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NOTICE This opinion is subject to further editing and
modification. The final version will
appear in the bound volume of the official reports. |
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No.
93-3332-FT
STATE OF WISCONSIN : IN SUPREME COURT
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In re the marriage of: Karen I. Olski, Petitioner-Respondent, v. Robert J. Olski, Respondent-Appellant. |
FILED DEC 5, 1995 Marilyn L. Graves Clerk
of Supreme Court Madison,
WI |
APPEAL from an order of the Circuit Court
for Milwaukee County, Francis T. Wasielewski, Circuit Court Judge. Affirmed.
SHIRLEY
S. ABRAHAMSON, J. Robert J. Olski appeals from an order of the
circuit court for Milwaukee County, Francis T. Wasielewski, judge, requiring
him to make maintenance payments of $300 per month to his former wife, Karen I.
Olski. The appeal is before the court
on certification from the court of appeals pursuant to Wis. Stat. § (Rule)
809.61 (1993-94).
The
question of law presented on appeal is whether any receipts from an employee
spouse's pension plan may be considered as income available for post-divorce
maintenance payments if the value of the pension was awarded the employee
spouse in a property division at divorce.
Robert
J. Olski, the employee spouse (the husband), contends that it is
"double-counting" to consider a pension plan both as an asset in the
property division and as income for post-divorce maintenance payments. To the husband, the pension benefit is a
stream of payments which was capitalized and treated as an asset for property
division at divorce and which should not then be treated as income for
post-divorce maintenance purposes.
Karen
I. Olski (the wife), while conceding that an asset cannot be counted twice,
once for property division and a second time for maintenance, asserts that the
pension has two components, one relating to the monthly benefits earned and
valued at the divorce and another relating to benefits earned subsequent to the
divorce. She contends that because the
latter benefits were acquired after the divorce they were not accounted for in
the property division and that they now represent a stream of income available
for maintenance.
Noting
that the husband had continued to work after the divorce, the circuit court
concluded that a substantial portion of the husband's pension receipts were
earned subsequent to the divorce.
Therefore, the circuit court concluded, that portion of the receipts had
not been accounted for in the valuation of the pension plan at divorce and
should be available as income for post-divorce maintenance.
We
agree with the circuit court. We
conclude that it is not double-counting to consider the portion of the pension
earned subsequent to the divorce as income available for post-divorce
maintenance obligations. Therefore we
affirm the order of the circuit court.
I.
Karen
and Robert Olski were married in 1959.
After 25 years of marriage, the couple was legally separated in 1984 and
then divorced in 1985. At that time,
the wife earned a gross monthly salary of $645 working as a part-time secretary
for a church. The husband earned a
gross income of approximately $2,900 a month working for Miller Brewing
Company.
In
the stipulated property division set forth in the divorce judgment, the husband
was awarded his Miller Brewing pension, which was then valued at $11,355. The wife was awarded other property and,
according to the judgment, was divested of all right, title and interest in the
husband's pension.
The
divorce judgment required the husband to pay $1,150 per month in family support
until the younger of the couple's two children reached majority in 1986. He was then to pay $900 per month to the
wife in maintenance through April 30, 1989.
In March of 1989 the wife sought modification of the maintenance award
to continue maintenance beyond April 30, 1989.
Pursuant
to stipulation, the maintenance was reduced to $600 per month. The parties agreed that if the husband
retired or if disability prevented either party's gainful employment, this
change in circumstances would be sufficient to serve as a basis for "a
modification or termination of maintenance." But the parties also agreed that either party's "voluntary
termination of employment" would not constitute a change of circumstances
warranting such a modification.
Finally, the parties agreed that the question of whether the husband's
pension represented income, property or "a combination thereof" for
purposes of maintenance would remain an open question concerning which the
parties would "be free to argue" at a later date.
In
1992, at the age of 55, the husband accepted voluntary early retirement in
exchange for incentive benefits, including an additional five-year credit to
his pension. Thus, although the husband
had completed only 36 years of service, he was credited with 41 years.[1]
After
retirement, the husband received $2,700 in monthly payments from his pension,
which was his only source of support; the wife at that point was earning $1,045
per month as a church secretary. The
husband sought a court order terminating his $600 monthly maintenance payments. The husband argued that his sole source of
support was from the pension awarded to him in the property division at divorce
and that his pension receipts were not income available for maintenance.
In
light of the couple's 25-year marriage, the parties' ages and the wide
disparity in their monthly incomes, the circuit court rejected the husband's
request for termination of his maintenance obligation. Noting the husband's decrease in gross
income from $4,300 to $2,700 per month, the circuit court reduced that
obligation from $600 to $300 per month.[2]
II.
We
now address the question of whether any receipts from a pension plan awarded in
a divorce judgment to an employee spouse may be considered income available to
that spouse for payment of post-divorce maintenance.
More
than 30 years ago, this court made clear that when an employee spouse's
profit-sharing trust is awarded that spouse as an asset in a property division,
a circuit court may not consider that spouse's receipts from the trust as
income available for maintenance after divorce. Kronforst v. Kronforst, 21 Wis. 2d 54, 123 N.W.2d 528
(1963). Likening the employee spouse's
profit-sharing trust to a bank deposit, the court stated:
We view the
matter no differently than if the $9,749 [the value of the employee spouse's
interest in the trust] had constituted cash in a bank deposit in defendant's
name. Such an asset cannot be included
as a principal asset in making division of the estate and then also as an
income item to be considered in awarding alimony.
Kronforst, 21
Wis. 2d at 64.
In
Kronforst, there was no expectation that the employee spouse would
increase his interest in the profit-sharing trust because he was disabled, was
on an extended leave of absence and was unlikely to return to work. Under these circumstances the court noted
that the trustees of his pension were likely to consider his severance as
permanent, thereby precluding further increases in his interest in the
trust.
Hence
while Kronforst stands for the proposition that a retirement benefit
should not be double-counted, it does not preclude the possibility that
increases in the retirement benefit because of post-divorce employment would be
available for post-divorce maintenance.[3] Increases in retirement benefits to an
employee spouse because of post-divorce employment would not ordinarily be
included in a division of property at divorce, because they are not part of the
marital property subject to such division.
Steinke v. Steinke, 126 Wis. 2d 372, 380, 376 N.W.2d 839
(1985).[4] As the court has explained, only that part
of the retirement benefits attributable to the marriage should be considered in
the property division, and "any contributions to the retirement fund after
the divorce, whether made by employer or employee, would not be assets of the
marital estate subject to division."
Bloomer v. Bloomer, 84 Wis. 2d 124, 127 n.1, 267 N.W.2d 235
(1978).[5] The court has further explained that
"because of the likelihood of future contributions to the fund . . . the
fund should be treated as if it were two funds, with only that part of the fund
attributable to the marriage being considered and divided." Bloomer, 84 Wis. 2d at 127
n.1.
The
court has recently examined the distinction recognized in Bloomer as it
applies to income generated after divorce by assets divided at divorce. In Hommel v. Hommel, 162 Wis. 2d
782, 471 N.W.2d 1 (1991), the court concluded that investment income from
assets awarded as part of the division of property at divorce could be included
in calculating the payor spouse's income for purposes of revising the
maintenance award. Hommel, 162
Wis. 2d at 783, 789, 796.
Both
parties rely on Hommel. The
husband argues that Hommel supports his position because pension
benefits are not "income from an asset," but rather indistinguishable
from the asset itself. The husband
maintains that since a pension is no more than a stream of payments capitalized
and treated as an asset for property division, the pension cannot also be
treated as income for maintenance purposes.
The
wife, conversely, claims that Hommel supports her position. She contends that just as the post-divorce
interest earned on investments represents a stream of income acquired after
divorce, post-divorce increases in the husband's pension plan which were not
accounted for in the property division also represent a stream of income
acquired subsequent to divorce.[6]
Consequently,
the wife also relies on Plonka v. Plonka, 177 Wis. 2d 196, 501
N.W.2d 871 (Ct.App. 1993). In Plonka,
one-half of the employee spouse's pension plan benefit was awarded each spouse
in the property division. Plonka,
177 Wis. 2d at 199. Because the
employee spouse continued working, however, the benefit payments from his
pension plan increased after the parties' divorce. Plonka, 177 Wis. 2d at 203. Stating that its holding represented a "logical extension to
the Hommel rationale," the court of appeals held that when a
post-divorce motion for reduction in maintenance is presented, "the nature
and amount of current income-producing assets should be freshly examined
together with any new post-divorce sources of income." Plonka, 177 Wis. 2d at 205.
The
wife in the present case does not ask this court to examine anew the nature and
amount of that portion of the husband's current income-producing assets already
distributed in the property division at divorce. Instead the wife claims merely that the portion of the husband's
pension benefits representing compensation for post-divorce employment and
consequently not counted in the property division at divorce should be treated
as an income stream available for maintenance.
We
agree with the wife's position.
Although we acknowledge and affirm our longstanding precedent, first
enunciated in Kronforst, against double-counting an asset included in
the property division at divorce, we conclude that assets acquired after the
divorce (and thus not included in the property division at divorce) are
available to satisfy post-divorce maintenance obligations. Bloomer, 84 Wis. 2d at 127 n.1.[7] Dividing the husband's pension in this way
is consistent with Bloomer and its progeny. It is also consistent with Kronforst for reasons
enunciated in Bloomer: for all
practical purposes, assets acquired prior to divorce and assets acquired
subsequent to divorce represent two conceptually distinct funds.
Thus
the pension receipts at issue in this case should be separated into two
portions. One portion, attributable to
labor performed during marriage, was already divided at divorce. A pension plan representing wealth
accumulated during marriage must be included in the property division made at
divorce. Steinke, 126
Wis. 2d at 381. A second portion,
attributable to post-divorce employment and therefore not part of property
earned during the marriage and not subject to division as marital property at
divorce, is available to satisfy post-divorce maintenance obligations.[8]
We
recognize, however, that this division of the pension receipts leaves
unresolved a myriad of related valuation problems. We have long recognized that a pension interest "is very
difficult to value." Steinke,
126 Wis. 2d 372, 384, quoting Schafer v. Schafer, 3 Wis. 2d
166, 171, 87 N.W.2d 803 (1958). It is
for this reason that circuit courts retain broad discretion in the complex task
of valuing pension rights. Bloomer,
84 Wis. 2d at 130-34; Steinke, 126 Wis. 2d at 376; Ably v.
Ably, 155 Wis. 2d 286, 290, 455 N.W.2d 632 (Ct. App. 1990).
The
retirement plan at issue appears to be a defined benefit plan, which compounds
further the difficulties intrinsic to valuation of retirement benefits.[9] At divorce, the present value of a defined
benefit pension plan is ordinarily based on the employee's salary and length of
service at the divorce, the defined benefit formula then in effect, and
assumptions about the projected date of retirement, mortality rates and
interest rates.[10] Apparently, the value of the husband's
pension plan in this case was calculated for immediate distribution to the wife
by offsetting the value of the plan against other property in the estate.[11]
A
further valuation problem in this case involves how to calculate what portion
of the husband's pension benefits is available for maintenance. The wife takes the position that the husband
has already received pension payments in excess of $11,355, the value of the
pension awarded to the husband in the property division. The husband receives pension benefits of
approximately $32,370 a year for life and has already been receiving the
benefits for more than two years.[12]
The
wife argues that "it is readily apparent that [the husband] has already
recovered the full value of the pension . . . . Therefore, all future benefits from the
pension should be considered in [the husband's] income stream
. . . ." Brief of
Respondent at 17. The husband's brief
does not address this issue.
On
the basis of the record before us we assume that the husband has recovered the
full value of the pension benefits awarded him in the property division and
that therefore all future receipts of pension benefits are available in their
entirety for possible maintenance obligations.
For
the reasons set forth, we affirm the order of the circuit court.
By
the Court.—The order of the circuit court is affirmed.
SUPREME COURT OF WISCONSIN
Case No.: 93-3332-FT
Complete Title
of Case: In Re the Marriage of:
Karen I. Olski,
Petitioner-Respondent,
v.
Robert J. Olski,
Respondent-Appellant.
________________________________________
ON CERTIFICATION FROM THE COURT OF APPEALS
Opinion Filed: December 5, 1995
Submitted on Briefs:
Oral Argument: October 5,
1995
Source of APPEAL
COURT: Circuit
COUNTY: Milwaukee
JUDGE: FRANCIS T. WASIELEWSKI
JUSTICES:
Concurred:
Dissented:
Not Participating:
ATTORNEYS: For the respondent-appellant there was a
brief by Jeffrey D. Berlin and Spector & Berlin, S.C.,
Milwaukee and oral argument by Jeffrey D. Berlin and Rebecca Boyle.
For the petitioner-respondent there was a
brief by Daniel J. Weiss, and Daniel J. Weiss, S.C., Milwaukee
and oral argument by James K. Jaskolski, Milwaukee.
[1] If the husband had retired at age 65 in
2002, his pension benefits would have been based on 46 years of actually
completed service.
[2] The determination of the amount and duration
of maintenance is entrusted to the sound discretion of the circuit court. An appellate court will not disturb a
circuit court's decision unless the circuit court erroneously exercised its
discretion. An erroneous exercise of
discretion occurs when a circuit court fails to consider relevant factors,
bases its award on factual errors, makes an error of law, or grants an
excessive or inadequate award. On reviewing
the circuit court's exercise of discretion, this court decides any question of
law independently. Hommel v. Hommel,
162 Wis. 2d 782, 788, 471 N.W.2d 1 (1991).
[3] In Steinke v. Steinke, 126
Wis. 2d 372, 376 N.W.2d 839 (1985), the court explained that "Kronforst
only established the rule prohibiting the double-counting of an asset, once in
the property division and once in the maintenance award." Steinke 126 Wis. 2d at 382.
[4] See also J. Thomas Oldham, Divorce,
Separation and the Division of Property 7-94 (1987) (those courts
prohibiting double-counting do not consider it improper to include pension
rights earned after divorce as available for possible maintenance because such
rights would not have been included in initial property division); Brett R.
Turner, Equitable Distribution of Property 343-44, 354 (2nd ed. 1994)
(retirement benefits earned during the marriage should be treated as marital
property, while those earned after the divorce should be classified as separate
property available for maintenance).
Relying
on the language of the stipulation and judgment that the wife was divested of
all right, title and interest in the pension, the husband argues that the wife
waived any interest in his pension benefits.
We conclude, as did the circuit court, that this divestment language
means that the wife waived her rights only to that portion of the pension
benefits included in the property division.
[5] See also Ably v. Ably, 155
Wis. 2d 286, 292, 455 N.W.2d 632 (Ct. App. 1990) (treating early
retirement inducement as separate from marital property because it did not exist
until after the parties were separated); Pelot v. Pelot, 116
Wis. 2d 339, 342 N.W.2d 64 (Ct. App. 1983) (holding that once an employee
spouse has received pension receipts equivalent to full value of the portion of
the pension awarded him in divorce judgment, additional receipts are available
for maintenance); Holbrook v. Holbrook, 103 Wis. 2d 327, 336-38
nn.17-18, 309 N.W.2d 343 (Ct. App. 1981) (discussing how to value that portion
of retirement benefits earned during marriage in order to effect a proper
division of property upon divorce); Selchert v. Selchert, 90
Wis. 2d 1, 11, 280 N.W.2d 293 (Ct. App. 1979) (upholding award of 50% of
pension receipts to nonemployee spouse as her portion of marital property on
the explicit assumption that pension receipts to which employee spouse was
entitled would not be altered by additional post-divorce employment).
[6] The rationale of Hommel was applied
to pension funds in Dowd v. Dowd, 167 Wis. 2d 409, 481 N.W.2d 504
(Ct. App. 1992). The court of appeals
considered the interest the fund earned on a yearly basis as income available
for maintenance.
[7] See Gerritis v. Gerritis, 167
Wis. 2d 429, 436, 482 N.W.2d 134 (Ct. App. 1992) (proceeds from lottery
ticket purchased five months after divorce are available to satisfy maintenance
obligations).
[8] The record in this case admittedly leaves
unclear exactly how the pension plan was valued for purposes of the property
division. What is clear, however, is
that the husband accumulated eight additional service years at Miller Brewing
after the divorce and also received a five-year credit from Miller Brewing for
accepting early retirement. Given that
the value added to the pension from these thirteen additional years of service
credit constitutes legally separate property, it is unlikely that it was
accounted for in the property division at divorce.
Income,
if any, generated from the pre-divorce portion of the pension is apparently not
at issue in this case. See Hommel,
162 Wis. 2d at 783, 789, 796 (income from assets available for
maintenance).
[9] Because defined benefit plans, in contrast
to defined contribution plans, are usually based largely or entirely on monies
contributed by the employer, there is often no significant relation between
"contributions" which have been made on an employee's behalf by the
time of divorce and the considerably larger fund of monies which the employee
will receive at retirement. Moreover,
no separate account is maintained for each employee. Grace Ganz Blumberg, Intangible Assets Recognition and
Valuation, in Valuation and Distribution of Marital Property § 23.02[4] (1994); Oldham, supra
at 7-59. See also Selchert,
90 Wis. 2d at 8-10 (noting the difficulties and lack of predictability
associated with valuing defined benefit plans).
[10] See, e.g., Oldham, supra at
7-76 to 7-79; Turner, supra at 366-76; Marvin Snyder, Value of
Pensions in Divorce 8-9 (2d ed. 1989).
The
record includes a statement by the Office of the Commissioner of Insurance that
the then present value of the husband's monthly retirement benefit of $557.00
for life was $14,193, using the standard actuarial methods and assumptions
prescribed by Wis. Stat. § 879.65 (1983-84). The Commissioner used the American Experience Table and a five
percent rate. The record does not explain
the basis for the parties' stipulation and the judgment reaching a lesser value
of $11,355.
[11] We say apparently because the record is not
entirely clear on this point. The
valuation of the pension in this case appears to represent a discounting of the
value of the husband's pension at divorce from its projected worth in the year
2002, when the husband would reach his anticipated retirement age of 65.
[12] Because the husband took voluntary early
retirement and began to receive pension payments a full decade before his
projected retirement date, his pension was dramatically undervalued in the property division at divorce. The plan was valued in 1984 from the year 2002,
at which time the husband would be 65 years of age. Therefore, the husband received a lower valuation of the pension
and relinquished fewer assets in the property division than he would have if
the value of his plan in 1984 had been discounted only from 1992. By procuring the use of those dollars ten
years earlier than projected, the husband averted the full projected discount
incorporated in the divorce judgment.