior court
expressly found that Mary was the economically disadvantaged party, the court’s failure
to make provision for the costs of repairs and sale of the real property awarded to Mary
defeated its stated goal of awarding her the greater share of the marital estate”).
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