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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 6604

October 30, 1989

COURTS:

Award of pension benefits as marital asset

Extinguishment of spouse's interest in public retirement system benefits

DIVORCE:

Pension benefits as marital asset

RETIREMENT AND PENSIONS:

Benefits as marital asset in a divorce proceeding

Selection of post-retirement option for employee's spouse in a divorce proceeding

Judges Retirement System--survivor's benefits for current spouse

Municipal Employees Retirement System--rights of second spouse in benefits of member of system

Public School Employees Retirement System--rights of second spouse in benefits of member of system

The value of the interest in a public pension, annuity, or retirement benefit based upon service credit accrued by the employee during the marriage should be determined by a court in a divorce proceeding as a marital asset and equitably distributed to the spouse as ordered by the court.

A public employees' retirement system is not required to accept a post-survivor option selected by an employee involved in a divorce proceeding for his or her spouse in lieu of the determination of the value and equitable distribution by the court of the employee's interest in the pension, annuity, or retirement benefit to the spouse.

The survivor benefits provided under the Judges Retirement Act, MCL 38.819c(1)(a); MSA 27.125(19.3)(1)(a), are to be paid entirely to the spouse to whom the judge was married at the time of death.

A judgment of divorce extinguishing a former spouse's interest in a retirant's pension is valid and the retirant's allowance should revert to a straight retirement allowance beginning the first day of the month following the date of the judgment of divorce.

The second spouse of an employee has potential rights in the event of divorce to receive as a division of marital assets a portion of the present value of the member's future retirement benefits from a public retirement system for the service credit accrued during the time of the second marriage of the employee.

The survivor allowance paid to the second wife of a deceased member of the Public School Employees Retirement System is not subject to an earlier court order for alimony to the first wife of the member.

Department of Management and Budget

Public School Employees Retirement System

General Office Building

Lansing, Michigan 48909

You have requested my opinion on several questions arising from amendments of various public retirement systems' statutes to authorize a court in divorce/separate maintenance or child support proceedings to withhold payments from a pension, deferred pension or accumulated contributions, and amendments of the divorce statute to require a court to take into consideration retirement benefits and vested benefits as marital assets. Your questions will be answered seriatim.

The first question may be stated as follows:

May a member of a public retirement system involved in a divorce proceeding select a post-retirement survivor option for his or her spouse in lieu of a determination and distribution by the court of the value of the pension, annuity or retirement benefits based on service credit accrued by the employee during the marriage?

MCL 552.18; MSA 25.98, provides:

"(1) Any rights in and to vested pension, annuity, or retirement benefits, or accumulated contributions in any pension, annuity, or retirement system, payable to or on behalf of a party on account of service credit accrued by the party during marriage shall be considered part of the marital estate subject to award by the court under this chapter.

"(2) Any rights or contingent rights in and to unvested pension, annuity, or retirement benefits payable to or on behalf of a party on account of service credit accrued by the party during marriage may be considered part of the marital estate subject to award by the court under this chapter where just and equitable."

This statute was considered and applied by the court in Kilbride v Kilbride, 172 Mich App 421, 435-436; 432 NW2d 324 (1988), where it stated:

"Inasmuch as the above-mentioned statute directs the courts to treat pensions as part of the marital estate, that is to say, as property, we believe that the value of that property, the pension, must, as with any other property, be valued at the time of divorce and a fixed distribution achieved between the parties.

"To equitably distribute the pension, it is necessary for the trial court to determine the value of the pension at the time of divorce. This is achieved by reducing the pension to its present value." (Emphasis supplied.)

The court then established a lengthy step-by-step procedure to be followed to determine the present value of a pension, after which it stated:

"After going through the above steps, the amount to be distributed to the nonemployee spouse is determined and the trial court must next devise a distribution method. The preferred method is an immediate offset of assets. ... However, an immediate offset of assets is not always feasible as the present value of the pension may far exceed the remaining marital assets. ... In such cases, we leave the distribution method to the trial court's discretion to employ an appropriate method consistent with the principles outlined above.

"In any event, whatever method is employed by the trial court must be consistent with the principles that the amount to be distributed should be determined at the time of divorce and should not be influenced by any actions or decisions of the parties following the judgment of divorce. While such determinations are always difficult, they are not unknown in domestic relations matters. ... Whether that method is a future lump-sum payment, a current smaller payment coupled with installment payments, or future installment payments, or some other method, we leave that determination to the trial court's discretion. We only direct that the method employed not be dependent upon the amount of the future benefit actually paid to the employee spouse." Id at 440-441. (Emphasis added.)

Survivor options which allow a member of a public retirement system to choose from among various forms of payment of retirement allowance payments are a common feature of the several public employee retirement systems administered by the State of Michigan. See MCL 38.1385; MSA 15.893(195)--Public School Employees Retirement System; MCL 38.1523; MSA 5.4001(23)--Municipal Employees Retirement System; MCL 38.815; MSA 27.125(15)--Judges Retirement System; MCL 38.31; MSA 3.981(31)--State Employees Retirement System; MCL 38.917; MSA 27.3178(60.17)--Probate Judges Retirement System. Each of these provisions requires the election of a survivor option either prior to retirement or prior to the time at which the first retirement benefit is paid and is dependent upon the amount of years of credited service accrued by the member prior to retirement or death. It necessarily includes any service credit that may be earned after a divorce.

Under the holding in Kilbride, supra, in a divorce proceeding, an interest in a public pension, annuity, or retirement benefit is to be treated as property, its value is to be determined at the time of divorce, and a distribution of that amount is to be devised at that time. The value cannot be dependent on post-divorce actions or decisions of the parties, such as the amount of service credit accrued by the employee after the divorce, whether the employee spouse will remain in the pension system, or when that employee will retire. Additionally, any accrual of value based on service credit earned before or after the marriage may not be considered. Furthermore, the total amount of any future payment or payments must be specified numerically.

Thus, in the enactment of MCL 552.18; MSA 25.98, the Legislature did not authorize an employee member of a public retirement system who is involved in a divorce proceeding to select a survivor option for his or her spouse in lieu of the court's determination and distribution of the present value of the interest in the pension, annuity, or retirement. The public retirement system, therefore, is not required to accept the survivor option selected by the divorced employee. In the event that a court in a divorce proceeding were to order the employee to select a particular survivor option as a form of distribution of such martial asset, the employee may seek judicial review of that decision.

It is my opinion, in answer to the first question, that the value of the interest in a public pension, annuity, or retirement benefit based upon service credit accrued by the employee during a marriage should be determined by a court in a divorce proceeding as a marital asset and equitably distributed to the spouse as ordered by the court. It is my further opinion that a public retirement system is not required to accept a post-survivor option selected by an employee involved in a divorce proceeding for his or her spouse in lieu of the determination of the value and equitable distribution by the court of the employee's interest in the public pension, annuity, or retirement benefit to the spouse.

The second question is:

The judges' retirement law provides for an automatic benefit to a surviving spouse to whom the judge was married at the time of death. The benefit is equal to one-half of the amount of allowance computed according to MCL 38.814; MSA 27.125(14), based on the member's final salary and service credit. At the time of divorce, while serving as a judge, an assignment of benefits (alimony) was made to the judge's former wife as an alternative payee. He remarried and died as a retiree who elected a straight life annuity. Should the survivor's benefit for the wife he was married to at the time of his death be computed as one-half of the full retirement benefit based on the deceased retired judge's final salary and years of service or one-half of the split net benefit received by the judge after the deduction for the alimony payment based on the divorce judgment?

For purposes of analysis of this question, it must be observed that membership in the Judges Retirement System is significantly different from that of membership in the several other public employee retirement systems, in that membership in the Judges Retirement System is and always has been considered voluntary rather than compulsory. The legal consequence of this distinction requires a response conditioned on two factors. The first of these is whether the judge initially became a member of the Judges Retirement System prior to June 13, 1985, that being the effective date of the amendment to the judges' retirement statute to permit pension benefits to be considered as part of the assets of the marital estate and subject to the jurisdiction of a divorce court. The second is whether the judge in the example gave his consent to a judgment of divorce which requires the Judges Retirement System to make payments out of monthly benefit checks directly to the former spouse as alimony. (1)

In Campbell v Judges' Retirement Bd, 378 Mich 169; 143 NW2d 755 (1966), the court, in deciding whether certain amendments to the Judges Retirement System applied to judges who had retired before those amendments were implemented, stated:

"We hold that a valid contract was entered into between judges and the State, that the State's agreement thereunder to pay the judges certain benefits created vested rights for the judges upon their retirement, that these are enforceable and cannot be impaired or diminished by the State. This should be deemed to include not only the benefits provided by statute at the time of entry into the contract and of retirement, but, also, those later added by statutory amendment. The legislature may add to but not diminish benefits without running afoul of constitutional prohibition against impairment of the obligation of a contract." 378 Mich at 181-182.

Prior to its amendment in 1985, MCL 38.826(1); MSA 27.125(26)(1), provided that the rights of a judge to the annuity, optional benefits and any other rights accrued or accruing are not subject to execution, garnishment, attachment, the operation of bankruptcy or insolvency law, or any other process of law. This language precludes division of these assets in a divorce proceeding. Public School Employees Retirement Bd v Wexford Circuit Judge, 39 MichApp 568; 197 NW2d 854 (1972). Consequently, with respect to a judge who was a member of the retirement system before June 13, 1985, the amendment of MCL 38.826; MSA 27.125(26), which now provides for the award of pension benefits in divorce or child support proceedings, results in an impairment of contract, as it interferes with vested rights acquired under the contract which may not be impaired by subsequent legislation.

It follows that in the event a judge took office and became a member of the retirement system prior to June 13, 1985, and does not consent to the assignment of benefits from his or her retirement allowance, an order of the court directing such an assignment or statute which permits such an order would be subject to a challenge on the constitutional ground that it constitutes an impairment of the obligation of a contract prohibited by Const 1963, art 1, Sec. 10. However, in the event a judge consents to the entry of such an order assigning benefits to a former spouse, or commenced service as a judge after June 13, 1985, no impairment of obligation of contract issue arises and the order would be fully effective.

The survivor's benefit about which you ask is found in MCL 38.819c(1)(a); MSA 27.125(19.3)(1)(a), which provides:

"(1) If a member who has 8 or more years of service credit dies while in office or if a member dies following his retirement, the applicable following annuity shall be paid:

"(a) To the spouse. If the deceased member or retired member leaves a spouse to whom he was married at the time of his death, the spouse shall be paid an annuity equal to 1/2 the amount of annuity computed according to section 14 based on the deceased member's final salary and service credit. A spouse's annuity shall terminate upon the death of the spouse."

It is axiomatic that a statute unambiguous on its face will not be subject to further interpretation or construction by the courts. Warner v Collavino Bros, 133 MichApp 230; 347 NW2d 787 (1984). MCL 38.819c(1)(a); MSA 27.125(19.3)(1)(a), is absolutely clear in stating that the spouse to whom the judge was married when the judge died is the person who receives the stated benefits.

This section does not conflict with MCL 38.826; MSA 27.125(26), which permits the division in a divorce proceeding of benefits due to a member, nor will it require the retirement system to make payments in excess of those contemplated by its actuarial calculations.

MCL 38.826(3); MSA 27.125(26)(3), provides in pertinent part:

"If an award or order ... requires the retirement system to withhold payment of a pension, deferred pension, accumulated contributions, or other benefit from the person to whom it is due or requires the retirement system to make payment or requires the person to request that the retirement system make payment of a pension, deferred pension, accumulated contributions, or other benefit, for the purpose of meeting the person's obligations to a spouse, former spouse or child, ... the withholding or payment provisions of the award or order shall be effective only against such amounts as they become payable to the person receiving a retirement allowance. ..." (Emphasis added.)

It is clear from this language that the retirement system can only be ordered to withhold moneys from the amount due to a member or retired member of a retirement system, and then only as those amounts become due. Upon the death of a member or retired member, payments by the retirement system to that person would cease, and the retirement system would no longer have any obligation to make, or liability for, payments of alimony ordered to be made to a former spouse. This does not mean that some liability for alimony would not continue, see Welsh v Welsh, 346 Mich 292; 78 NW2d 120 (1956), just that the retirement system would have no obligation to make those payments.

It is my opinion, in answer to the second question, that the survivor benefits provided by MCL 38.819c(1)(a); MSA 27.125(19.3)(1)(a), are to be paid entirely to the spouse to whom the judge was married at the time of death.

The third question is:

Does a former spouse of a public school employees retirement system retirant who was married to the retirant at the time of retirement and designated as a retirement allowance beneficiary lose entitlement to receive a survivor's allowance because the judgment of divorce order contained a provision that the former spouse shall not have any further interest in the retirant's pension plan? If the answer to this question is in the affirmative, shall the retirant's allowance revert to a straight retirement allowance? If so, when would it be effective?

The Public School Employees Retirement Act of 1979, MCL 38.1301 et seq; MSA 15.893(111) et seq, contains no provision which specifically addresses the circumstances described in this question. By selecting one of the optional payment plans, a member agrees to accept a reduced retirement allowance in order to provide for a designated survivor upon his or her death. MCL 38.1385(1)(b), (c); MSA 15.893(195)(1)(b), (c). A member is prohibited from changing his or her election subsequent to retirement. MCL 38.1385(2); MSA 15.893(195)(2).

MCL 552.101(4); MSA 25.131(4), provides in pertinent part:

"Each judgment of divorce or judgment of separate maintenance shall determine all rights of the husband and wife in and to all of the following:

(a) Any pension, annuity, or retirement benefits.

(b) Any accumulated contributions in any pension, annuity, or retirement system.

(c) Any right or contingent right in and to unvested pension, annuity, or retirement benefits."

A survivor allowance clearly has a value and, furthermore, constitutes a benefit within the meaning of MCL 552.101(4); MSA 25.131(4). A court having the duty to equitably distribute the property in a divorce proceeding, it must be presumed that a former spouse gained other things of value in return for losing the right to a survivor benefit. The question then becomes who is entitled to the value of the survivor benefit which the spouse gave up--the retirant or the retirement system. If nothing changes, the system obviously will pay out less after the divorce than it anticipated, since it is paying reduced benefits to the retirant with no liability to pay a survivor upon the retirant's death. The Legislature did not intend such a result, since it specifically provided in MCL 38.1385(3); MSA 15.893(195)(3), that if the retirement allowance beneficiary predeceased the retirant, the retirant's benefit would revert to a straight retirement allowance beginning the first of the month following the death. Where the court orders that a retirement allowance beneficiary shall have no further interest in a retirant's pension, an analogous situation exists.

It is my opinion, in answer to the third question, that a judgment of divorce extinguishing a former spouse's interest in a retirant's pension plan is valid. It is my further opinion that the retirant's allowance should revert to a straight retirement allowance beginning the first day of the month following the date of the judgment of divorce.

The fourth question is:

If an active school employee member becomes divorced and remarries before retirement, does the second spouse have any potential rights in the event of divorce to receive a portion of the member's future retirement benefits?

As the member's future retirement benefits constitute a marital asset subject to distribution by the court, MCL 552.18; MSA 25.98, it follows that a second spouse may be entitled to a portion of the future retirement benefits for the service earned during the time of the second marriage only. However, a subsequent judgment of divorce may not make a disposition of pension benefits in excess of those to which the retirant is entitled at the time of the judgment. MCL 38.1346(5); MSA 15.893(156)(5).

It is my opinion, in answer to the fourth question, that the second spouse of a public school employee has potential rights in the event of divorce to receive as a division of the marital assets a portion of the present value of the member's future retirement benefits for the service earned during the time of the second marriage of the employee.

The fifth question is:

If a member of the Municipal Employees Retirement System becomes divorced and remarries, does the second spouse accrue any rights to receive a portion of the member's future retirement benefits in the event the member again becomes divorced?

This question raises issues no different from those posed by question 4 and is controlled by the analyses and answer provided therein.

The sixth question is:

Is a monthly survivor's allowance to a second wife subject to an earlier court order for alimony to the first wife? Example: A person retires from Michigan Public School Employees Retirement System with 30 years of accumulated service credit and elects a survivor option two [MCL 38.1385(1) ] on his second wife to whom he has been married for the last 15 years of his public school service. When he retired, alimony payments were required from his monthly allowance for his first wife to whom he was married for the first 10 years of his public school career. He dies and the monthly allowance payment is continued to his second wife.

It is assumed that in your example the retirement system has been directed by the court at the time of the divorce to pay, upon distribution of a monthly retirement benefit to the member, a portion directly to the first wife.

This question is similar to the situation described in the second question, and the same analysis applies. MCL 38.1385(1); MSA 15.893(195)(1), is clear and unambiguous in stating that the retirement allowance beneficiary shall be paid certain benefits upon the death of the retirant. MCL 38.1346(5); MSA 15.893(156)(5), provides in pertinent part:

"If an award or order ... requires the retirement system to withhold payment of a pension, deferred pension, accumulated contributions, or other benefit from the person to whom it is due or requires the retirement system to make payment or requires the person to request that the retirement system make payment of a pension, deferred pension, accumulated contributions, or other benefit, for the purpose of meeting the person's obligations to a spouse, former spouse or child, ... the withholding or payment provisions of the award or order shall be effective only against such amounts as they become payable to the person receiving a retirement allowance..."

Again, it is clear from this language that the retirement system can only be ordered to withhold moneys from the amount due to a member of a retirement system, and then only as those amounts become due. Upon the death of a member, payments by the retirement system to that person would cease, and the retirement system would no longer have any obligation to make, or liability for, alimony payments ordered to be made to the first wife.

It is my opinion, therefore, in answer to the sixth question, that a monthly survivor allowance to a second wife is not subject to an earlier court order for alimony to the first wife of the member.

Frank J. Kelley

Attorney General

(1 While your question does not specifically contemplate an order directed at the Judges Retirement System to pay a portion of the retired judge's monthly retirement allowance to the former spouse, you have supplied my office with a copy of a judgment of divorce which does so require)

 


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