Marriage of Mahlum and Elder

04/21/2020
DA 19-0008
Case Number: DA 19-0008
IN THE SUPREME COURT OF THE STATE OF MONTANA
2020 MT 91
IN RE THE MARRIAGE OF:
TERRI ELDER,
Petitioner and Appellee,
and
SAM MAHLUM,
Defendant and Appellant.
APPEAL FROM: District Court of the Eighth Judicial District,
In and For the County of Cascade, Cause No. BDR-17-621
Honorable Elizabeth Best, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Jason T. Holden, Katie R. Ranta, Faure Holden Attorneys at Law, P.C.,
Great Falls, Montana
For Appellee:
Meghan Lulf Sutton, Law Office of Meghan Lulf Sutton, Great Falls,
Montana
Submitted on Briefs: September 25, 2019
Decided: April 21, 2020
Filed:
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__________________________________________
Clerk
Justice Dirk Sandefur delivered the Opinion of the Court.
¶1 Sam Mahlum (Sam) appeals from the judgment of the Montana Eighth Judicial
District Court, Cascade County, dissolving his marriage to Terri Elder (Terri) and equitably
apportioning their marital estate. The narrow issue on appeal is:
Whether the District Court erroneously characterized Sam’s early disability
retirement benefit as a divisible marital asset rather than the equivalent of
post-dissolution employment income?
¶2 We reverse and remand for further proceedings consistent with this Opinion.
PROCEDURAL AND FACTUAL BACKGROUND
¶3 Sam and Terri married in 2000, in Helena, Montana. Two children were born as
issue of the marriage in 2001 and 2002, respectively. The parties lived in Augusta,
Montana. Terri primarily stayed home and cared for the children but occasionally worked
as a substitute teacher and a fitness/yoga instructor. From 2001-2012, Sam was employed
as a deputy sheriff with the Lewis and Clark County Sheriff’s Office in Helena and
commuted from Augusta.
¶4 In 2006, Sam was involved in an on-the-job motor vehicle accident resulting in
permanent disabling injury, related PTSD, depression, and ongoing physical pain. His
injuries ultimately forced him to leave the sheriff’s office in 2012, after approximately
eleven years of service. Sam later briefly worked for the Montana Human Rights Bureau
until his injuries similarly forced him to leave that position in 2015. Sam and Terri
separated in the spring of 2017. Terri filed a dissolution petition in November of that year
and, a year later, the court entered a final decree dissolving the parties’ marriage, equitably
2
dividing their marital estate, and providing for the parenting of their children during the
remaining few years of their minority.
¶5 At some point after he was no longer able to work, Sam applied for, and ultimately
obtained, a disability determination from the Montana Public Employee Retirement Board
making him eligible to receive monthly non-taxable disability retirement benefits from the
Montana Sheriff’s Retirement System (SRS) provided by Title 19, ch. 7, MCA. In
accordance with the statutory plan, Sam will receive SRS disability benefits until
November 25, 2025, when he reaches the normal age of SRS retirement at age 50. His
non-taxable disability benefits will then convert to normal, taxable SRS service retirement
benefits. As of the date of dissolution of the parties’ marriage, Sam’s monthly SRS
disability benefit was $3,397.73, subject to a 3% guaranteed annual increase.
¶6 At the time of dissolution, Terri was employed at the Bunkhouse Inn in Augusta and
as a volleyball coach for the Augusta School District. Terri had previously sought other
employment outside of Augusta but was unable to find an acceptable option due to the cost
and difficulty of commuting from Augusta and her need to be available for the parties’
children in Augusta. As of 2017, Terri’s adjusted gross annual income was $17,054.
¶7 The parties agreed that Terri would keep and assume the mortgage on the former
family home in Augusta. Based on the evidence at hearing, the District Court determined
that the value of the home and property was approximately $140,000, with an outstanding
mortgage balance of approximately $140,000. The parties further agreed that they would
each take their own student loan debts and that Sam would further take all of their
outstanding credit card debt, his medical debt, and the parties’ outstanding federal tax debt.
3
The total marital debt apportioned to Sam was approximately $92,849.73. The parties
further agreed that Terri would take the parties’ 2000 Honda CRV vehicle and 1986
Chevrolet van and that Sam would take their 2003 Harley Davidson motorcycle. The
parties stipulated to a final parenting plan for the limited remainder of the minority of their
children. The District Court did not address child support and Terri did not request spousal
maintenance.
¶8 The only significant matter in dispute was the status of Sam’s SRS disability
benefits—whether a divisible marital asset or the indivisible equivalent of future earnings
until it converts to a normal SRS service retirement benefit at the normal age of SRS
retirement. Citing In re Marriage of Cooper, 243 Mont. 175, 179, 793 P.2d 810, 812
(1990), the District Court concluded that Sam’s SRS disability benefits were a divisible
marital asset, no different from his normal SRS service retirement benefits. The court
reasoned that the only material difference between SRS disability benefit and normal SRS
service retirement benefit was that Sam’s disability made him eligible for early retirement
prior to normal SRS retirement age. Without distinction, the court accordingly
characterized Sam’s SRS disability and SRS service retirement benefits as a single
divisible marital asset and then apportioned the remaining term of the disability benefit,
and the first eleven years of the normal service retirement benefit, between the parties on
a 50/50 basis. Upon the threshold conclusion that Sam’s disability benefits were essentially
no different than his normal service retirement benefits, the court reasoned that: (1) his 44
“disability income represent[ed] a replacement of the income that [he] was earning” during
the marriage; (2) his “disability payment [was] the only significant [marital] asset”; (3) the
4
parties had equal “earning power”; and (4) the 11-year split of his normal retirement service
benefit corresponds to the “length of the[ir] marriage.” Sam timely appeals.
STANDARDS OF REVIEW
¶9 District courts have broad discretion to equitably apportion the marital estate in
dissolution proceedings based on the criteria of § 40-4-202(1), MCA. Deschamps v.
Deschamps, 2009 MT 431, ¶ 11, 354 Mont. 94, 223 P.3d 324; Collett v. Collett, 190 Mont.
500, 503-04, 621 P.2d 1093, 1095 (1981). An equitable division of the marital estate
necessarily requires a reasonably accurate account and valuation of all significant marital
assets and liabilities. In re Marriage of Lundvall, 241 Mont. 172, 175, 786 P.2d 10, 12
(1990); In re Marriage of Dirnberger, 237 Mont. 398, 401-02, 773 P.2d 330, 332 (1989);
In re Marriage of Popp, 206 Mont. 415, 420, 671 P.2d 24, 27 (1983); Collett, 190 Mont.
at 504, 621 P.2d at 1095; Cook v. Cook, 188 Mont. 472, 478-79, 614 P.2d 511, 514-15
(1980); Herring v. Herring, 184 Mont. 353, 355, 602 P.2d 1006, 1007 (1979).1 While § 40-
4-202, MCA, does not require a strict, itemized accounting and valuation of every marital
asset and liability in every case, district courts must at least make findings of fact that are
sufficient as a whole to manifest an equitable division of the marital estate. In re Marriage
of Lewton, 2012 MT 114, ¶¶ 15-20, 365 Mont. 152, 281 P.3d 181; In re Marriage of Hayes,
2002 MT 281, ¶ 19, 312 Mont. 440, 60 P.3d 431; In re Marriage of Harkin, 2000 MT 105,
¶ 31, 299 Mont. 298, 999 P.2d 969; In re Marriage of Stephenson, 237 Mont. 157, 160,
1
See also § 40-4-254, MCA (“court may not enter a judgment . . . [regarding] the parties’ property
rights unless each has executed and served a copy of the final declaration of disclosure” of marital
assets and liabilities required by § 40-4-253, MCA).
5
772 P.2d 846, 848 (1989). An equitable division of the marital estate does not necessarily
require an equal or 50/50 split of marital assets, liabilities, or net value. In re Marriage of
McNellis, 267 Mont. 492, 501, 885 P.2d 412, 418 (1994) (internal citations omitted); In re
Marriage of Garner, 239 Mont. 485, 488, 781 P.2d 1125, 1127 (1989). An apportionment
is equitable if fair and reasonable under the totality of the circumstances at issue. Danelson
v. Danelson, 253 Mont. 310, 317, 833 P.2d 215, 220 (1992).
¶10 We review district court findings of fact accounting for and valuing marital estate
assets and liabilities only for clear error. In re Marriage of Foreman, 1999 MT 89, ¶ 14,
294 Mont. 181, 979 P.2d 193; Danelson, 253 Mont. at 317, 833 P.2d at 219-20. We review
related conclusions of law de novo for correctness. Foreman, ¶ 14; Danelson, 253 Mont.
at 317, 833 P.2d at 219-20. We review the ultimate apportionment of marital estates for
an abuse of discretion. Foreman, ¶ 14; Danelson, 253 Mont. at 317, 833 P.2d at 219-20.
A finding of fact is clearly erroneous only if not supported by substantial evidence, the
court misapprehended the effect of the evidence, or, based on our review of the record, we
have a definite and firm conviction that the lower court was otherwise mistaken. In re
Marriage of Bessette, 2019 MT 35, ¶ 13, 394 Mont. 262, 434 P.3d 894 (citing In re D.E.,
2018 MT 196, ¶ 21, 392 Mont. 297, 423 P.3d 586). An abuse of discretion occurs if a court
exercises granted discretion based on a clearly erroneous finding of fact, an erroneous
conclusion or application of law, or otherwise acts arbitrarily, without employment of
conscientious judgment, or exceeds the bounds of reason resulting in substantial injustice.
Bessette, ¶ 13.
DISCUSSION
6
¶11 Whether the District Court erroneously characterized Sam’s early disability
retirement benefit as a divisible marital asset rather than the equivalent of post-dissolution
employment income?
¶12 Sam asserts that his post-dissolution SRS disability retirement benefits are the
equivalent of post-dissolution future earnings, and thus not a marital estate asset as
referenced in § 40-4-202(1), MCA. Terri contrarily asserts that there is no material
difference between Sam’s SRS disability retirement benefits and subsequent service
retirement benefits at and after age 50. She asserts that the only difference is that his
disability made him eligible for early retirement, with the same monthly benefit as at
normal retirement age, thus rendering his disability benefits a marital asset like all other
ordinary retirement benefits. We agree with Sam.
¶13 Under statutory defined benefit retirement plans, Title 19, chapters 2-3, 5-9, and 13,
MCA, provide various service and disability retirement benefits for distinct groups of state
and local government employees. See § 19-2-301, MCA.2 Under those plans, normal
service retirement benefits are generally based on a member’s length of qualified service
and a group-particular percentage of a member’s highest average compensation over those
service years, paid from group-specific retirement trust funds funded by employee payroll
2
The Montana Public Employees’ Retirement Board uniformly administers the “retirement
systems and plans within the systems under chapters 3, 5 through 9, and 13 of” Title 19, MCA.
Sections 19-2-302 and -403(1), MCA. As an alternative to the provided defined benefit plans,
Title 19 further provides a market-based, “risk-accepting” option generally allowing members to
take advantage of pertinent financial market conditions, but subject to the attendant risk of market
fluctuations. Wrzesien v. State, 2016 MT 242, ¶¶ 11-12, 385 Mont. 61, 380 P.3d 805
(distinguishing “risk-averse” defined benefit plans from “risk-accepting” alternative). See also
§§ 19-2-303(16), 19-3-103(2), and Title 19, ch. 21, MCA. The public employees’ retirement
benefits discussed and at issue here are statutory defined benefit retirement plan benefits.
7
withholdings and matching employer contributions during members’ service years.
See Title 19, chapters 3, 5-9, and 13, MCA; Wrzesien, ¶ 11; Hall v. State, 2006 MT 37,
¶¶ 13-14, 331 Mont. 171, 175, 130 P.3d 601, 604.
¶14 In marital dissolution proceedings, as of the date of separation or dissolution as
equitable under the circumstances, district courts must “finally equitably apportion” all
assets and liabilities “belonging to either or both [spouses], however and whenever
acquired.” Section 40-4-202(1), MCA; Hutchins v. Hutchins, 2018 MT 275, ¶¶ 64-65, 393
Mont. 283, 430 P.3d 502; In re Marriage of Geror, 2000 MT 60, ¶¶ 11-12, 299 Mont. 33,
996 P.2d 381; In re Marriage of Wagner, 208 Mont. 369, 378-81, 679 P.2d 753, 757-59
(1984); Vivian v. Vivian, 178 Mont. 341, 344, 583 P.2d 1072, 1074 (1978). Accordingly,
the portion of ordinary retirement benefits attributable to marital income contributions are
generally marital estate assets subject to equitable division under § 40-4-202(1), MCA. In
re Marriage of Spawn, 2011 MT 284, ¶¶ 4, 10, 362 Mont. 457, 269 P.3d 887; In re
Marriage of Truax, 271 Mont. 122, 125-26, 894 P.2d 936, 938 (1995) (affirming time-rule
valuation); In re Marriage of Butler, 243 Mont. 521, 524, 795 P.2d 467, 469 (1990); Rolfe
v. Rolfe, 234 Mont. 294, 296-98, 766 P.2d 223, 225-26 (1988) (discussing present-value
and time-rule valuation methods); Kis v. Kis, 196 Mont. 296, 299-300, 639 P.2d 1151, 1153
(1982), overruled in part on other grounds by In re Marriage of Kecskes, 210 Mont. 479,
483, 683 P.2d 478, 480 (1984); Karr v. Karr, 192 Mont. 388, 400, 628 P.2d 267, 274
(1981). The marital portion of ordinary retirement benefits are generally marital estate
assets under § 40-4-202(1), MCA, because they are in essence a form of deferred
compensation earned by a spouse during the marriage, drawn or withheld from the marital
8
estate, and later paid out in installments upon retirement eligibility. See Rolfe, 234 Mont.
at 296-97, 766 P.2d at 225; In re Marriage of Pryor, 224 Mont. 488, 492, 731 P.2d 895,
898 (1986); Gragg v. Gragg, 12 S.W.3d 412, 418 (Tenn. 2000); In re Marriage of Brown,
544 P.2d 561, 564-65 (Cal. 1976); Deferred Compensation and Defined-Benefit Plan,
Black’s Law Dictionary, 11th ed. (2019). See also §§ 19-2-303(15), (32)(a), (33)-(36),
(43)(a), (44)-(48), and 19-50-101(2), MCA. As aptly recognized by the Tennessee
Supreme Court under an equitable apportionment scheme similar to that of § 40-4-202(1),
MCA3:
[ordinary] [p]ension and retirement benefits compensate individuals who live
past retirement age. . . . [They essentially] constitute deferred compensation
for services [previously] rendered and function as a substitute for life
savings. Like any joint savings accumulated during the marriage, pension
and retirement benefits are subject to [equitable] distribution . . . upon
divorce.
Gragg, 12. S.W.3d at 418.
¶15 SRS members are eligible for normal “service retirement benefits” upon reaching
20 years of service without disability. Sections 19-2-303(35), (48), and 19-7-501, MCA.
Vested SRS members without 20 years of service credit are eligible for early service
retirement at age 50. Sections 19-2-303(10)(a), (35), (48), 19-7-501(1), and -502, MCA.
Distinct from service retirement benefits, the SRS separately provides for monthly
3
See Tenn. Code Ann. § 36-4-121.
9
“disability retirement benefit[s]” payable to members who become permanently disabled
before eligible for service retirement benefits. See §§ 19-2-303(20) and 19-7-601, MCA.4
¶16 We have yet to squarely address the problematic question of whether or when the
defined benefit plan disability benefits administered under Title 19, ch. 2, MCA, may be
divisible marital estate assets under § 40-4-202(1), MCA, on the same basis as service
retirement benefits.5 On the surface, both are technically defined benefit plan “retirement
benefits” drawn from the same underlying plan trust fund funded by employee payroll
withholdings and matching employer contributions during member service years. See, e.g.,
§§ 19-2-303(43)(a), -501, and -506(1), MCA. To the extent a member was in service
during the marriage at issue, the mandatory payroll withholdings from the employee
derived from marital estate income. The superficial similarity ends there.
¶17 As a threshold matter, the SRS defined benefit retirement plan clearly distinguishes
between normal service retirement, early service retirement, and disability retirement
benefits. See §§ 19-2-303(10)(a), (22), (35), 43(a), (48), -702(2), and 19-7-501
through -503, MCA.6 The calculation formula for normal service retirements benefits
4
In this context, “disabled” or “disability” means the “total inability . . . to perform the member’s
duties by reason of physical or mental incapacity . . . [that is] of permanent duration or of extended
and uncertain duration.” Section 19-2-303(20), MCA.
5
As noted by other courts, disability retirement benefits, unlike ordinary retirement benefits, “have
varied characteristics and purposes which make . . . [similar] classification problematic.” Gragg,
12. S.W.3d at 416 (citing Ciliberti v. Ciliberti, 542 A.2d 580, 582 (Pa. Super. Ct. 1988)).
6
See also §§ 19-3-902, -906, -1002(1), MCA (Public Employees’ Retirement System); § 19-6-503,
MCA (Highway Patrol Officers’ Retirement System); and § 19-20-802, MCA (Teachers’
Retirement System).
10
without prior disability, and for disability retirement benefits after 20 years of service, is
2.5% of the “member’s highest average compensation for each year of service credit.”
Sections 19-7-503(1) and -601(2)(b), MCA.7 The calculation formula for early service
retirement benefits at age 50 before 20 years of service is the “actuarial equivalent of the
[then-]accrued portion” of the service retirement benefit that the member would otherwise
have been eligible for upon 20 years of service or reaching age 60, “whichever event would
have occurred first.” Sections 19-2-303(22) and 19-7-502, MCA. The calculation formula
for non-service-related disability retirement benefits after vesting but before normal
retirement age is the “actuarial equivalent” of 2.5% of the “member’s highest average
compensation for each year of service credit” “standing to the member’s credit at the time
of the . . . disability retirement.” Sections 19-7-503(1) and -601(1), MCA.8 As manifest
by their similar eligibility requirements and calculation methods based on specified years
of service, each of those types of SRS service and disability benefits is essentially a form
or derivative of previously earned but deferred compensation, later payable upon the
particular retirement eligibility.
¶18 In contrast, unlike the substantially similar calculation formulas for other types of
SRS service and disability retirement benefits, the calculation formula for SRS disability
retirement benefits based on a service-related disability before 20 years of service is 50%
7
For SRS members hired before July 1, 2011, “highest average compensation” means the “highest
average monthly compensation” earned by the member “during any 36 consecutive months of
membership service.” Section 19-7-101(3)(a)(i), MCA.
8
SRS members are not “vested” in the SRS until completing “5 years of membership service.”
Section 19-2-303(56)(a), MCA.
11
of “the member’s highest average compensation” as of the date of the retirement.
Section 19-7-601(2)(a), MCA. More significantly, unlike the eligibility requirements for
other SRS service and disability retirement benefits, eligibility for disability retirement
benefits based on a service-related disability before 20 years of service does not depend on
whether members have reached normal retirement age or equivalent, or are vested in the
plan at the time of the disability. It depends only on the fact that the member was disabled
in the line of duty and can no longer perform the duties of the job, regardless of number of
completed service years. See §§ 19-2-303(20) and 19-7-601(2)(a), MCA. Compare
§§ 19-2-303(56), 19-7-501, -503(1), -601(1) and (2)(b), MCA. Thus, based on their
substantially different eligibility requirement and related calculation methodology, SRS
disability retirement benefits based on a service-related disability before 20 years of service
more closely resemble a replacement or compensation for lost service income that the
member otherwise would have earned in the future but for the disability, rather than a form
of previously earned but deferred service income like other SRS service and disability
retirement benefits.
¶19 While an equitable consideration in determining how to equitably divide the marital
estate and whether spousal maintenance is appropriate, see §§ 40-4-202(1) and -203, MCA
(in re relative future income sources and potentials), post-dissolution employment income
earned after equitable division of the marital estate is as a matter of law not a marital estate
asset or property because it has yet to accrue or exist, and thus does not “belong[] to either
or both” at the time of equitable division of the marital estate. See § 40-4-202(1), MCA;
Hayes, ¶¶ 25-28. See also, e.g., In re Marriage of Hansen, 62 P.3d 1066, 1067-68 (Colo.
12
Ct. App. 2002); Finkenstaedt v. Finkenstaedt, 352 P.3d 1266, 1271 (Ok. Civ. App. 2014);
Reese v. Reese, 671 N.E.2d 187, 192 (Ind. Ct. App. 1996); Davey v. Davey, 415 N.W.2d
84, 88 (Minn. Ct. App. 1987); Stevens v. Stevens, 492 N.E.2d 131, 135 (Ohio 1986). It
then follows that, like the future post-dissolution income they replace or compensate for,
post-dissolution SRS disability retirement benefits based on a disability before 20 years of
service are similarly not marital “property” or “assets” as referenced in § 40-4-202(1),
MCA. Cf. In re Marriage of Castor, 249 Mont. 495, 500-03, 817 P.2d 665, 668-69 (1991)
(distinguishing between portion of federal civil service “disability” benefits intended as
“compensation . . . for loss of earning power” and additional portion intended for
“retirement support” and holding that federal civil service disability benefits at issue were
more akin to normal retirement benefits and thus a divisible marital estate); In re Marriage
of Blankenship, 210 Mont. 31, 36, 682 P.2d 1354, 1356-57 (1984) (holding that workers’
compensation benefits may or may not be a marital estate asset depending on whether, and
to what extent, those benefits were compensation for wage loss during the marriage,
post-dissolution wage loss or loss of earning capacity, “or some other purpose”). See also
Hansen, 62 P.3d at 1067-68 (characterizing disability retirement benefits under Colorado
PERA as more akin to true disability benefits than retirement benefits prior to normal
retirement age and thus holding that disabled correction officer’s PERA disability benefits
were not a divisible marital estate asset prior to normal retirement age); In re Marriage of
Perkins, 26 P.3d 989, 991 (Wash. Ct. App. 2001) (distinguishing between component of
disability benefits intended as future wage replacement and component intended as
compensation for lost wages during the marriage or as normal retirement income); Gragg,
13
12 S.W.3d at 416-19 (rejecting minority “mechanistic approach” in favor of majority
“analytical approach . . . focus[ing] on the nature and purpose of the specific disability
benefits at issue” rather than the isolated fact that “premiums were paid with marital funds
or [that] the marital estate acquired the benefits” with marital funds similar to ordinary
pension benefits); In re Marriage of Saslow, 710 P.2d 346, 351-52 (Cal. 1985) (disability
benefits are not community property to the extent intended to replace post-dissolution
earnings that would have been the separate property of the disabled spouse, but are
community property to the extent intended as normal retirement income—following In re
Marriage of Stenquist, 582 P.2d 96 (Cal. 1978)); Thompson v. Thompson, 642 A.2d 1160,
1163-64 (R.I. 1994) (noting split of authority in various state jurisdictions); Nat’l Legal
Research Grp., Classifying Disability Benefits, 14 No. 9 Equitable Distribution J. 97, 99
(1997) (noting split of authority between mechanistic/mechanical approach and separate
property/component purpose approaches).9
9
See similarly 2 Brett R. Turner, Equitable Distribution of Property, § 6:52, 430-31 (4th ed. 2019);
see, e.g., Coffman v. Coffman, 215 S.W.3d 309, 312 (Mo. Ct. App. 2007) (finding spouse’s pension
benefits as “a hybrid, containing both a disability and a deferred compensation component”);
Rumler v. Rumler, 932 So. 2d 1165, 1166 (Fla. Dist. Ct. App. 2006) (“[o]nly the retirement
portion” of disability pension “is subject to equitable distribution”); Striefel v. Striefel, 689 N.W.2d
415, 420 (N.D. 2004) (portion of disability benefit “continu[ing] beyond retirement age”
considered as deferred income in retirement); Conner v. Conner, 68 P.3d 1232, 1235 (Alaska
2003) (portion of spouse’s “workers’ compensation income . . . substitut[ing] for . . . regular
retirement benefits after [retirement] maturity . . . should be viewed as marital property and
divided”); Allard v. Allard, 708 A.2d 554, 558 (R.I. 1998) (only portion of spouse’s “disability
pension attributable to his retirement pay is marital property subject to equitable distribution”—
any “excess . . . amount represents compensation for [spouse’s] disability and lost earning capacity
and is [thus] separate property not subject to distribution”). Accord Ciliberti, 542 A.2d at 582.
14
¶20 Terri contrarily relies on Cooper, In re Marriage of Murphy, 261 Mont. 363,
862 P.2d 1143 (1993), and In re Marriage of Boharski, 257 Mont. 71, 847 P.2d 709 (1993).
In Cooper, we considered whether a spouse’s post-dissolution federal Veterans’
Administration (VA) disability benefits were marital estate assets subject to division under
§ 40-4-202(1), MCA. Cooper, 243 Mont. at 178-79, 793 P.2d at 812. Noting that ordinary
military retirement benefits, like other ordinary retirement benefits, are generally divisible
marital estate assets under § 40-4-202(1), MCA, we cursorily held by comparison that the
subject VA disability benefits were likewise a divisible marital asset based on the “however
and whenever acquired” language of § 40-4-202(1), MCA. Cooper, 243 Mont. at 179, 793
P.2d at 812.
¶21 We reconsidered Cooper three years later in light of Mansell v. Mansell, 490 U.S.
581, 594-95, 109 S. Ct. 2023, 2032 (1989) (holding that federal law preempted and
precluded state law division of VA disability retirement pay as marital property). Murphy,
261 Mont. at 365-68, 862 P.2d at 1144-46 (1993). The issue in Murphy was whether, in
addition to precluding VA disability benefits as a divisible marital asset, Mansell similarly
precluded consideration of those benefits even as an equitable consideration in how to
equitably divide the marital estate under § 40-4-202(1), MCA (in re future income sources
and potentials). Murphy, 261 Mont. at 365-68, 862 P.2d at 1144-46. As a preliminary
matter, we acknowledged that Cooper was erroneous in light of Mansell, Murphy, 261
Mont. at 365, 862 P.2d at 1145, and then expressly limited Cooper to narrowly hold that,
as a matter of preemptive federal law, VA disability benefits elected in lieu of retirement
benefits are not divisible marital estate assets under § 40-4-202(1), MCA, Murphy, 261
15
Mont. at 367-68, 862 P.2d at 1145-46. We then ultimately held that, even though the
subject VA disability benefits were not marital estate assets, the district court nonetheless
properly considered them as a relevant equitable consideration under § 40-4-202(1), MCA,
in determining how to equitably divide the marital estate. Murphy, 261 Mont. at 367-68,
862 P.2d at 1145-46.
¶22 Even before Murphy, the only type of disability benefits at issue in Cooper were
VA disability benefits. Cooper, 243 Mont. at 178-79, 793 P.2d at 812. Other than cursory
reference to “however and whenever acquired” language of § 40-4-202(1), MCA, Cooper
provided no discerning analysis or rationale further indicating when or on what basis,
absent the federal preemption later recognized in Murphy, that VA disability benefits were
sufficiently similar in nature to ordinary retirement benefits to be their categorical or
substantive equivalent. Consequently, nothing in Cooper supports the proposition,
asserted here, that the “however and whenever acquired” language of § 40-4-202(1), MCA,
categorically requires inclusion in the marital estate of all disability retirement benefits in
every case on the same basis as ordinary retirement benefits. Thus, even on its face prior
to Murphy, Cooper provides no guidance here.
¶23 Murphy is similarly unhelpful. As in Cooper, the only type of benefits at issue in
Murphy were VA disability payments precluded from inclusion in the marital estate by
preemptive federal law. Murphy, 261 Mont. at 365-68, 862 P.2d at 1144-46. The narrow
issue was whether, upon proper exclusion from the marital estate pursuant to Mansell, the
district court could still consider them as a relevant consideration under § 40-4-202(1),
MCA, in determining how to equitably divide the marital estate. Murphy, 261 Mont.
16
at 365-68, 862 P.2d at 1144-46. Unfortunately, despite the narrowness of the issue and
holding in Murphy, we unnecessarily left a loose-end with our statement that “Cooper
remains precedent for other kinds of military disability” payments. Murphy, 261 Mont.
at 366, 862 P.2d at 1145. However, in light of the limited issues and holdings in both
Cooper and Murphy, our statement in Murphy (that “Cooper remains precedent for other
kinds of military disability” payments) was non-essential dicta. See State ex rel. Lovins v.
Toole County, 278 Mont. 253, 259, 924 P.2d 693, 696 (1996) (in re dictum). Thus, Murphy,
like Cooper, is of no precedential value to the larger question of whether or when early
disability retirement benefits are sufficiently similar to ordinary retirement benefits to be
marital estate assets under § 40-4-202(1), MCA.
¶24 Boharski is similarly inapposite here. With focus on union pension disability
benefits, the pertinent issue in Boharski was whether the district court properly required a
disabled spouse to pay temporary maintenance under § 40-4-203, MCA, when his only
sources of future income were monthly social security disability benefits, workers’
compensation benefits, and the subject union disability benefits. Boharski, 257 Mont.
at 73-76, 847 P.2d at 710-13. Distinguishing the maintenance obligation (and related
qualified domestic relations order (QDRO) securing it10) as mechanisms for compelling
performance of a legal duty of support, we essentially held that neither constituted a
10
As defined and where applicable under 29 U.S.C. § 1056 (Retirement Equity Act of 1984), a
“qualified domestic relations order” is a means for diverting certain otherwise divisible retirement
pension benefits from one spouse directly to the other. Boharski, 257 Mont. at 73, 847 P.2d at
711. For similar diversion of otherwise divisible retirement benefits provided by the various public
employee retirement systems administered under Title 19, ch. 2, MCA, see § 19-2-907, MCA
(defining and providing for “family law orders”).
17
judgment debt as referenced in § 25-13-608, MCA (exempting disability benefits from
execution by judgment debtor). We thus rejected the disability pensioner’s assertion that
§ 25-13-608, MCA, precluded consideration of his pension disability benefits as a source
of future income relevant to his ability to pay maintenance under the equitable criteria of
§ 40-4-203, MCA. Boharski, 257 Mont. at 75-76, 847 P.2d at 711-13. In a directly related
matter consistent with our holding under § 40-4-203, MCA, we further recognized that
“[d]isability benefits can [similarly] be considered . . . in determining” how to equitably
divide the marital estate under § 40-4-202(1), MCA. Boharski, 257 Mont. at 75, 847 P.2d
at 712. The question of whether the subject disability benefits were or could be a marital
estate asset under § 40-4-202(1), MCA, was not at issue. Boharski, 257 Mont. at 75-76,
847 P.2d at 712-13. Thus, like Cooper and Murphy, Boharski has no bearing on whether
or when early disability retirement benefits under a defined benefit plan are sufficiently
similar to ordinary service retirement benefits to be divisible marital estate assets under
§ 40-4-202(1), MCA.
¶25 Here, after repeated efforts to continue to work in other capacities, Sam’s
service-related disability forced him to retire from working as a sworn deputy sheriff after
only 11 years of service, prior to normal SRS service retirement eligibility. Based on the
foregoing statutory analysis, his post-dissolution SRS disability retirement benefits are
therefore more akin to a replacement or compensation for future employment income lost
due to his service-related disability, rather than a form of deferred income for work
previously performed like SRS service and disability retirement benefits under other
circumstances. The District Court recognized as much when it found that Sam’s “disability
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income represent[ed] a replacement of the income [he] was earning” before his disability.
We hold that, under the circumstances of this case, the District Court erroneously
characterized and divided Sam’s post-dissolution SRS disability retirement benefits as a
marital estate asset under § 40-4-202(1), MCA.11
¶26 Though not marital estate assets subject to division under § 40-4-202(1), MCA,
under the circumstances of this case, Sam’s post-dissolution disability retirement benefits
remain an equitable consideration, inter alia, in determining how to equitably divide the
marital estate and whether spousal maintenance may be appropriate. See §§ 40-4-202(1)
and -203, MCA (in re relative future income sources and potentials). See also Boharski,
257 Mont. at 75-76, 847 P.2d at 711-13; Murphy, 261 Mont. at 367-68, 862 P.2d
at 1145-46. The determination of an equitable division of the marital estate and whether
spousal maintenance is appropriate are intertwined matters of equity under the criteria of
§§ 40-4-202(1) and -203, MCA. In re Marriage of Johnsrud, 181 Mont. 544, 547-50,
572 P.2d 902, 904-05 (1977). Consequently, the erroneous inclusion and division of
disability retirement benefits as a marital estate asset warrants remand for redetermination
of an equitable division of the actual marital estate but nevertheless subject to consideration
of those benefits as a relevant consideration under § 40-4-202(1), MCA, and, as may be at
11
As a matter of law, Sam’s SRS disability retirement benefits automatically convert to normal
service retirement benefits at age 50 at the same “monthly benefit amount” “without
recalculation.” Section 19-2-406(5), MCA. Without reconciliation under federal or state income
tax laws, it is undisputed on the record that, upon conversion, those benefits will effectively convert
from non-taxable income to taxable income. Sam does not contest the District Court’s conclusion
that his service retirements benefits, upon conversion from disability benefits at age 50, are a
divisible marital asset under § 40-4-202(1), MCA.
19
issue, whether spousal maintenance is appropriate under § 40-4-203, MCA. Strong v.
Strong, 2000 MT 178, ¶¶ 27-40, 300 Mont. 331, 8 P.3d 763 (remanding for reconsideration
of equitable division, maintenance, and child support on erroneous inclusion of VA
military disability benefits as marital estate asset).
CONCLUSION
¶27 Under the circumstances of this case, we hold that the District Court erroneously
characterized and divided Sam’s post-dissolution SRS disability retirement benefits as a
marital estate asset under § 40-4-202(1), MCA. We accordingly reverse and remand for
redetermination of an equitable division of the actual marital estate assets under
§ 40-4-202(1), MCA, and, as may be at issue on remand, whether spousal maintenance
may be appropriate under the equitable criteria of § 40-4-203, MCA.
¶28 Reversed and remanded for further proceedings in accordance with this Opinion.
/S/ DIRK M. SANDEFUR
We concur:
/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ INGRID GUSTAFSON
/S/ JIM RICE
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