Posted by: koherston | February 20, 2012

Property Classification of Increase in Pension Benefits: Nusbaum v. Nusbaum

Facts: The parties divorced when Husband was 61 and Wife was 67. Both parties were found to be equally at fault in the divorce. Among other assets, Husband had a Federal Employee Retirement Service (FERS) pension, part of which was his separate property because it accrued prior to the marriage. The trial court determined the present value of the FERS and equally divided the marital portion. The trial court also awarded transitional alimony to Wife in the amount of $500 per month for 12 months. Wife appealed both rulings.

On Appeal: The Court of Appeals reversed and modified the trial court’s ruling.

Property Classification. The trial court made the following findings, which were not disputed by Wife.

The Husband was a participant in the FERS pension program prior to the marriage starting in November, 1987. During his active military service, the Navy did not withhold any Social Security payments and in 1994, he was given the option of paying the equivalent of the Social Security amount as a “Military Deposit” in the amount of $1474.35 and receiving six years credit toward his years of service for the purposes of taking early retirement. This did not increase the value of his pension; it merely made it possible for him to retire earlier and that the value of his pension was based upon his earnings for the three years prior to his date of retirement April 30, 2003.

While Husband’s monthly pension benefit did not change as a result of the additional six years of service, the additional six years of service did increase the present value of the pension by making it possible for Husband to retire six years earlier. Thus, the question on appeal was whether the value attributable to the additional six years should be considered marital or separate property.

By paying this “military deposit,” Husband added a significant number of days to his FERS participation, which allowed him to retire six years earlier. Although Husband’s active military service (for which he paid the military deposit) occurred prior to the marriage, the military deposit was made during the parties’ marriage and with marital funds. As a result of this deposit, six years of Husband’s military service, which had not previously been considered for purposes of the FERS pension, were counted as years of participation under the FERS pension.

Tennessee Code Annotated § 36-4-121(b)(1)(B) provides, in pertinent part, that marital property includes “the value of vested and unvested pension, vested and unvested stock option rights, retirement or other fringe benefit rights relating to employment that accrued during the period of the marriage.” Pursuant to this provision, any increase in the value of pension benefits that accrues during the marriage, regardless of the reason for the increase, should be considered marital property. The Court concluded, “We agree with Wife’s reasoning that the value attributable to the additional six years should be considered marital because the military deposit was paid during the marriage with marital funds.”

Consistent with the foregoing, the Court modified the trial court’s ruling to equally divide the marital portion of the pension’s present value, which is now 70% of the pension instead of the trial court’s 42%. In other words, Wife is awarded 35% instead of 21%.

Transitional Alimony. Wife also argued the trial court’s award of temporary alimony in the amount of $500 a month for 12 months was insufficient in amount and duration. The trial court based its ruling on several factors, including its finding that:

the reasonable needs of the Wife in the long term can be satisfied by the Wife’s Social Security income, the income she will receive from the distribution of the Husband’s FERS pension and the assets she will receive from the other distribution of marital assets as well as her separate property . . . . The Husband has already provided temporary support to the Wife for 20 months during the pendency of this case during which time the Wife took no action toward contributing to her own support. . . . [T]he Wife has significantly exaggerated her needs and that her income and expense statement is not credible.

Husband also acknowledged he had the ability to pay $2300 per month.

After stating its awareness of the highly deferential standard of review, the Court concluded the trial court did not abuse its discretion as to the amount of transitional alimony at $500 a month, but did abuse its discretion as to the duration of one year. After finding “nothing in the record to justify limiting the transitional alimony to one year,” the Court held “the award should be extended to the time of Husband’s retirement.” The trial court’s ruling was modified accordingly.

Nusbaum v. Nusbaum (Tennessee Court of Appeals, Middle Section, January 5, 2012).

Information provided by K.O. Herston: Knoxville, Tennessee Matrimonial, Divorce and Family Law Attorney.


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