Thomson v. Thomson

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THE SUPREME COURT OF THE STATE OF ALASKA
DAVID F. THOMSON, )
) Supreme Court No. S-16155
Appellant, )
) Superior Court No. 1JU-06-00608 CI
v. )
) OPINION
MARJORIE W. THOMSON, )
) No. 7173 – May 19, 2017
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, First
Judicial District, Juneau, William B. Carey, Judge.
Appearances: Michael A. D. Stanley, Juneau, for Appellant.
Paul H. Grant, Juneau, for Appellee.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger,
and Carney, Justices.
CARNEY, Justice.
I. INTRODUCTION
In 2006 a divorcing couple agreed to divide the husband’s retirement
benefit based on its present value and implemented the division with a Qualified
Domestic Relations Order (QDRO). In 2014, after the husband received an updated
benefit projection that calculated the wife’s share of the benefit using his salary at
retirement instead of at divorce, he sought to modify the QDRO. He asked the court to
require that her benefit be based upon the same salary data used in the 2006 calculation.
The superior court denied the motion. Because the settlement did not contain clear
language establishing the use of the earlier salary as required by Hartley v. Hartley,1 we
affirm.
II. FACTS AND PROCEEDINGS
A. The 2006 Divorce And Property Settlement
David and Marjorie Thomson married in 1982 and permanently separated
on December 31, 2004. Working with a mediator, they developed a property settlement
agreement that was incorporated into their August 9, 2006 divorce decree. David
retained the marital home, so the property settlement assigned about 53% of the net
estate to Marjorie to help her establish adequate housing for the couple’s minor children.
They agreed that this division “fairly allocate[d] the economic effect of their divorce” as
required by AS 25.24.160(a)(4).
Among the assets divided were retirement accounts belonging to both,
including their State of Alaska Public Employees’ Retirement System (PERS) retirement
accounts. David was still working for the State and had accrued a little more than 20
years of PERS service credit when the parties separated. The parties agreed on a value
for David’s PERS account based on its present value as calculated by a third party
company. The company used David’s most recent average earnings for 2003-2005 to
calculate a projected benefit if he retired at the expected date of April 1, 2015. It then
determined that the March 2006 present value of his benefits was $286,882 and that the
marital portion was $271,316. That amount was based on the proportion of David’s
PERS service that occurred between their 1982 marriage and their separation on
December 31, 2004.
1
205 P.3d 342, 350 (Alaska 2009).
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The parties allocated the agreed-upon value of David’s PERS benefit along
with the agreed values of their other assets between themselves in a chart of their marital
assets. Once they reached what they considered a fair distribution of the entire estate in
dollar terms, they calculated what percentage of David’s PERS benefit was on Marjorie’s
side of the ledger.
Based on these calculations, the property settlement agreement provided
that Marjorie would receive 46.96% of “the marital portion of David’s account” to be
distributed via a QDRO. The settlement also provided that each party would
“solely . . . retain other property acquired after their 31 December 2004 permanent
separation. That property is agreed to be non-marital and neither party is making a claim
to it.” The QDRO submitted by the parties said, in relevant part, that “Marjorie W.
Thomson, as the Alternate Payee, shall receive from the Plan, from the final monthly
retirement benefit which otherwise would be payable to the Member, 46.96% of the total
monthly benefit which is based on credited service accrued from August 7, 1982 to
December 31, 2004.” (Emphasis in original.) The court signed this QDRO along with
the divorce decree and settlement on August 9, 2006.
B. The Present Dispute Over The QDRO Distribution Amount
In the fall of 2014 David obtained an updated projection of his PERS
benefits from the state Division of Retirement and Benefits (DRB). The projection
estimated his benefits as of a retirement date of May 1, 2015 and showed how those
benefits would be affected by the QDRO. The benefits were calculated using David’s
average earnings for his final three years of employment, 2013-2015. Due to his
significantly increased salary and about ten additional years of credited service, David’s
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retirement benefit was projected at about 80% more than the 2006 projection.2 Under
the QDRO Marjorie would receive “nearly double” what David had expected based on
the earlier projection. When David questioned why the salary years from the 2006
projection were not used to calculate Marjorie’s payment, DRB reportedly responded
that he might need to amend the QDRO to do so.
David then moved to amend the QDRO to have Marjorie’s benefit
calculated using the salary years from the 2006 projection. He argued that such an
amendment would “conform [it] to the parties’ property settlement and effectuate the
agreed distribution of David’s PERS benefit.” He argued that the parties had relied upon
the 2003-2005 salary data when they divided their assets. According to David, the
settlement language and QDRO demonstrated that Marjorie’s payment had to be
calculated based on the 2006 figures “so that her share would be limited to the ‘marital
portion’ of his account.” He further argued that using the 2014 figures would allow her
to benefit from non-marital property he had acquired after their divorce, contrary to their
settlement agreement.
Marjorie responded that Hartley v. Hartley barred David’s interpretation
of the settlement and his proposed amendment of the QDRO: “Absent clear language
to the contrary in a property division agreement, a court should base the division of
retirement benefits on the employee spouse’s high-three salary years at the time of
retirement.”3
The superior court agreed with Marjorie and found the Hartley rationale
“persuasive and controlling in this instance.” It further stated that “no language in the
2
David had remarried, so this 80% increase in his projected benefit
accounted for a survivor benefit for his new wife. Without the survivor benefit, the 2014
projected benefit was more than two and a half times the 2006 projection.
3
Hartley, 205 P.3d at 350.
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QDRO or in the property agreement . . . requires a different conclusion” and denied the
motion to amend. David moved for reconsideration, arguing that the court had
overlooked evidence of the parties’ intent and that its decision would result in Marjorie
receiving more of the marital estate than the parties had agreed. The superior court
denied the motion because the agreement did not contain the clear and unambiguous
language required by Hartley.
David appeals.
III. STANDARD OF REVIEW
“When the parties have reached a settlement as to property division, ‘[w]e
apply basic contract interpretation principles to interpret a property division agreement
incorporated into a divorce decree.’ ”4 “We treat the interpretation of contract language
as a question of law and interpret the language de novo.”5
IV. DISCUSSION
Interpretation of the parties’ property settlement agreement is the central
issue before us. Interpretation of such an agreement is governed by contract principles,6
which require us “to give effect to the reasonable expectations of the parties.”7 If the
contract language is not ambiguous, “we decide the meaning of the contract as a matter
4
Herring v. Herring, 373 P.3d 521, 528 (Alaska 2016) (alteration in original)
(quoting Cook v. Cook, 249 P.3d 1070, 1077 (Alaska 2011)).
5
Id. (alteration omitted) (quoting Cook, 249 P.3d at 1077). Though David
also raises a question of fact — the parties’ intent — only David introduced extrinsic
evidence, and the superior court made no factual findings for us to review.
6
Villars v. Villars, 277 P.3d 763, 768 (Alaska 2012) (citing Zito v. Zito, 969
P.2d 1144,1147 n.4 (Alaska 1998)).
7
Id. (quoting Knutson v. Knutson, 973 P.2d 596, 600 (Alaska 1999)).
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of law.”8 “An ambiguity exists only where the disputed terms are reasonably subject to
differing interpretation after viewing the contract as a whole and the extrinsic evidence
surrounding the disputed terms.”9
In Hartley we established a rule governing how courts interpret property
agreement provisions that divide retirement assets.10 In that case a divorcing couple
agreed to divide a retirement account without specifying the salary years to be used in
calculating the benefit amount.11 The husband objected to the superior court’s adoption
of a QDRO that explicitly based the calculation on his three highest paid salary years at
retirement.12 We concluded that the “marital foundation theory”13 was “generally the
most equitable” approach to dividing retirement benefits and held that, “[a]bsent clear
language to the contrary in a property division agreement, a court should base the
8
Krushensky v. Farinas, 189 P.3d 1056, 1060 (Alaska 2008) (citing Keffer
v. Keffer, 852 P.2d 394, 397 (Alaska 1993)).
9
Villars, 277 P.3d at 768-69 (quoting N. Pac. Processors, Inc. v. City &
Borough of Yakutat, Alaska, 113 P.3d 575, 579 (Alaska 2005)).
10
205 P.3d 342, 349-50 (Alaska 2009).
11
Id. at 345-46.
12
Id. at 346.
13
“This theory reasons ‘that a post-divorce merit increase is based upon the
employee’s entire history of service to the employer. In other words, the post[-]divorce
increases are built upon a foundation of prior marital efforts’ and therefore the increases
are not separate property. . . . [T]his approach [is] ‘better policy’ because it ‘avoids
undervaluation of contributions made early in a marriage’ and ‘gives more dollars to the
spouse who assisted in the development of the employee’s career, and less dollars to the
spouse who was the passive beneficiary of that career after it was established.’ ” Id. at
349-50 (quoting 2 BRETT R. TURNER, EQUITABLE DISTRIBUTION OF PROPERTY § 6:26,
at 171, 183 (3d ed. 2005)).
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division of retirement benefits on the employee spouse’s high-three salary years at the
time of retirement.”14
David’s PERS is a defined benefit plan. Under a defined benefit plan, a
retired employee “is entitled to a fixed periodic payment.”15 The payment’s amount
generally depends on the employee’s prior salary and length of service.16 David’s benefit
is based on his years of service and his highest average monthly salary at the time of
retirement.
The Thomsons decided to distribute the marital portion of David’s benefit
using the “deferred distribution” method, which distributes “the benefits actually
received in the future.”17 A deferred distribution of benefits is implemented via a QDRO,
which does not add to or modify an agreement to distribute benefits but “simply enforces
a court order calling for division of retirement benefits.”18 Here the parties agreed that
Marjorie was entitled to 46.96% of the marital portion of David’s PERS benefit and
implemented the agreement via a QDRO. David now disputes what average monthly
salary should be used to calculate Marjorie’s share of the benefit.
The Hartley rule governs the interpretation of the Thomsons’ settlement
agreement, as the superior court rightly concluded. David briefly objects that Hartley
should not apply because it had not been decided at the time of settlement. But Hartley’s
14
Id. at 349-50.
15
Id. at 347 (quoting Comm'r, Internal Revenue v. Keystone Consol. Indus.,
Inc., 508 U.S. 152, 154 (1993)).
16
Id.17
Id. at 348.
18
Zito v. Zito, 969 P.2d 1144, 1146 (Alaska 1998) (citing Wahl v. Wahl, 945
P.2d 1229, 1232 (Alaska 1997)).
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interpretive rule does not depend on the parties’ awareness of it, as demonstrated by
Hartley itself.19 Without clear language requiring the use of David’s 2003-2005 salary
data, Marjorie’s share must be calculated based on David’s actual benefit, using his
highest salary data at retirement. David also argues that several specific phrases provide
the “clear language” requiring the use of the 2003-2005 salary data. We disagree and
address each of his arguments in turn.
David argues that the settlement’s express statement that Marjorie has a
46.96% interest in the “marital portion” of David’s PERS account and the QDRO’s
corresponding statement20 that her interest is “based on credited service accrued from
August 7, 1982 to December 31, 2004” prohibit using his post-separation salary to
calculate her benefit. He argues that these statements not only limit Marjorie’s share to
the years of service credit accrued during the marriage but also to a benefit calculated
based on his salary level during the marriage. But neither the meaning of the term
“marital portion,” nor the dates used in the QDRO to calculate Marjorie’s share, support
David’s claim.
The standard meaning of “marital portion” or “marital share” in Alaska
involves application of the coverture fraction, which “is calculated by dividing the
number of years worked during the [marriage] by the total number of years worked.”21
19
Hartley, 205 P.3d at 347-50.
20
Although both parties discuss the terms of the QDRO, the relevant language
under Hartley is that of the settlement agreement. See Hartley, 205 P.3d at 350. See also
Zito, 969 P.2d at 1146.
21
Engstrom v. Engstrom, 350 P.3d 766, 770 (Alaska 2015) (quoting Hansen
v. Hansen, 119 P.3d 1005, 1015 (Alaska 2005)) (“Determining the [retirement health]
benefits’ marital portion requires calculation of the ‘coverture fraction.’ ”). Accord
Faulkner v. Goldfuss, 46 P.3d 993, 1003 (Alaska 2002) (“The marital share of a pension
(continued...)
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David’s proposed definition of “marital portion” would limit a former spouse’s
retirement benefits to the salary level earned during the marriage, but he has cited no
cases supporting this additional meaning.22
The QDRO’s listing of the marriage and separation dates provides no
reason to reevaluate the meaning of “marital portion” in the agreement. It indicates the
time period used to calculate the marital portion of the benefit. The QDRO’s dates
establish the numerator of the coverture fraction, while David’s total period of
employment would establish the denominator once he retired.23 This understanding of
the QDRO’s use of the dates is bolstered by other language in the QDRO explicitly
indicating that David’s final benefit — calculated according to his three highest paid
salary years at retirement — will be used in calculating Marjorie’s share: Marjorie “shall
receive . . . 46.96% of the total monthly benefit which is based on credited service
accrued” during the marriage.24 (Emphasis added.)
21
(...continued)
is typically determined by the coverture fraction . . . .”); Wainwright v. Wainwright, 888
P.2d 762, 763 (Alaska 1995) (“The marital portion of the pension will be determined by
a so-called coverture fraction of 75/240. Seventy-five is the number of months of
Robert’s qualified employment during the marriage. Two hundred and forty will be the
total number of months of qualified employment at the time of vesting.”).
22
Cf. Faulkner, 46 P.3d at 1003 n.36 (using “marital share” to refer to a
portion of the actual benefit at retirement).
23
See Engstrom, 350 P.3d at 770.
24
In addition, the dates of marriage do not correspond to the salary years
David claims are required. The QDRO correctly states that the parties permanently
separated at the end of 2004, but David argues Marjorie’s benefit must be calculated
based on his average salary in 2003-2005 — fully one-third of which is after the
marriage. The parties used the permanent separation date, December 31, 2004, as the
end of the marriage for property division purposes. See Hanlon v. Hanlon, 871 P.2d 229,
(continued...)
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David also argues that a settlement clause excluding from division any
property acquired after separation establishes that Marjorie is not entitled to receive a
benefit calculated using his post-separation salary. That paragraph states: “The parties
agree solely to retain other property acquired after their 31 December 2004 permanent
separation. That property is agreed to be non-marital and neither party is making a claim
to it.” David argues that calculating Marjorie’s monthly payment using his salary at
retirement is inconsistent with this portion of the agreement.25 But by its terms, this
paragraph applies to “other property” acquired after separation. (Emphasis added.) It
therefore does not apply to the marital portion of David’s PERS account, which was by
definition acquired before separation and was discussed earlier in the agreement.26
24
(...continued)
231 (Alaska 1994). David explains in his brief that this use of post-separation salary was
acceptable because the coverture fraction was applied to ensure Marjorie received only
a share of the marital portion. This is precisely the reason that Marjorie’s actual benefit
can be calculated using post-separation salary without her receiving more than the parties
agreed on in the settlement agreement.
25
David also argues that “PERS service credit that [he] accrued since the
parties’ divorce undeniably constitutes non-marital property under this Paragraph 6.”
However, Marjorie has never argued that she should be entitled to the years of service
credit David accrued after their separation, nor did the court’s order allow her to receive
any benefits from those years of service credit. The use of the coverture fraction
prevents that. Service credit and salary are separate elements of the benefit calculation.
26
As we have explained, the marital foundation theory establishes that the
increased value of the marital portion of a retirement benefit remains marital property,
so the clause does not establish that the increased value based on David’s higher post-
separation salary is separate property. See Hartley v. Hartley, 205 P.3d 349-50 (Alaska
2009).
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Therefore this provision does not contain “clear language” requiring the use of the earlier
salary years.27
Because the settlement does not contain the clear language required by
Hartley, we conclude that the superior court did not err when it denied David’s motion.
We therefore do not reach David’s other claims regarding the parties’ intent.
V. CONCLUSION
The order of the superior court is AFFIRMED.
27
See id. at 350.
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