Pension Split Using Military Credits

A husband’s state pension credit for his four years of premarital military service is community property, because he bought the credit using community funds from the marriage, a California appeals court has held for the first time.

First District Court of Appeal Justice Patricia K. Sepulveda classified four years of U.S. Air Force service credit in the California Public Employees’ Retirement System (CalPERS) as community property, even though Timothy Green, the husband, had completed all his service before marrying Julie Green.

The question was whether Timothy’s premarital pension rights to the military benefit were his actual separate property, or whether Julie had a right to share the pension credit for Timothy’s premarital military service time.

CalPERS permits employees to purchase credit for up to four years of military service and apply it toward a final pension benefit. Timothy paid $185 per month during the marriage for the credit.

“We agree with Julie that because the contractual right to receive four additional years of retirement credit based on premarital military service was obtained during the marriage, it was ‘stamped a community asset from then on,’” Sepulveda wrote.

The ruling overturned the decision of Contra Costa Superior Court Judge Charles B. Burch, who had characterized the service credit as Timothy’s separate property, granting his wife only reimbursement of half the cost of the service credit, plus interest.

The complex legal question prompted the court to invite the American Academy of Matrimonial Lawyers, Northern California Chapter (AAML) to weigh in on the topic.  Even the AAML was split over how to handle it.

The AAML provided a brief with two diverging opinions.  One section advocated for reimbursement with interest, the position taken by Timothy, and the other supported allocation of separate and community property interests in the credit, as Julie wanted.

Following his military service, and before marrying Julie, Timothy began working as a firefighter and was eligible to participate in a CalPERS pension.  Ten years into the 15-year marriage, Timothy bought credit for his premarital military service through his CalPERS pension.  He used community funds to pay the credits in installments, which amounted to nearly $11,500 by the time the parties separated.

The AAML author advocating the reimbursement position said Timothy had an unconditional, contractual right to the payment of benefits. Sepulveda said no such right existed here before Timothy purchased the credit during marriage with community funds.

The author also compared the service credit to a leasehold right, characterizing Timothy’s credit purchase as the “exercising of an option during marriage” that arose from “premarital sources.” Sepulveda disagreed, saying Timothy had no exercisable “option” until he was eligible to purchase the service credit through CalPERS.

Sepulveda noted that courts in at least two other states have reached the same conclusion on this issue.

On allocation of the credit, Julie argued for half: credit for two years.  Sepulveda declined, explaining that community funds were used to make only part of the requisite payments, slightly over 34 percent, according to the court’s expert.

The second AAML writer, advocating for separate and community property interest apportionment, showed one court’s holding that a non-employee spouse, such as Julie, has a community property interest in the employee spouse’s retirement, with ultimate distribution to include pension credits, such as the service credit, that accrued during marriage. But that court also found that the property interest in the augmented pension does not make the credit itself a community asset.

Sepulveda sent the case back to Judge Burch to determine the correct allocation of the credit.

Justice Sepulveda was joined by Justices Ignazio John Ruvolo and Maria P. Rivera.

Case:  In re Marriage of Green, No. A129436

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