Colas Which Accrue As A Result Of Passive Appreciation Are Martial Property Subject To Distribution
In its April 10, 2012 decision, the Superior Court (Shogan, Ott and Strassburger, JJ.) reversed the trial court’s finding that cost of living adjustments (COLAs) to Husband’s defined benefit pension plan were not marital property.
The parties, Christine A. MacDougall (“Wife”) and William D. MacDougall (“Husband”) were married on January 30, 1983. They separated and Wife filed for divorce on July 26, 2001. A divorce decree was entered on May 20, 2004 and the trial court confirmed the parties’ agreement that Wife would receive a deferred distribution of 50% of the marital portion of Husband’s military pension. Pursuant to the terms of Husband’s retirement plan, a service member who obtains 20 years (240 months) of creditable service receives a pension equivalent to 50% of his monthly salary without any monetary contribution on the part of the service member.
Husband retired from the military on December 31, 2005 after accumulating 20 years of service. Of Husband’s 240 months of military service, 102 were served while the parties were married. Thus, the marital portion of Husband’s pension was 42.5% (102 months/240 months), and Wife’s 50% share was 21.25% of Husband’s pension.
At the time of separation, Husband’s monthly retirement benefit was calculated at $1,207.35. Husband determined that Wife’s 21.25% portion of this amount was $256.56. Consequently, from February 1, 2006 when Husband entered retirement pay status, he mailed a money order to Wife each month in the amount of $256.56. However, due to COLAs, Husband’s actual total monthly pay was $1,634 from February, 2006 to December, 2006; $1,687 from January, 2007 to December, 2007; $1,725 from January, 2008 to December, 2008; and $1,825 from January, 2009 to December, 2009.
One November 13, 2009, Wife filed a petition for civil contempt claiming that Husband violated the equitable distribution order by failing to distribute 21.25% of Husband’s actual total monthly benefit as augmented by the COLA increases.
The Superior Court per Strassburger, J., began its review of the instant case by addressing the court’s standard of review of the trial court’s order denying a civil contempt petition. Citing Harcar v. Harcar, 982 A.2d 1230, 1234 (Pa. Super 2009) and Lachat v. Hinchcliff, 769 A.2d 481, 489 (Pa. Super 2001), the court stated that to sustain a finding of contempt, the complainant must prove, by a preponderance of the evidence that: (1) the contemnor had notice of the specific order or degree he is alleged to have disobeyed; (2) the act constituting the violation was volitional; and, (3) the contemnor acted with wrongful intent.
Next, the court turned to the threshold issue of the case: whether Wife was entitled to receive a share of Husband’s post-separation COLAs under the equitable distribution order. First, the court turned to Berrington v.Berrington, 633 A.2d 589 (Pa. 1993). In Berrington, the Supreme Court, in analyzing a defined benefit pension plan similar to Husband’s retirement plan, held that, while retirement benefits for the non-participant spouse must be based only on the participant-spouse’s salary at the date of separation, should there be increases in benefits payable to the employee spouse between the date of separation and the date the non-participating spouse begins receiving benefits which are not attributable to the efforts or contributions of the participant spouse, then those increased benefits may be shared by the non-participant spouse based upon his or her proportionate share of the marital estate.
The court next turned to Gordon v. Gordon, 681 A.2d 732 (Pa. 1996). In Gordon, the Supreme Court stated that the purpose of the holding in Berrington, was to allow the non-participating spouse to benefit from changes in the plan not attributable to the participant’s labors or contributions are adjustments to the plan which no one knew about at the time of equitable distribution and, therefore, should be available to both parties to the marriage as they arose through no effort or expenditure on the part of the participating spouse. In applying the Berrington holding in Gordon, the Supreme Court concluded that the participating spouse’s increased benefits were simply based upon years of service, rather than effort or contribution from the participating spouse.
Similarly, the court applied this rationale to the instant case. As in Gordon, Husband’s COLAs were automatic, based solely upon his continued years of service. The increases due to COLAs were not merit-based or the result of promotion that was dependent upon Husband’s work performance. Indeed, the court noted that the COLAs were a fixed formula calculated by the Department of Labor to account for adjustments in the consumer price index, and the COLAs were received without any additional effort or contribution on the part of Husband. Therefore, the court concluded that the COLAs that Husband collected post-separation and after retirement are marital property subject to equitable distribution.
The court noted strong support for its analysis, not only from the reaffirmations of the holding in Gordon as set forth in Smith v. Boulding, 938 A.2d 246 (Pa. 2007) and Meyer v. Meyer, 749 A.2d 917 (Pa. 2000), but from holdings from Nebraska, West Virginia and Texas which supported the standard that passive appreciation is to be treated as marital property.
The court reversed the trial court’s decision, concluding that the trial court erred in finding that the COLAs were not marital property, holding that, because the COLAs accrued without any effort or contribution by Husband, and were instead the result of passive appreciation, they are marital property subject to proportionate distribution.
The case was remanded to the trial court to calculate the amount of COLAs owed to Wife and to make findings of fact to determine if Husband was in civil contempt.
CASE NOTE AUTHOR’S EDITORIAL COMMENTS:
The Superior Court’s decision in MacDougall v. MacDougall further defines the benefits allocable to a non-participating spouse in the case of a defined benefit retirement plan. The court’s analysis of the Berrington, Smith and Gordon cases in conjunction with Section 3501(c) serves as a useful tool in advising our clients as to what constitutes a pension plan’s marital component. Perhaps more importantly, this case provides guidance for advising clients after their plan goes into pay status.
John P. Attiani is an associate with the Law Offices of Maribeth Blessing, LLC and a member of the Family Law Section of Montgomery County and Pennsylvania Bar Associations