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Unvested military pensions now marital property

Legal News Reporter

Published: May 16, 2014

The Ohio Supreme Court has recently ruled, 4-3, that unvested military retirement benefits earned during a marriage are marital assets subject to division in a divorce or dissolution.

The decision in Daniel v. Daniel, brings Ohio into the majority of states’ view of this issue, said Akron domestic relations attorney Melissa Graham-Hurd. But there is a strong dissenting opinion; one that at least one other local domestic attorney thinks may have some merit.

Although the decision seems to take a new turn in the law, “it is really not that different from what we have been doing for a long time,” said Graham-Hurd.

“I think that this is a decision that will have far-reaching effects,” said Kathryn Belfance, another Akron attorney who practices in domestic relations law.

The case relates to the divorce case of Christen and Sean Daniel, residents of Mercer County.

The couple was married in 1995, producing three children. Shortly before their marriage Sean had enlisted in the National Guard. He remained in the Guard for the entire length of the marriage and re-upped for six more years just before their divorce was finalized. He would be eligible for retirement benefits after 20 years of service.

The couple separated twice during the course of their marriage—from 2004 to 2005 and from 2008 until they were divorced in 2011.

At the time of the divorce, the only substantial property the couple had an interest in was Sean’s military retirement. The trial was had by a magistrate, who ruled that under Ohio law, Sean’s military retirement was not divisible marital property. Christen objected to the finding and a trial was had on the issue.

The division of marital property in Ohio is governed by Ohio Revised Code section 3015.171. The operative language in that statute refers only to “currently owned” property; various court decisions have held retirement benefits to be divisible marital property.

After the hearing, the trial court held that whatever military retirement benefits Sean may have were unvested and, therefore, under R.C. 3015.171, were not “currently owned,” and could not be determined or divided.

On appeal, and in a split decision, the 3rd District Court of Appeals held that non-vested retirement benefits presented insufficient evidence to make a division of the property possible; the dissent felt that that interest could be divided.

The Supreme Court went in a different direction, overturning the appellate court decision.

The majority-- Justice William M. O’Neill, who wrote the decision, and justices Paul E. Pfeifer, Judith L. French and Sharon L. Kennedy, held that the unvested interest in the pension could be divided on a percentage basis (called the “covert fraction”), even though the parties would have to wait to see if any of it ever did become vested before an actual determination of the divisible amount could be determined.

Justice O’Neill wrote that, “[F]ixing a precise present value and date of vesting is not mandatory,” and that the trial court had enough information to distribute distribution the retirement benefits. This type of distribution is generally referred to a “deferred distribution,” as opposed to “direct distribution” when the amounts are ascertainable.

Graham-Hurd said that, prior to the Daniel decision, Ohio was one of only four states that had not held that non-vested retirement funds were divisible marital property. A 2007 case, Wilson v. Wilson, she said, had ruled that a Qualified Domestic Relations Order, which is how most pensions are divided in a divorce, could be issued even of the pension had not yet vested.

There was a two-pronged dissent. Justice Terrence O’Donnell would have upheld the lower court, because the pension had not yet vested, and therefore could not be divide Justice Judith Ann Lanzinger, joined by Chief Justice Maureen O’Connor, felt that the court should not have granted review in the first place.

All three dissenters agreed on one central point—that, under the statute, marital property only consists of benefits a spouse currently owns, and that does not include the military retirement benefits in this case.

Belfance thinks that the logic is close on both sides. At first glance, she intuitively sided with Justice O’Donnel’s dissent, thinking that it was impossible to divide up something that didn’t actually exist yet.

On second review, she started seeing the logic of the majority, and said, “the court did not find (the unvested pension) to be speculative. If you have invested some years in a asset, it doesn’t mean that you don’t have an interest (even if it is not vested).”

At the same time, she said that, “there are a lot of different kinds of pensions out there, (and) the mechanics may be problematic.”

That would be for the actuaries and attorneys to work out. As of now, military pensions, and maybe other pensions and other interests, can be divided before they vest.