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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Conner v. Conner (4/18/2003) sp-5680

Conner v. Conner (4/18/2003) sp-5680

          Notice:   This  opinion is subject  to  correction
          before   publication  in  the  Pacific   Reporter.
          Readers  are  requested to  bring  errors  to  the
          attention  of  the Clerk of the Appellate  Courts,
          303 K Street, Anchorage, Alaska 99501, phone (907)
          264-0608,     fax    (907)    264-0878,     e-mail
          corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

JERRY L. CONNER,              )
                              )    Supreme Court No. S-10273
          Appellant,               )
                              )    Superior Court No.
     v.                       )    3AN-99-10201 CI
                              )
MARGARET CONNER,              )    O P I N I O N
                              )
          Appellee.           )    [No. 5680 - April 18, 2003]
                              )


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Dan A. Hensley, Judge.

          Appearances: William T. Ford, Anchorage,  for
          Appellant.  Maurice N. Ellis, Law Offices  of
          Maurice N. Ellis, Anchorage, for Appellee.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          MATTHEWS, Justice.


I.   FACTS AND PROCEEDINGS

           After  a  marriage  of twenty-nine  years,  Jerry  and

Margaret  Conner  separated on August 13,  1999.   Their  divorce

trial was held on December 14, 2000.

           The  main  issue  in this appeal is  the  division  of

retirement benefits.  During the marriage, Jerry worked as an air

traffic  controller for the Federal Aviation Administration.   He

became  disabled  in  1995  at  the  age  of  forty-two.    Jerry

initially  took  a disability retirement, but in  1996  he  began

collecting   federal  workers'  compensation  benefits   instead,

because the workers' compensation benefits were greater and  were

tax free.  Retirement benefits were $2,428 per month, whereas the

workers'  compensation benefits were approximately  $4,100  every

four weeks.  Upon divorce, Jerry's workers' compensation benefits

were reduced to approximately $3,850 every four weeks.

           In the divorce trial, the superior court allocated  to

Margaret what would have been her monthly share of the retirement

benefits  from  the day of separation to the day of  the  divorce

trial.   This  was $19,424, one-half of $2,428 times the  sixteen

months  between  separation and trial.1  But this amount  appears

not  to  have  been  used in the trial court's ultimate  property

division  calculations.  In addition, the court awarded  half  of

Jerry's  workers' compensation payments to Margaret for the  next

four years.  After the four-year period the award to Margaret was

reduced to $1,214, one-half of the imputed retirement payments.

           During  the parties' separation, Margaret was  awarded

exclusive  use  of  the  couple's house.  Jerry  was  ordered  to

continue to make payments of $1,288 on the home equity loan  that

was secured by both the house and by their truck.  The court also

ordered  Jerry to pay interim spousal support of $750 per  month.

In  the property division, the court refused to credit Jerry  for

the  loan payments.  Jerry was awarded the truck and Margaret the

house, but the court allocated the entire remaining $50,000  debt

to  the house, thus reducing Margaret's net assets by $50,000 and

showing  Jerry's truck as free and clear.  The trial  court  also

ordered  Jerry  to designate Margaret as the sole beneficiary  of

any  life insurance he carries, and ordered the parties to  split

the  cost  of  obtaining survivor benefits for  Margaret,  should

Jerry ever elect to receive his retirement benefits.

          Jerry challenges these actions on appeal.

II.  STANDARDS OF REVIEW

     A.   Property Division

          The trial court has broad discretion to make a property

division  in the manner it determines to be most equitable;  this

court  will not overturn a property division unless it is clearly

unjust.2  A three-step process is used to divide marital assets.3

First, the court determines what specific property is available.4

Second,  the  court  values that property.5  Finally,  the  court

equitably  allocates the property.6  The division of property  is

reviewed  for abuse of discretion except that any legal questions

that  might be involved are reviewed de novo.7  An equal division

is  presumed to be most equitable absent findings that warrant an

unequal division.8

     B.   Findings of Fact

           Findings  of fact will only be set aside if  they  are

clearly  erroneous,9  that is, if this  court  is  left  with  "a

definite and firm conviction on the entire record that a  mistake

has been made."10

III. DISCUSSION

          A.    The  Superior  Court Erred in  Its  Treatment  of
          Jerry's Retirement Benefits.
          
1.                        Only  a  portion  of  Jerry's  workers'
               compensation  benefits  replaces  his   retirement
               benefits   and   only  that  portion   should   be
               classified as marital property.
               
           Jerry  argues that his workers' compensation  benefits

are  his separate property and that the superior court erred when

it  awarded one-half of these benefits to Margaret.  He is partly

correct.  Workers' compensation payments or disability retirement

payments represent income replacement.11  After divorce, they are

regarded as the separate property of the spouse to whom they  are

paid.12   In  contrast,  retirement benefits  earned  during  the

marriage  are  marital property subject to equitable  division.13

But once Jerry's pension matures,14 Margaret will be entitled  to

one-half  of  his  retirement benefits.15   Until  then,  Jerry's

workers'  compensation award is a form of income  replacement  in

which  Margaret  has no interest.  Because a portion  of  Jerry's

workers'  compensation  income will be a substitute  for  Jerry's

regular  retirement benefits after maturity of his pension,  this

portion  should  be  viewed  as  marital  property  and  divided.

Otherwise,  when  Jerry takes workers' compensation  benefits  in

lieu of matured retirement benefits, Margaret will be deprived of

a valuable marital asset.

           We  thus  hold that the imputed retirement portion  of

this  income stream must be separated from the disability-related

portion,  with  the former divided as marital  property  and  the

latter  left  as the employee spouse's separate property.   Other

courts  are  in accord.16  For example, the Washington  Court  of

Appeals  has  stated  that  if  the  employee  spouse  "would  be

receiving  retirement  benefits but for  a  disability,  so  that

disability   benefits  are  effectively  supplanting   retirement

benefits,  the disability payments are a divisible asset  to  the

extent they are replacing retirement benefits."17

          Likewise, the Supreme Court of Rhode Island held:

          [W]here the employee spouse elects to receive
          disability  benefits in  lieu  of  a  matured
          right  to retirement benefits, only  the  net
          amount  thus  received over  and  above  what
          would   have   been  received  as  retirement
          benefits    constitutes   compensation    for
          personal anguish and loss of earning capacity
          and  is, thus, the employee spouse's separate
          property.   The amount received  in  lieu  of
          matured  retirement benefits remains  .  .  .
          property subject to division on dissolution.[18
          ]
          
           It  follows that the court's allocation of $19,424  to

Margaret,  representing one-half of the retirement benefits  from

the  time  of  separation  to the time of  trial,  was  erroneous

because  the pension had not yet matured.19  However, this  error

appears  to  be  harmless because no order ever  effectuated  the

award  of  $19,424.  To the extent that the award of one-half  of

the  workers' compensation benefits for four years following  the

date  of trial represents an award of Margaret's share of pension

benefits, the award is also erroneous until the date of maturity.

But for the reasons discussed below, it is possible that some  or

all of this award may be justified on other grounds.20  At the end

of  four  years, the trial court required Jerry to  begin  paying

Margaret $1,214, half of his imputed monthly retirement benefits.

This  was  proper because Jerry's pension will have matured  when

this aspect of the order becomes effective.

2.                         Jerry's   fiftieth  birthday   is   an

               appropriate maturity date.

          Jerry contends that the applicable maturity date of the

retirement benefits should be July of 2009, when he turns  fifty-

six.   He contends that this was his earliest reasonably expected

retirement  date  because  air traffic controllers  cannot  serve

beyond  the  age  of  fifty-six.  Margaret  argues  that  Jerry's

retirement  benefits should be considered  to  be  mature  as  of

Jerry's fiftieth birthday.

           The  statute  governing Jerry's retirement  age  is  5

United  States Code  8412(e), which provides that an employee  is

entitled  to retirement benefits (1) after completing twenty-five

years  of  service  as an air traffic controller,  or  (2)  after

becoming  fifty  years  of  age and completing  twenty  years  of

service as an air traffic controller.

          Because of the disability that Jerry suffered beginning

in  1995,  he will never have twenty years of service as  an  air

traffic  controller.   But  he would have  had  twenty  years  of

service as an air traffic controller before reaching the  age  of

fifty had he not been disabled.  Therefore the earliest date that

the  parties  could  have been expected to  begin  receiving  the

pension  -  again  absent the disability -  would  have  been  on

Jerry's   fiftieth  birthday.   This  should  mark  the  earliest

possible  maturity  date and thus, the earliest  point  at  which

Margaret  had  any  expectation of realizing  benefits  from  the

pension.

           The trial court found that Jerry could have elected to

receive  retirement benefits in 1995, after he  became  disabled.

But  Jerry could only receive retirement benefits if he  did  not

receive  workers'  compensation.   Jerry  was  not  eligible  for

regular  retirement  at  the  age of  forty-two  when  he  became

disabled, or at the time of trial when he was forty-seven.  Until

the  maturity  of  his pension - 2003 at the earliest  -  Jerry's

retirement benefits are wage replacement payments.

           Use of the earliest maturity date has been found to be

proper  in  order  to  protect the nonemployee  spouse.21   While

choosing the earliest maturity date may not be required,22 it  is

not  an  error to make such a choice and it is evident that  here

the  trial  court intended to choose the earliest possible  date.

We  conclude therefore that the maturity date that should be used

in this case is Jerry's fiftieth birthday.  This is the date when

the  workers'  compensation  payments  should  be  considered  to

include pension payments that are subject to division.

3.                        The  award to Margaret may be justified
               as rehabilitative spousal support.
               
          Margaret argues that the superior court's award of one-

half of the workers' compensation benefits for four years may  be

justified as rehabilitative alimony.  Rehabilitative alimony  may

be  appropriate when one spouse is exiting the marriage with  few

job   skills  and  limited  earning  capacity.23   An  award   of

rehabilitative alimony should be designed to support  the  spouse

while  she receives the training and education necessary for  her

to become self-supporting.24

           A  number  of  the findings made by  the  trial  court

suggest  that  the  court in making the  award  in  question  was

motivated  at  least  in  part  by  considerations  relevant   to

rehabilitative  alimony.  The court noted that Margaret  did  not

pursue  a  career  during  the marriage and  instead  raised  the

parties'  two  children.  Her earning capacity  at  the  time  of

trial  was roughly $10,000 per year, and she was unable  to  find

satisfactory   year-round  employment.   Margaret  is   currently

enrolled in an engineering program from which she should graduate

in  2005,  and  Jerry  was ordered to pay  her  one-half  of  his

workers' compensation benefits until then.

           In  this case, the award was explicitly a part of  the

property division ordered by the court and the court referred  to

it  as  such.   The  needs  analysis  typically  required  as  an

accompaniment  of  an  award  of rehabilitative  alimony  is  not

reflected in the court's findings.25  We therefore conclude  that

the  four-year  award  cannot be affirmed based  on  the  current

findings.    On   remand   the   court   may   consider   whether

rehabilitative  alimony is appropriate and, if so,  may  make  an

award accompanied by appropriate findings.

B.              The  Superior  Court Did Not Err  in  Failing  To
          Separately  Allocate  the Debt on  the  Truck  and  the
          House.
          
           Jerry argues that the trial court erred by failing  to

divide the liability between the house and the truck.  The  trial

court  made Margaret responsible for paying the entire amount  of

the  note and allocated it entirely to the house.  Jerry contends

that  this  has the effect of distorting the value of  the  truck

which  was awarded to him.  In the court's calculation the  truck

was  valued  at $23,000 free and clear.  Jerry contends  that  in

reality the truck is encumbered and cannot be sold.

           Although Jerry is correct that his truck will  not  be

saleable until the note is paid, and although it would have  been

preferable to have allocated a part of the note to the truck  and

a  part  to  the  house, he did not demonstrate that  this  could

actually  be  done.26  The security holder would not  necessarily

agree to a novation releasing part of the security or one of  the

jointly  responsible parties.  Further, vehicles have value  even

if  they are not saleable, as the popularity of long-term leasing

of vehicles illustrates.  Finally, the trial court found that the

note  should be paid off within three and one-half years  of  the

hearing.   If this is done, Jerry's truck will then be  free  and

clear.  We conclude based on these considerations that the  court

did  not  err in failing to allocate some portion of the debt  to

the truck.

C.              The  Superior  Court Did Not Err by  Refusing  To
          Credit  Jerry for His Post-Separation Payments  on  the
          Parties' Mortgage.
          
          Jerry also argues that the trial court erred in failing

to  give  him credit for his interim house payments when  he  was

already required to pay interim spousal support. Trial courts are

required  to  consider  payments  made  from  one  party's  post-

separation  income  to  preserve  marital  assets,  but  are  not

required  to give credit for such payments in the final  property

division.27  This court has stated that "no fixed rule  requiring

credit  in  all cases should be imposed.  Instead . . .  payments

from  non-marital income to preserve marital property  should  be

considered as one of the circumstances to be weighed by the trial

court in dividing the marital property."28

           In  this case, the trial court specifically considered

Jerry's post-separation house payments.  The court found that due

to  the parties' disparate incomes the payments were fair and  it

refused  to  give  Jerry any credit for the  payments.   We  have

routinely  upheld  decisions where the  trial  court  has  denied

credit   for  post-separation  house  payments  because  of   the

disparity  in the parties' incomes.29  Thus, the trial court  did

not  err  in refusing to give Jerry credit for the interim  house

payments.

D.              The  Superior Court Erred in Requiring  Jerry  To
          Name  Margaret  as  the Sole Beneficiary  of  His  Life
          Insurance.
          
           The  trial  court ordered "to the extent that  [Jerry]

currently  maintains life insurance, he must designate [Margaret]

the  sole beneficiary of his life insurance.  The reason for this

is  to  protect [Margaret] in the event that [Jerry] passes  away

before  her  right to collect the retirement benefits kicks  in."

No  evidence  was  presented  at  trial  regarding  Jerry's  life

insurance.   Jerry contends that this requirement is  unnecessary

because  he  has  already  made  an  election  with  the  pension

administrator  that  Margaret shall receive  a  survivor  annuity

which  exceeds  her  current calculated share of  the  retirement

amount   in   the  event  of  his  death.   In  his  motion   for

reconsideration, Jerry submitted a letter from the federal office

of personnel management which appears to verify his position that

Margaret is adequately protected in the event of his death.

           This  court  has  held that survivor benefits  are  an

"intrinsic  part  of the retirement benefits  earned  during  the

marriage."30  Accordingly, when dividing retirement  benefits  as

part  of the marital estate, trial courts must protect a spouse's

interest  in  the  retirement benefits either by  requiring  life

insurance  or  by  including a clause in the  qualified  domestic

relations order (QDRO) requiring that survivor benefits  be  paid

to that spouse.31

           In  this  case,  the  trial court  ordered  both  life

insurance  and survivor benefits to protect Margaret's  share  of

Jerry's  retirement benefits without adequate findings to support

such  an  order.32          Second, the trial court also  ordered

Jerry  to designate Margaret as the sole beneficiary on any  life

insurance  Jerry maintains "to protect [Margaret]  in  the  event

that  [Jerry]  passes  away  before  her  right  to  collect  the

retirement  benefits  kicks in."   It would be  inappropriate  to

require  Jerry  to name Margaret as the sole beneficiary  of  any

life  insurance policy if she is already adequately protected  by

the  survivor  annuity.   On remand, we believe  that  the  court

should  reconsider  requiring  life  insurance  in  view  of  the

evidence that indicates that it is not needed.

IV.  CONCLUSION

           REVERSED and REMANDED for further proceedings in light

of this opinion.

_______________________________
1The  trial  court  made its calculations based  on  the  sixteen
months  between the separation and divorce (1,214 x 16 =  19,424)
but mistakenly said it was basing its calculations on a fourteen-
month period.
2Broadribb  v.  Broadribb,  956 P.2d  1222,  1225  (Alaska  1998)
(quoting Cox v. Cox, 882 P.2d 909, 913-14 (Alaska 1994)).
3Wanberg v. Wanberg, 664 P.2d 568, 570 (Alaska 1983).
4Id.
5Id.
6Id.
7Johns  v.  Johns,  945  P.2d 1222, 1225 (Alaska  1997)  (quoting
Lundquist v. Lundquist, 923 P.2d 42, 47 (Alaska 1996)); Cox,  882
P.2d at 913.
8McDougall v. Lumpkin, 11 P.3d 990, 993 (Alaska 2000).
9Alaska R. Civ. P. 52(a).
10Dunn v. Dunn, 952 P.2d 268, 270 (Alaska 1998) (internal citation
omitted).
11Miller v. Miller, 739 P.2d 163, 165 (Alaska 1987).
12Id.
13Edelman v. Edelman, 3 P.3d 348, 356 (Alaska 2000).
14Maturity  refers to the earliest point at which the worker  can
receive  retirement benefits.  See Laing v. Laing, 741 P.2d  649,
655 n.8 (Alaska 1987).
15We  refer here to the payment-upon-receipt method for  dividing
pension payments.  This method was used by the trial court.   The
other  method is to calculate the marital property portion  of  a
pension's  present  value  and take  that  into  account  in  the
property division.  Id. at 656-57.
16See  Levy  v. Office of Pers. Mgmt., 902 F.2d 1550  (Fed.  Cir.
1990) (applying California law and holding that the component  of
a  disability  pension that is based on longevity of  service  is
subject to division but the remainder is the disability component
and is separate property); Villasenor v. Villasenor, 657 P.2d 889
(Ariz. App. 1982) (separating the "disability component" from the
"retirement  component" of a civil service disability  retirement
annuity);  In  re  Marriage of Castor, 817 P.2d 665,  669  (Mont.
1991)  (civil  service  disability  pensions  can  have  both   a
"retirement"  component and a "disability"  component,  here  the
annuity was characterized as "retirement" benefits); Ciliberti v.
Ciliberti,  542  A.2d 580 (Pa. Super. 1988) (where  part  of  the
disability  pension  represents retirement  benefits,  that  part
remains  marital  property subject to distribution);   Allard  v.
Allard,  708  A.2d  554  (R.I. 1998) (a disability  pension  that
serves to replace a retirement pension is divisible to the extent
that   it   replaces  the  retirement  portion).   Allard   lists
additional jurisdictions in accord.  Id. at 558.
17In re Marriage of Geigle, 920 P.2d 251, 255 (Wash. App. 1996).
18Allard,  708 A.2d at 558 (quoting In re Marriage of  Stenquist,
582 P.2d 96, 101 (Cal. 1978)).
19See discussion infra A.2.
20See discussion infra A.3.
21A Massachusetts court stated:

          [The  nonemployee  spouse]  argues  that  for
          purposes  of computing present value  in  the
          context  of  divorce  proceedings,  a   court
          should    assume   the   earliest    possible
          retirement  date  for  the  spouse  with  the
          pension.   Some  courts have thought  this  a
          sound  principle.   See  In  re  Marriage  of
          Gillmore,  629  P.2d  1 (1981).   The  point,
          adverted to in the Gillmore opinion  at  424-
          425,  is  that the spouse with the retirement
          benefits  should  not be able  to  manipulate
          them to impair the other spouse's benefits.
          
Dewan   v.  Dewan,  566  N.E.2d  1132,  1134  (Mass.  App.  1991)
(citations omitted).

22See id.  "In general, fair value analysis assumes norms. . .  .
There  is no distortion if a judge chooses a retirement age  that
is  the norm" rather than "the earliest possible retirement age."
Id.
23See Myers v. Myers, 927 P.2d 326, 329 (Alaska 1996).
24Id.  at 329 (citing Ulsher v. Ulsher, 867 P.2d 819, 822 (Alaska
1994)).
25See  AS  25.24.160(a)(2).  See, e.g., Dixon v. Dixon, 747  P.2d
1169,  1174  (Alaska 1987) (remanding case for specific  findings
because  spouse's "vague education plans" did not  support  trial
court's  award of rehabilitative alimony); Miller v. Miller,  739
P.2d  163,  165  (Alaska 1987) (rejecting  alimony  award  absent
specific findings as to whether wife intended to use alimony  for
job  training);  Carlson v. Carlson, 722 P.2d  222,  225  (Alaska
1986)  (requiring trial court to reconsider alimony award and  to
state  reasons  for its decision); see also Jones v.  Jones,  835
P.2d  1173,  1178_79 (Alaska 1992) (requiring superior  court  to
make  specific findings regarding spouse's financial  needs  when
awarding spousal support).
26Jerry asserted at trial that he had researched dividing the note
and  that  it could be done, but he failed to provide  the  court
with a practical method to accomplish the division.
27Ramsey v. Ramsey, 834 P.2d 807, 809 (Alaska 1992).
28Id.
29Dodson  v.  Dodson, 955 P.2d 905, 912 (Alaska 1998)  (upholding
trial  court's  refusal  to grant credit  to  husband  for  post-
separation   house  payments  because  the  parties  had   highly
disparate  incomes); Harrelson v. Harrelson, 932  P.2d  247,  253
(Alaska 1997) (same).
30Zito  v.  Zito,  969  P.2d 1144, 1147 (Alaska  1998)  (internal
quotations and citation omitted).
31See McDougall v. Lumpkin, 11 P.3d 990, 996 (Alaska 2000) ("Here,
[the wife] either needs life insurance to protect her interest  .
.  .  or  a  clause  in  the  QDRO  [ensuring  her  the  survivor
benefits].").
32First,  the trial court's order dividing the federal retirement
plan  awards Margaret the maximum former spouse survivor annuity,
plus  100% of the balance of any retirement funds if Jerry should
die,  plus  the  maximum death benefit as allowed  by  law.   The
court's  order  and findings also state that if  and  when  Jerry
elects  to  receive his retirement pay, Margaret and  Jerry  will
split  equally  the  costs  of obtaining  survivor  benefits  for
Margaret.