Marriage of Jacobsen CA4/3

Filed 2/6/23 Marriage of Jacobsen CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
In re Marriage of LAURIE and WAYNE
JACOBSEN.
LAURIE JACOBSEN,
G060633
Appellant,
(Super. Ct. No. 11D000177)
v.
OPI NION
WAYNE JACOBSEN,
Respondent.
Appeal from a postjudgment order of the Superior Court of Orange County,
Lon F. Hurwitz, Judge. Reversed and remanded with directions.
Law Offices of Marjorie G. Fuller, Marjorie G. Fuller; Law Offices of Lisa
R. McCall, and Lisa R. McCall for Appellant.
Dennis Temko and Stephen Temko for Respondent.
Wayne and Laurie Jacobsen were married for more than 23 years. 1 During
their marriage, Wayne became an equity partner at O’Melveny & Myers, LLP
(O’Melveny or OMM). When Wayne and Laurie separated, Wayne had been an equity
partner at O’Melveny for more than 20 years. A month after they separated, Wayne
turned 55 years old. Based on his age and years of service, Wayne was eligible to retire
and receive a pension benefit from O’Melveny, which the parties refer to as the
“Partnership Agreement Retirement Benefit” (PARB). The PARB is a defined benefit
program for the law firm’s equity partners. Wayne did not retire at age 55, but instead,
he continued in his role at the firm for about 10 more years.
When Wayne retired, Laurie requested an order from the trial court
determining the community property interest in Wayne’s PARB payment under the time
rule. The time rule is used to apportion the community and separate property interests in
a retirement benefit accrued during marriage. (In re Marriage of Lehman (1998) 18
Cal.4th 169, 183 (Lehman).) It is a formula that calculates the community property share
of a retirement benefit by dividing the length of the employee spouse’s service performed
on behalf of the community (the numerator) by the total length of service required for the
retirement benefit (the denominator). (Gray, supra, 155 Cal.App.4th at p. 508, fn. 3; In
re Marriage of Bowen (2001) 91 Cal.App.4th 1291, 1295-1298 (Bowen); In re Marriage
of Judd (1977) 68 Cal.App.3d 515, 522.)
In the trial court, the parties agreed the numerator in the time rule formula
was 251 months—the number of months between Wayne becoming an equity partner at
O’Melveny and the date of Wayne and Laurie’s separation. Their dispute in the trial
court and on appeal is what the time rule’s denominator should be. The trial court
determined the denominator was 371 months, the time between Wayne becoming an
1 For ease of reference and pursuant to the custom in family law cases, we refer to the
parties by their first names. (In re Marriage of Gray (2007) 155 Cal.App.4th 504, 508,
fn. 1 (Gray).) No disrespect is intended.
2
equity partner and the date of his retirement. Based on these numbers, the court
calculated the community’s interest in the PARB as 67.65 percent and equally split this
portion between the two parties. Wayne was awarded a separate property interest in the
PARB of 32.35 percent.
Laurie contends the court erred in its apportionment of the community and
separate property interests. She asserts the correct denominator is 252 months because
the PARB was fully earned one month after they separated and Wayne’s 10 years of
postseparation service did not increase the PARB. Under Laurie’s calculations, the
community’s interest in the PARB is 99.6 percent and Wayne’s separate property interest
is .4 percent.
We conclude the court erred in its application of the time rule. Once the
maximum retirement benefit has been earned, a period of further employment is not
included in the time rule formula. (In re Marriage of Henkle (1987) 189 Cal.App.3d 97,
100 (Henkle).) Time of service by the employee spouse that does not contribute to or
increase the value of the retirement benefit is omitted because its inclusion dilutes the
community property share of the retirement benefit. (Bowen, supra, 91 Cal.App.4th at
p. 1297.) This means the court should have excluded from the denominator Wayne’s
postseparation service that did not contribute to the PARB. From our record, we can tell,
at a minimum, the court should have excluded from its calculation Wayne’s years of
service after he reached age 60 because Wayne had earned the maximum benefit at that
point and Wayne’s service after age 60 did not increase the PARB’s value. We are
unable to determine if the court also should have excluded Wayne’s years of service
between the ages of 55 and 60, as it is not entirely clear from the record if Wayne’s
continued service during this time period increased the PARB’s value. We therefore
reverse the order and remand the matter for the trial court to recalculate the community
and separate property interests in the PARB.
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FACTUAL AND PROCEDURAL BACKGROUND
Wayne began working at O’Melveny in May 1985. About two years later,
in April 1987, he and Laurie married. During their marriage, in February 1990, Wayne
became an equity partner with O’Melveny. Laurie and Wayne separated in December
2010. Between the dates they married and separated, Wayne had been an O’Melveny
equity partner for 20.912 years.
The PARB is one of the retirement benefits provided by O’Melveny. It is a
defined benefit program for O’Melveny’s equity partners.2 Once an equity partner
reaches age 55 and has provided 15 years of partnership service at O’Melveny, the equity
partner can retire and receive a PARB payment. After an equity partner turns age 60, the
years of partnership service required for the PARB is reduced from 15 to 10 years. Thus,
the two factors determining a partner’s eligibility are: (1) age at retirement and (2) years
of equity partnership service.
Once an equity partner becomes eligible, “the only determinant of the
amount of an equity partner’s monthly benefit under PARB is the equity partner’s age
[at] benefit commencement.” The calculation of the PARB payment to an equity partner
with 15 years of service and age 55 or older “is not affected by any of the following:
[¶] A. The equity partner’s compensation during partnership, [¶] B. The equity partner’s
share of firm equity, or [¶] C. The number of years of equity partnership service in
excess of 15.”
The PARB payable to an equity partner at age 55 “is actuarially equivalent
in value to the PARB payable” to the partner at age 60. This means the monthly PARB
payment at age 55 is less than the monthly payment at age 60, but based on actuarial
2 O’Melveny’s partnership agreement, which describes and explains the PARB, was not
provided to the trial court and therefore is not part of the appellate record. In 2014, the
parties filed a stipulation containing agreed statements concerning the PARB’s relevant
provisions (2014 stipulation).
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factors in the partnership agreement, the payments at age 55 will equal the payments at
age 60 as the payments are made over a larger number of years. For each year the equity
partner continues service after age 55, the PARB’s monthly payment amount increases
(based on actuarial values) until age 60, where it maxes out. According to the parties’
2014 stipulation: “In defined benefit pension plans, it is common to impose a reduction
to a normal retirement age monthly benefit so as to make the plan’s cost of benefits for an
early commencement actuarially equivalent to the plan’s cost for a later commenced
benefit.” The 2014 stipulation further states: “Measured on any date between an equity
partner’s ages 55 through 60, PARB benefits payable starting after age 60 are lower in
actuarial present value than those payable starting prior to age 60.” (Italics added.)
O’Melveny has not established a trust for the PARB payments. Instead,
payments are made from O’Melveny’s assets, including “the current income of the
partnership.” During his equity partnership, Wayne bore “a portion of the cost of the
payment of PARB benefits to other partners [because] partnership income [was] used to
fund ongoing PARB benefits.” (Italics added.)3
In January 2011, about a month after the parties separated, Wayne turned
55 years old. He had already attained 15 years of equity partnership service (as of
February 2005) and all 15 years were during the marriage. Thus, Wayne was eligible to
retire and receive a PARB payment in January 2011, about a month after separation. At
that time, 99.6 percent of his equity partnership service required to earn the PARB had
been performed during the period between the date of marriage and the date of
separation.
In October 2012, judgment of dissolution was entered, which included the
parties’ stipulation concerning the division of the marital property (the stipulated
3 In a declaration filed in the trial court, Wayne explained O’Melveny uses current
practice of law income to make the PARB payments to retired partners; this income
would otherwise be distributed to active partners as partnership earnings.
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judgment). The stipulated judgment stated each party was to receive: “One-half of the
community property interest in [Wayne’s] OMM Section 10 Benefit Plan (a/k/a PARB),
such community property interest shall be determined as of the date benefit payments
commence according to the time rule.” The stipulated judgment also confirmed as
Wayne’s property his separate interest in the PARB.
Wayne’s three other retirement plans were also addressed in the stipulated
judgment, with each party receiving one-half of the community property interest in those
plans. The stipulated judgment stated Wayne was to prepare and transmit to Laurie’s
counsel a Qualified Domestic Relations Order (QDRO) to effectuate the assignment
provisions concerning the division of all four of his retirement benefit plans. The
stipulated judgment further stated the QDRO concerning the PARB “will provide that
[Laurie’s] share will be paid to her as [Wayne’s] share is paid to him.” The stipulated
judgment indicated the court retained jurisdiction for certain purposes, including “to
determine the value of, and community interest in, any employment or retirement benefit
not specifically . . . distributed” within the judgment, “to value and divide any non-
distributed assets and . . . to enforce all provisions and resolve all disputes arising [from
the judgment].”
The parties were unable to reach an agreement concerning the ratio of the
community and separate property interests in the PARB. In 2013, Laurie sought an order
from the trial court concerning this and other matters. Wayne filed a response. The
parties stipulated to certain “statements of facts, rulings, and circumstances” concerning
the PARB in the 2014 stipulation. The court held a hearing on the matter in February
2014. The court concluded it could not determine the community property interest in the
PARB at that time because the judgment stated the interest would be determined when
benefit payments commenced and benefits had not yet commenced.
Wayne retired from O’Melveny on December 31, 2020. The next month,
the PARB payments commenced, and Wayne turned age 65.
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In February 2021, Laurie requested the court enter an order designating the
community property interest in the PARB as 99.6 percent and dividing it equally between
the parties. Wayne opposed Laurie’s request. He asserted the stipulated judgment’s
language the community’s interest in the PARB “‘be determined as of the date benefit
payments commence according to the time rule’” required “the time rule’s numerator and
denominator . . . be determined as of [the] date” benefit payments commenced.
The court held a hearing on Laurie’s request for an order. After the
hearing, the court received additional briefing from the parties on the time rule formula
and how to apply it. The disputed issue was whether Wayne’s 10 years of postseparation
service should be included in the time rule’s denominator: If included, the community
property interest in the PARB would be 67.65 percent, and if not included, the
community property interest would be 99.6 percent.
At the next hearing, the court focused on the stipulated judgment’s
language. The court noted the parties agreed in the stipulated judgment, “‘the community
property interest shall be determined as of the date benefit payments commence.’ [They
did not] say as of the date benefit payments vest.” The court stated the time rule as
defined in Gray, supra, 155 Cal.App.4th 504 and Lehman, supra, 18 Cal.4th 169 should
be used to calculate the community property interest in the PARB. The court continued
the matter to see if the parties could agree on the calculation based on its ruling. They
did not.
The findings and order after hearing was filed in June 2021. Laurie filed a
motion for reconsideration, which was granted by the court. But after hearing argument,
the court declined to change the order. The court apportioned the PARB as 67.65 percent
community property and 32.35 percent Wayne’s separate property. Laurie appealed.
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DISCUSSION
The sole issue in this appeal is whether the trial court correctly included
Wayne’s 10 years of postseparation service when using the time rule to apportion the
community property interest in the PARB. Laurie argues this was error. Wayne
contends this case is not about apportioning “the PARB in the first instance” but about
interpreting the stipulated judgment. He asserts Laurie agreed “to a specific
apportionment of the PARB, and the only meaningful analysis is to interpret the parties’
agreement.” After providing a brief overview of the time rule, we first interpret the
parties’ stipulated judgment and then analyze the court’s application of the time rule.
I.
OVERVIEW OF THE TIME RULE
In a dissolution proceeding, “[t]he superior court must apportion an
employee spouse’s retirement benefits between the community property interest of the
employee spouse and the nonemployee spouse and any separate property interest of the
employee spouse alone. [Citations.]” (Lehman, supra, 18 Cal.4th at p. 187.) The time
rule is the most frequently used method for apportioning such interests (ibid.), and here, it
is the method the parties agreed upon in the dissolution judgment.
“The rationale for the use of the time rule was set forth in In re Marriage of
Judd, supra, 68 Cal.App.3d 515: ‘Where the total number of years served by an
employee-spouse is a substantial factor in computing the amount of retirement benefits to
be received by that spouse, the community is entitled to have its share based upon the
length of service performed on behalf of the community in proportion to the total length
of service necessary to earn those benefits. The relation between years of community
service to total years of service provides a fair gauge of that portion of the retirement
benefits attributable to community effort.’ [Citation.] Using this rationale, courts have
frequently used this method of determining the community’s interest where the amount of
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the benefit is substantially related to the number of years of service rendered.
[Citations.]” (In re Marriage of Gowan (1997) 54 Cal.App.4th 80, 88 (Gowan), italics
added.) Once the maximum retirement benefit has been earned, further years of service
are not included in the time rule formula. (Henkle, supra, 189 Cal.App.3d at p. 100.)
When using the time rule, “the superior court must arrive at a result that is ‘reasonable
and fairly representative of the relative contributions of the community and separate
estates.’ [Citation.]” (Lehman, supra, 18 Cal.4th at p. 187.)
II.
ANALYSIS OF THE STIPULATED JUDGMENT
“‘Marital settlement agreements incorporated into a dissolution judgment
are construed under the statutory rules governing the interpretations of contracts
generally.’ [Citation.] ‘The basic goal of contract interpretation is to give effect to the
parties’ mutual intent at the time of contracting. [Citations.]’” (In re Marriage of
Simundza (2004) 121 Cal.App.4th 1513, 1518 (Simundza).) “‘Such intent is to be
inferred, if possible, solely from the written provisions of the contract. [Citation.] The
“clear and explicit” meaning of these provisions, interpreted in their “ordinary and
popular sense,” unless “used by the parties in a technical sense or a special meaning is
given to them by usage” [citation], controls judicial interpretation. [Citation.]’
[Citation.]” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.)
“The interpretation of a written instrument is essentially a judicial function
to be exercised according to the generally accepted canons of interpretation so that the
purposes of the instrument may be given effect. [Citation.]” (In re Marriage of Smith
(2007) 148 Cal.App.4th 1115, 1120.) Analyzing the terms of the settlement agreement is
“a task which we undertake independently. We are not bound by the trial court’s analysis
and conclusions regarding the interpretation to be given the settlement agreement and
judgment.” (In re Marriage of Davis (2004) 120 Cal.App.4th 1007, 1017-1018.)
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As stated ante, under the terms of the stipulated judgment, each party was
to receive: “One-half of the community property interest in [Wayne’s] OMM Section 10
Benefit Plan (a/k/a PARB), such community property interest shall be determined as of
the date benefit payments commence according to the time rule.” Independently
reviewing this language, we conclude this provision reflects the parties’ agreement as to
three points: (1) the community property interest in the PARB will be equally divided;
(2) the time rule will be used to determine the community property interest in the PARB;
and (3) this determination will be made when the benefit payments commence.
We agree with Wayne the term “time rule” used in this provision has an
established usage in family law. But we do not agree with Wayne’s contention that when
the time rule is used, the denominator must be “the total length of years [the employee
spouse] rendered service.” Under its established usage in family law, the time rule does
not include a period of service after the maximum retirement benefit has been earned.
(Henkle, supra, 189 Cal.App.3d at p. 100; Bowen, supra, 91 Cal.App.4th at pp. 1297-
1298.) Wayne’s interpretation would dilute the community property interest in the asset.
Each day included in the denominator after the maximum retirement benefit has been
earned dilutes the community’s share. This is inconsistent with the California Supreme
Court’s decree in Lehman that the time rule’s result fairly account for the community’s
contribution. (Lehman, supra, 18 Cal.4th at p. 187.) Such dilution and interpretation also
conflicts with the stipulated judgment’s clear statement the parties intended to equally
divide the community’s interest in the PARB.4
For defined benefit plans like the PARB, it is common for parties to wait
until benefits commence to apportion the community and separate property interests in
4 “‘California recognizes the objective theory of contracts [citation], under which “[i]t is
the objective intent, as evidenced by the words of the contract, rather than the subjective
intent of one of the parties, that controls interpretation” [citation]. The parties’
undisclosed intent or understanding is irrelevant to contract interpretation.’ [Citation.]”
(Simundza, supra, 121 Cal.App.4th at p. 1518.)
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the retirement benefit. The reason is that after separation or dissolution, various events
and conditions, including modification of the retirement-benefit formula, may impact the
amount of the benefit received at retirement. (Lehman, supra, 18 Cal.4th at p. 178.)
“Changes in the retirement-benefit formula may be frequent. [Citation.]” (Ibid.) Until
the employee spouse retires, the parties may not know exactly how the benefit will be
calculated. Once the benefit formula is ultimately determined, the time rule may be used
to apportion the community and separate property shares in the benefit. (Id. at p. 184.)
We conclude the parties agreed in the stipulated judgment that when benefit
payments commenced and the PARB was then defined, at that time, the community
property interest in the PARB would be determined according to the time rule. We next
consider whether the court erred in its application of the time rule.
III.
APPLICATION OF THE TIME RULE
A trial court’s application of the time rule to apportion the community and
separate property interests in a retirement benefit is reviewed for an abuse of discretion.
(Lehman, supra, 18 Cal.4th at p. 187; Gowan, supra, 54 Cal.App.4th at p. 88.) “[W]hen
a trial court misunderstands or misapplies the applicable legal standard, it has not
properly exercised its discretion. [Citation.]” (Hernandez v. Amcord, Inc. (2013) 215
Cal.App.4th 659, 680.)
The parties agree, as do we, the court correctly calculated the time rule’s
numerator. The parties agree the numerator is 251 months—the time between Wayne
becoming an O’Melveny equity partner (February 1990) and the date of his and Laurie’s
separation (December 2010). Their dispute lies in the time rule’s denominator. They
disagree as to whether Wayne’s 10 years of postseparation service should be included in
the denominator.
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Laurie contends the denominator should be 252 months, the number of
months between Wayne becoming an equity partner at O’Melveny (February 1990) and
when he earned the PARB benefit (January 2011). Laurie asserts the time rule formula is
251/252. Pursuant to her calculations, the community’s interest in the PARB is
99.6 percent and Wayne’s separate property interest is .4 percent. When the community
property interest is divided in half, each party receives 49.8 percent of the community’s
interest.
Wayne asserts the court properly determined the time rule’s denominator
should include all of his years of service as an O’Melveny equity partner, which totaled
371 months. Adopting Wayne’s argument, the court calculated the time rule fraction to
be 251/371, meaning the community property interest in the PARB is 67.65 percent.
Under this calculation, each party’s half of the community property interest in the PARB
is 33.825 percent. The court concluded Wayne’s separate interest is 32.35 percent.
The parties’ dispute boils down to whether the denominator in the time
rule’s formula should be 252 as Laurie argues or 371 as Wayne contends and the court
used. We are not convinced either is the right answer.
The trial court included all of Wayne’s years as an O’Melveny equity
partner in the denominator, even the years worked after he earned the maximum
retirement benefit. We conclude the court abused its discretion by including in the time
rule’s denominator Wayne’s postseparation service that was unnecessary to earn or
increase the PARB. The court’s calculation failed to account for an important principle
underlying the time rule. As a panel of this court emphasized in Bowen, supra, 91
Cal.App.4th 1291, “‘the community is entitled to have its share [of the retirement
benefits] based upon the length of service performed on behalf of the community in
proportion to the total length of service necessary to earn those benefits.’ [Citation.]”
(Id. at p. 1296, italics added.) This means the time rule’s denominator is the length of
service upon which the retirement benefits are based. This may or may not equal the
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total number of employee service years; it depends on the employer’s retirement benefits
formula. (Cf. Lehman, supra, 18 Cal.4th at p. 187 [husband’s retirement benefit based on
“his final compensation, length of service, and a per-service-year multiplier”].) Here,
the denominator as calculated by the court included years of service that did not
contribute or add value to the PARB, and therefore, the court erred.
Two cases illustrate the principle that years of service not tethered to
earning or enhancing the retirement benefit should be omitted under the time rule. In
Henkle, supra, 189 Cal.App.3d 97, the husband was employed for 32 years. (Id. at
p. 98.) At least 20 years of service were necessary to earn retirement benefits; after 30
years, the maximum benefit was reached. (Id. at p. 99.) The Henkle court noted, “the
last two years of [the husband’s] military service did not contribute to the total number of
years of service—30—on which the amount of retirement pay depends.” (Id. at p. 100.)
Thus, the Court of Appeal concluded the correct denominator under the time rule fraction
was 30, not 32 years, because the husband’s last two years of service were not necessary
to earn any benefits and did not contribute to his retirement pay. (Ibid.) The Court of
Appeal held once maximum retirement benefits have been earned, further employment
does not count in the time rule calculation. (Id. at p. 98.)
A panel of this court addressed an analogous situation in Bowen, supra,
91 Cal.App.4th 1291. There, the husband was originally employed by Flying Tiger Lines
prior to its merger with Federal Express, where he worked until his retirement. (Id. at p.
1294.) The issue was whether the husband’s years working for Federal Express should
be included in the time rule’s denominator in apportioning the community property
interest in the benefits under the Flying Tiger Lines pension plan. (Id. at p. 1297.) We
concluded the husband’s years of service at Federal Express should be excluded from the
denominator “because they did not contribute to the total number of years of service on
which the Flying Tiger pension benefits were based.” (Id. at p. 1298.)
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In the present case, the record shows once an equity partner reaches age 60
with 10 years of service, any service beyond that time does not increase the PARB.
When Wayne reached age 60, he had the required years of service to retire and receive
the maximum PARB payment. Wayne retired less than a month before his 65th birthday.
Wayne’s years of service after he reached age 60 should have been excluded from the
time rule’s denominator because they were unnecessary to earn the PARB and did not
increase its value.
Including these four years, 11 months in the time rule’s denominator was
unreasonable because it diluted the community property share and therefore did not fairly
account for the community’s contributions. (Bowen, supra, 91 Cal.App.4th at p. 1297;
Lehman, supra, 18 Cal.4th at p. 187.) As the Supreme Court explained in Lehman, when
the time rule is used, the result must account for “the ‘relative contributions of the
community and separate estates.’” (Lehman, supra, 18 Cal.4th at p. 187.) Thus, we
reverse the court’s order and remand the matter with directions to recalculate the
community and separate property interests in the PARB without the inclusion of Wayne’s
years of service after age 60 in the denominator.
Whether Laurie is correct the court should have excluded all of Wayne’s
years of service after he reached age 55 is a more difficult question to answer on this
record. The 2014 stipulation tells us the difference between the PARB amount at age 55
and at age 60 is an actuarial difference and the PARB payable to an equity partner at age
55 is actuarially equivalent to the PARB payable at age 60. But multiple factors play into
the determination of whether the inclusion or exclusion of the years of service between
ages 55 and 60 is appropriate to reach a result that equitably apportions the community
and separate property interests in the PARB. The trial court did not recognize it had the
discretion to consider whether Wayne’s service years between ages 55 and 60 should be
in the time rule’s denominator. Thus, the record is not fully developed as to whether the
equitable result is to include these years of service in the time rule formula. As we have
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concluded, the matter must be remanded for recalculation of the community and separate
property interests in the PARB. Upon remand, the court can exercise its discretion and
determine whether inclusion of Wayne’s years of service between ages 55 and 60 is
reasonable and accounts for the interests of the community and separate estates.
DISPOSITION
The postjudgment order is reversed and the matter is remanded to the court
with directions to recalculate the community and separate property interests in the PARB,
in accordance with the views expressed in this opinion. Appellant, Laurie Jacobsen, shall
recover her costs on appeal.
MOTOIKE, J.
WE CONCUR:
GOETHALS, ACTING P. J.
DELANEY, J.
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