In Re the Marriage of McElroy

905 P.2d 1016, 1995 WL 478473

• Court: Colorado Court of Appeals
• Decided: September 14, 1995
• Docket: 94CA0957
• Status: Published

Opinions

Opinion by

Judge ROTHENBERG.

There are two primary issues in this appeal by Donna M. McElroy (wife) from a post-dissolution of marriage action: (1) whether the trial court had jurisdiction to award wife a portion of the special separation benefits (SSB) received by former husband, Ronald D. McElroy (husband), upon his voluntary discharge from the Air Force, or whether the court was preempted by federal legislation from doing so; and (2) if the court was not preempted, whether the SSB constituted marital property subject to division. Because we hold that the trial court was not preempted from exercising jurisdiction over the SSB benefit and that the SSB does constitute marital property, we reverse and remand for further proceedings.

As part of their marital settlement agreement approved by a California court in 1988, the parties agreed wife would receive 25% of husband’s “gross military retirement/pension benefits” from the Air Force. Husband was to notify her in writing within 10 days of his eligibility to receive such benefits.

The agreement also provided for the establishment of a trust, revocable in writing by wife. As trustee, husband was required to remit wife’s 25% benefit to her within 5 days after receiving each payment. The purpose of the trust was to secure wife’s share of the benefit in the event of delays in obtaining it or if she were unable to obtain direct enforcement from the Air Force. The parties’ agreement further provided the trial court would retain jurisdiction over the retire-menVpension provisions to comply with any specific language requirements of the Air Force.

In 1988, wife moved to Colorado and husband registered the California decree in this state. Since then, Colorado has exercised jurisdiction in this case.

After 16 years of creditable military service, husband accepted SSB funds totalling over $100,000 in gross benefits, but failed to notify wife. When wife learned he had done so, she filed a motion with the trial court requesting at least 25% of the benefits, plus interest on her share from the date husband had received them.

The trial court found that: (1) the SSB constituted marital property; (2) if husband eventually completes his miltary career and retires, he will have the option to “buy back” his retirement benefits by repaying the SSB; (3) under such circumstances, husband controlled receipt of wife’s award and she should have the option of accepting 25% of the.SSB or of retaining her right to 25% of the future retirement pay; and (4) it would be equitable under the California decree to award wife 25% of the net payment because husband’s acceptance of the SSB had deprived her of her portion of his retirement.

Nevertheless, the trial court ruled that it lacked authority to alócate 25% of the net payment to wife or to order such payment because federal law controls the issue. On the basis of preemption, therefore, it denied her motion for division of the SSB. After finding no significant difference between the parties’ respective incomes, the court also denied wife’s request for attorney fees.

I.

Wife contends the trial court erred in determining that federal law preempted its ability to divide the special separation benefit. We agree.

A.

In 1991, Congress established two related programs to reduce the size of the armed forces in response to the perceived diminished threat to United States’ interests. Elzie v. Aspin, 841 F.Supp. 439 (D.D.C.1993). SSB payments are provided for under 10 U.S.C. § 1174a (1994) and voluntary separation incentive benefits (VSI) are provided for by 10 U.S.C. § 1175 (1994).

The programs were designed to compensate career-oriented service members who had been denied a career opportunity be-' cause of circumstances beyond their control. H.Conf.Rep. No. 101-665, 101st Cong, 2d Sess. 6 (1990), reprinted in 1990 U.S. Code Cong. & Admin. News 2962, 2995.

The pertinent statutes have reciprocal provisions granting armed forces members, who have been offered benefits under either program, the option to choose benefits under the other program. 10 U.S.C. §§ 1174a(e)(3) & 1175(c) (1994).

An eligible member of the armed forces who requests separation under § 1174a(a) receives SSB that is a lump sum benefit equal to 15% of that member’s monthly basic pay multiplied by 12 and by the number of years of service. 10 U.S.C. § 1174a(b)(2)(A) (1994). Legislative history shows that pay offered under the SSB program was established at 15% of basic pay, rather than the normal 10% applicable in determining involuntary separation pay, so that such enhancement would provide an equitable, up-front incentive for volunteer personnel who are not retirement-eligible to choose in lieu of facing the prospect of involuntary separation. H.Conf.Rep. No. 102-311, 102d Cong, 1st Sess. 3 (1991), reprinted in 1991 U.S. Code Cong. & Admin. News 1112.

A member of the armed forces who is offered the VSI receives benefits computed under a formula providing monthly payments for a period equal to twice the number of service years. 10 U.S.C. § 1175(d)(3)(e)(l) (1994). The stated purpose of the VSI is to “provide a. financial incentive to members of the armed forces ... for voluntary appointment, enlistment, or transfer to a reserve component_” Section 1175(a).

Additional legislative history discussing the “force drawdown” and predating enactment of the VSI/SSB programs recommended a comprehensive package of benefits to assist separating personnel and their families in adjusting to civilian life. In a different context, one court has described the VSI and SSB programs as an inducement to elect early retirement. Elzie v. Aspin, supra.

B.

The trial court concluded that, based upon preemption, the court lacked subject matter jurisdiction to award any portion of husband’s SSB. We do not agree.

The concept that federal enactments may prohibit the enforcement of state laws is grounded upon the Supremacy Clause of the United States Constitution which provides that the laws of the United States, made pursuant to the national constitution, “shall be the supreme law of the land.” U.S. Const., art. VI.

Any state law that conflicts with federal legislation, either directly or indirectly because its enforcement would stand as a barrier to the accomplishment of Congress’ full purposes and objectives, is without effect and cannot be enforced. See Cipollone v. Liggett Group, Inc., 505 U.S. 504, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992); Celebrity Custom Builders v. Industrial Claim Appeals Office, — P.2d - (Colo.App. No. 94CA1937, June 15, 1995). See also L. Tribe, American Constitutional Law § 6-25 (2d ed. 1988).

Domestic relations are preeminently matters of state law. Therefore, when Congress passes general legislation, it rarely intends to displace state authority in this area. Mansell v. Mansell, 490 U.S. 581, 109 S.Ct. 2023, 104 L.Ed.2d 675 (1989).

On the rare occasion when state family law has come into conflict with a federal statute, the United States Supreme Court has limited review under the Supremacy Clause to a determination of whether Congress has positively required by direct enactment that state law be preempted. Rose v. Rose, 481 U.S. 619, 107 S.Ct. 2029, 95 L.Ed.2d 599 (1987) (no preemption found regarding state statute allowing a disabled veteran to be found in contempt for failing to pay child support, even when veteran’s benefits were the only means for satisfying that obligation). See In re Marriage of Rahn, 1995 WL 478464, — P.2d - (Colo.App. No. 94CA0106, August 10, 1995) (ERISA does not preempt enforcement of otherwise valid prenuptial agreement with regard to waiver of spousal death benefits).

In McCarty v. McCarty, 453 U.S. 210, 101 S.Ct. 2728, 69 L.Ed.2d 589 (1981), the United States Supreme Court held that federal law precluded state courts from distributing military retirement benefits in marital dissolution proceedings. Thereafter, Congress responded to the McCarty decision by enacting the Uniformed Services Former Spouses’ Protection Act (USFSPA), 10 U.S.C. § 1408 (1982), which gave the states egress authority to treat a service member’s disposable retired or retainer pay as property subject to equitable distribution. See In re Marriage of Gallo, 752 P.2d 47 (Colo.1988); In re Marriage of Grubb, 745 P.2d 661 (Colo.1987).

Relying on Mansell v. Mansell, supra, husband contends that the field of military financial benefits is completely preempted by federal law. However, in Mansell, preemption was found based upon a specific provision in the definitional section of the USFS-PA expressly excluding consideration of a service member’s disability pay from “disposable retired or retainer pay.” See 10 U.S.C. § 1408(a)(4)(B) (1994). Nothing in Mansell prohibits the division of a service member’s SSB. Indeed, the Court in Man-sell concluded the USFSPA’s savings clause was designed to defeat any inference that the federal direct payments mechanism displaced the authority of state courts to divide and garnish property not covered by the mechanism.

Nor do the statutes governing the SSB and VSI programs contain any prohibition concerning the power of the state court to determine the nature of such benefits. To the contrary, the legislative history shows that SSB and VSI benefits were adopted to benefit service members and their families and were designed to induce otherwise career-oriented members voluntarily to resign and to seek early retirement. See Elzie v. Aspin, supra. Hence, we perceive no inference of an intent to preempt. See Belgard v. United Airlines, 857 P.2d 467 (Colo.App.1992).

In the two reported appellate decisions we have found that have considered the preemption issue in the context of SSB and VSI benefits, both have concluded that federal law does not preempt state courts from dividing SSB and VSI benefits. Abernethy v. Fishkin, 638 So.2d 160 (Fla.App.1994); In re Marriage of Crawford, 180 Ariz. 324, 884 P.2d 210 (App.1994).

In In re Marriage of Crawford, supra, 884 P.2d at 212, the Arizona Court of Appeals discussed Congress’ intent in enacting the SSB and VSI programs:

We find ... relevant a 1990 House Report predating the enactment of the SSB program which in relation to the eongressionally mandated force drawdown recommended a comprehensive package of transition benefits to assist separating personnel and their families, H.R. rep. No. 665, 101st Cong., 2d Sess. (1990), suggesting that equitable division of SSB benefits is not inconsistent with congressional intent.

The Crawford court also noted that literature distributed by the Department of Defense explaining the SSB and VSI program states:

The treatment of VSI or SSB is not dictated by Federal law. It will be up to the state courts to rule on the divisibility of these incentives.

In re Marriage of Crawford, supra, (fn. 5) (emphasis added).

Contrary to husband’s suggestion, In re Marriage of Kuzmiak, 176 Cal.App.3d 1152, 222 Cal.Rptr. 644, cert. denied, 479 U.S. 885, 107 S.Ct. 276, 93 L.Ed.2d 252 (1986) is distinguishable and does not persuade us to reach a different result. First, Kuzmiak was decided before the SSB and VSI programs ■were adopted. Secondly, it involved the issue of preemption over separation pay received upon involuntary discharge under 10 U.S.C. § 1174 (1994). See also Baer v. Baer, 657 So.2d 899 (Fla.Dist.Ct.App.1995) (where service member was given ultimatum to accept VSI or be immediately involuntarily terminated, his VSI payments constituted severance pay rather than retirement pay and was separate property; preemption not in issue).

Here, however, the trial court found with record support that husband had been in the military for fifteen and one-half years and was on a career track when he voluntarily chose the SSB.

In summary, we hold that the trial court was not preempted by federal law from characterizing the SSB funds received by husband as marital property and from awarding a portion of them to wife.

II.

The parties disagree as to how the SSB funds should be characterized under Colorado law. They both agree that, if the SSB is a retirement benefit, it is marital property and subject to the parties’ agreement. However, in support of the judgment, husband asserts that the SSB should be characterized as severance and, therefore, his separate property, rather than as a retirement benefit. We agree with the trial court that the SSB funds constitute marital property.

Marital property subject to division generally does not include property acquired after a dissolution. In re Marriage of Faulkner, 652 P.2d 572 (Colo.1982). However, compensation which is deferred until after the dissolution, but fully earned during the marriage, is marital property. In re Marriage of Miller, 888 P.2d 317 (Colo.App.1994). Also, a non-vested military pension constitutes marital property subject to division under § 14-10-113, C.R.S. (1987 Repl.Vol. 6B). In re Marriage of Beckman, 800 P.2d 1376 (Colo.App.1990).

In contrast, severance pay is a salary substitute for wages while the employee searches for a new job. Thus, it is the separate property of the dismissed employee. In re Marriage of Holmes, 841 P.2d 388 (Colo.App.1992).

The fact that the amount of benefits to be received is based upon the length of employment or the current salary is not dis-positive of the nature of the benefit in question. See In re Marriage of Holmes, supra. See also In re Marriage of Smith, 817 P.2d 641 (Colo.App.1991) (classifying workers’ compensation benefits as marital property or separate property depending on the loss compensated for).

Here, the'SSB funds awarded to husband were for a voluntary termination at his election, even though the enhanced payment was designed to induce him to exercise the option in lieu of being potentially subjected to involuntary termination. The legislative history of § 1174a expressly indicates that the payment was provided as a contingency payment for an officer who was career committed, but to whom a full military career might be denied, and was designed to benefit both the member and his family. Thus, upon making the election, husband had an absolute right to receive either the lump sum SSB payment or, in the alternative, a VSI payment monthly based upon a formula providing monthly payments for a period equal to twice the number of service years. 10 U.S.C. § 1175(d)(3)(e)(l) (1994).

Husband acknowledged that, if he ultimately became eligible for a pension, he would be required to reimburse the government for the amount of the SSB that he had already received. See 10 U.S.C. §§ 1174a(g) & 1174(h) (1994). This pay-back provision also supports the trial court’s determination that the SSB benefit is in lieu of retirement pay, and therefore constitutes marital property.

For these reasons, we conclude, as did the trial court, that the SSB received by husband has more of the characteristics of a deferred compensation plan'than a severance payment and, therefore, constituted marital property subject to distribution. See In re Marriage of Crawford, supra (SSB payments constitute retirement pay and are marital property subject to division); Abemethy v. Fishkin, supra (VSI payments constitute retirement pay and are marital property subject to distribution.). But see Baer v. Baer, supra; Kelson v. Kelson, 647 So.2d 959 (Fla.Dist.Ct.App.1994) (VSI payments not retirement); McClure v. McClure, 98 Ohio App.3d 27, 647 N.E.2d 832 (1994) (VSI payments more analogous to severance benefits than retirement benefits).

In view of this conclusion, we reject husband’s related argument that wife did not bargain for the payment of anything but retirement or pension benefits and that the trial court lacked the authority to redistribute the pension benefit as it existed in the form of the SSB. See In re Marriage of Wells, 850 P.2d 694 (Colo.1993).

Since the trial court has already determined that the SSB is marital property and found that it would have awarded 25% of the net benefit to wife, it is necessary to remand this case to the trial court only for the entry of further orders to effect payment to wife of that designated share. On remand, the court should reconsider wife’s request for interest on the unpaid portion of her share of the SSB.

III.

Wife also contends that the trial court erred in denying her request for attorney fees. We disagree.

The trial court denied wife’s request for fees under § 14-10-119, C.R.S. (1986 Repl. Vol. 6B) based upon a determination that ■there was no significant difference between the parties’ respective incomes. Because the record supports the court’s finding as to the respective incomes of the parties and because the issue on appeal constituted one of first impression, the trial court did not abuse its discretion in denying attorney fees.

The order is reversed insofar as it denied wife division of the special separation benefits received by husband, and the cause is remanded to the trial court for further proceedings consistent with the views expressed herein. That part of the order denying an award of attorney fees is affirmed.

RULAND, J., concurs. ROY, J., dissents.