November 2017 : Court of Appeals (1) Approves Trial Court’s Award to W of Part of H’s Pension Accrued Before Marriage and (2) Rules It Is Not an Invasion of His Separate Property – Koch, Mich App No. 333020 (7/18/17)

Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Facts

  • H and W were separated in 2014, in part due to alleged multiple incidents of spousal abuse, and were subsequently divorced after 27 years of marriage.
  • At the time of divorce, H, 55, was receiving a pension of $51,880 annually while W, 54, was earning $15,058 at a parochial school district where she had worked for 22 years.
  • Part of H’s pension was accrued before the 1987 marriage.
  • H had health insurance as part of his retirement package while W did not have employer paid health insurance.
  • In view of (1) H’s fault for the breakdown of the marriage and (2) the disparate financial circumstances of the parties, the trial court awarded W 55% of H’s pension as spousal support.
  • H appealed, claiming that by awardingW 55% of his pension, the trial court inappropriately invaded his separate property.

Court of Appeals (COA/Court) Decision

  • The COA upheld the trial court decision and ruled that it did not invade H’s separate estate.
  • The COA stated the following regarding whether a trial court’s jurisdiction was limited to retirement plan contributions made during marriage:
[M CL 552.18(1)} does not expressly restrict the circuit court’s jurisdiction to pension contributions made within the confines of the marriage. Although that statutory provision
provides that pension contributions made during the marriage must be considered, it does not expressly provide that contributions made before the marriage may not be considered. That is, the language is inclusive and mandates what must be taken into account, but does not expressly exclude consideration of other contributions. [Boonstra, 209 Mich App at 562]
  • Further, the Court stated that the following rationale has been adopted regarding whether pension benefits accrued pre-marriage may be divided in divorce:

The major consideration is the security of the family and the court may utilize any property in the real and personal estate of either party to achieve suitable support for the family as the court considers just and reasonable after considering the ability of either party to pay and the character and the situation of the parties, and all the other circumstances of the case. [Booth, 194 Mich App 284,290(1992); Pickering, 268 Mich App 1,9(2005).

  • Thus, the COA decided that in light of the circumstances of the case,“it was ‘just and reasonable’ for the trial court to include in its considerations the portion of Defendant’s pension that had accrued before the marriage. Booth, 194 Mich App 291.”
  • Finally, the Court stated that because the trial court did not consider H’s pension accrued before marriage as his separate property, it did not have to consider the statutory exceptions (i.e., need or contribution) for invading a separate estate under MCL552.23.

Comments on the Case

  • Essentially, the COA ruled that when pre-marital retirement benefits are involved, a “just and reasonable” standard for providing “suitable support of the family” is the paramount consideration.
  • And, if awarded as spousal support, neither exception for invading separate property need be established to justify the award.
    Rather, ensuring the “suitable support of the family” takes precedence.
  • This seems to run counter to typical compliance with the Reeves mandate to first identify the (1) marital and (2) separate components of the parties’ various property interests.
  • What then is done in lock-step fashion is to treat the respective marital and separate property components of the total estate accordingly.
  • But, as we know, if one party establishes “need” under MCL552.23, the other’s separate property may be invaded to suitably provide for the need.
  • What the unpublished Koch decision indicates is that when a pre-marital retirement benefit is involved and need is established, paying it as spousal support vs. an invasion of separate property is an option.
  • This seems somewhat at odds with the 1997 Reeves decision mandate. However, if “need” is established, the substantive result is similar either way – that is, use of pre-marital retirement benefits to satisfy the need.

Food for Thought

  • “Need” sometimes consists of inadequate retirement security coupled with the lack of ability and/or time post-divorce to establish sufficient funds for support in retirement years.
  • In such a case, if the other party has a 401(k) or qualified plan savings account which includes a pre-marital component, the, “suitable support of the family” standard might justify use of one party’s pre-marital retirement account to provide for the other’s suitable support in retirement years.

About the Author

Joe Cunningham has over 25 years of experience specializing in financial and tax aspects of divorce, including business valuation, valuing and dividing retirement benefits, and developing settlement proposals. He has lectured extensively for ICLE, the Family Law Section, and the MACPA. Joe is also the author of numerous journal articles and chapters in family law treatises. His office is in Troy, though his practice is statewide.

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View / Download November 2017 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

November 2015 : SKELLY at Odds with Michigan Statute

Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Excerpt:

In its 2009 published decision in Skelly v Skelly (No. 287127, 12/29/09) (Skelly), the Court of Appeals (COA) essentially ruled that employee benefits earned during marriage are not marital assets if subject to forfeiture on the occurrence – or non-occurrence – of an event after the divorce.

The Skelly decision has previously been characterized in this column as arbitrary, overbroad, and inconsistent with the equitable, case specific nature of divorce. What was not mentioned previously is that Skelly is out of step with Michigan statute – MCL 552.18. is was recently brought to my attention by Scott Bassett, who in fact drafted the language that became MCL 552.18 in 1985.

Skelly

Recap of the case:

  • After 25 years of marriage, H filed for divorce.
  • He had attained a high position with Ford and in 2007, in the latter part of his career, was awarded a $108,000 “Retention Bonus” payable in three installments of $36,000 on each of May 31, 2007, 2008, and 2009.
  • Entitlement to the entire bonus was conditioned on his continued employment at Ford through May 31, 2009.
  • The trial court ruled that the first two $36,000 installments were marital property since, evidently, both had been received before the 7/23/08 date of divorce.
  • H appealed.
  • As indicated above, the COA ruled that all three $36,000 payments – including the two received during marriage – were not marital property since all were conditioned on an event occurring after the divorce – H’s continued employment at Ford through May 31, 2009.

MCL 552.18

The 1985 statute, in pertinent part, is as follows (emphasis added):

Continued in PDF file below…Skelly at Odds with Michigan Statute”
View / Download November 2015 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section