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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Tanghe v. Tanghe (06/24/2005) sp-5910

Tanghe v. Tanghe (06/24/2005) sp-5910

     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

GARY G. TANGHE,		)
                               		)   Supreme Court No. S-11222
               Appellant,      	)
                               		)   Superior Court No.
     v.                        		)   3AN-02-12051 CI
                               		)
JACKIE D. TANGHE,              	)   O P I N I O N
                               		)
               Appellee.       	)   [No. 5910 - June 24, 2005]
                               		)


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Mark Rindner, Judge.

          Appearances:   Bruce  A. Bookman,  Bookman  &
          Helm,  Anchorage,  for Appellant.   Karla  F.
          Huntington, Anchorage, for Appellee.

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

          MATTHEWS, Justice.

          The  main issue in this case is whether the marital and

separate   property  components  of  a  401(k)  plan  should   be

determined  by  using  a coverture fraction  or  by  tracing  the

earnings  of  the separate property component.  We conclude  that

the  latter method should be used because it is accurate and  the

former  is  not.   A  second issue is whether  survivor  benefits

payable under a qualified domestic relations order (QDRO) must be

capitalized  based  on  the longer life expectancy  of  the  non-

employee  spouse.  We conclude that they need not be  capitalized

because doing so places an unfair risk on the non-employee spouse

and is inconsistent with the wait and see approach underlying the

use of QDROs.

          Gary  and Jackie Tanghe were married on April 4,  1992,

and  they separated on September 13, 2002.  During the period  of

coverture  they were both employed by CSX.  After they  separated

Gary  took  early  retirement.  At the time of trial  Jackie  was

forty-seven  years old and was earning a salary of  approximately

$90,000.   Gary  was  ten years older and  despite  taking  early

retirement  was  still  employed and earning  a  salary  of  some

$100,000.

          Gary  challenges  a number of aspects of  the  superior

courts  property division.1  We determine most of them summarily.

But the two issues noted above require discussion.  We turn first

to the question of capitalization of survivor benefits.

Capitalization of Survivor Benefits

          Gary  and  Jackie  both  have defined  benefit  pension

accounts  through  CSX.  Because the parties were  still  married

when  Gary  retired from CSX, Gary was required either to  obtain

Jackies consent to a waiver of benefits or to designate Jackie as

his  surviving spouse to receive at least fifty percent  of  what

Gary  would receive at his death.  Gary elected the fifty percent

survivor  option for Jackie and Jackie agreed to  elect  a  fifty

percent survivor option for Gary when she retired.  Both pensions

were  divided  by  the  trial  court into  marital  and  separate

portions  and,  under court-ordered QDROs, the  marital  portions

will  be  equally divided as they are paid.  This arrangement  is

not contested.

          Gary  argues that according to actuarial tables  Jackie

will  live  12.4  years longer than he.  If reality  matches  the

tables Jackie will receive half of Garys pension, some $1,409 per

month,  after he dies.  She would also receive during that period

half  of  the marital value of her own pension  representing  the

amounts that were previously being paid to Gary.  According to an

expert  witness, when capitalized, Jackies survivorship  interest

in  Garys  pension  is worth about $52,000 and  her  reversionary

interest  in  her own pension after the projected date  of  Garys

          death is worth about $13,000.  Gary argues that the court should

have  assigned values for these interests to Jackies side of  the

ledger.

          The  trial  court rejected Garys argument, finding  the

eventuality  of Ms. Tanghe receiving the benefit too  speculative

to include in the marital estate.

          Gary relies on the cases of Zito v. Zito2 and Broadribb

v.  Broadribb3 for the proposition that spouses are presumptively

entitled to survivor benefits because they are an intrinsic  part

of  the  retirement benefits earned during the marriage. 4   That

proposition  is  not  in  doubt.  But the question  presented  is

whether  it  is error to decline to value contingent survivorship

benefits  that  are  included in a  QDRO.  As  to  this  question

Broadribb offers no guidance.  The survivor benefit there was not

contingent.   It  was the equivalent of a vested  life  insurance

policy5  and it relieved the husband from the need to  buy  other

insurance  on his life.  Zito is more relevant, but it  does  not

help  Gary.  There we held that a QDRO dividing the marital share

of  the  husbands retirement benefits should also  have  included

survivorship benefits in case the husband died before the  wife.6

This  is consistent with what was done in the present case.   But

we  did not suggest that the value of the benefits in Zito should

have  been  capitalized  and credited to  the  wifes  account  in

addition to being included in the QDRO.

          The  income streams in the present case will have value

for  Jackie  only  if Gary dies before she does.   This  type  of

survivor benefit resembles a nonvested pension because one  party

bears  all  the risk that the benefit may never be realized.   In

Laing  v.  Laing,  we  rejected  the  capitalization  method  for

nonvested pensions.7  Since the non-employee spouse receives  his

or  her  share in a lump sum at the time of divorce,  the  method

unfairly  places all risk of possible forfeiture on the  employee

spouse.8   Similarly,  in  the present case,  the  capitalization

method  would  place  the  risk of not  outliving  Gary,  or  not

          outliving him by 12.4 years, on Jackie.

          Garys  argument  that  the  survivorship  benefits   be

capitalized  is inconsistent with the QDRO method of distribution

adopted  by  the  court.  The QDRO method does  not  require  the

valuation  of funds being distributed.  Unlike the capitalization

method  advocated  by Gary, which requires the  use  of  discount

rates   and  mortality  tables,  the  QDRO  method  simply  links

distributions to events as they occur.

          Gary  is  correct in suggesting that what may at  first

glance appear to be an equal division of pension benefits under a

QDRO might actually be unequal because of the differences in life

expectancy  of  the  parties.  That seemed  to  be  the  case  in

Nicholson  v.  Wolfe,9 where the older husband  argued  that  his

share of the wifes pension should be capitalized and paid to  him

in a lump sum rather than in a QDRO because he would probably not

live long enough to receive much in the way of benefits from  the

QDRO.   We upheld the QDRO method of distribution in that case.10

Among  our  reasons was the fact that the risk of not benefitting

from  his  wifes pension was the same risk that the  husband  had

faced  during  the marriage, given the parties age differences.11

This risk was not increased by the QDRO.

          Here,  as in Nicholson, the use of QDROs did not  alter

the parties pre-divorce chances of benefitting from their spouses

pensions.   That  may not be a complete answer to Garys  argument

that  he  has gotten the short end of the division of the parties

pensions.  But it is good enough, in our view, when combined with

the  convenience  of  the QDRO method and the potentially  unfair

risk  that capitalization would impose on Jackie, to lead  us  to

conclude that the court did not abuse its discretion in declining

to capitalize the survivor benefits that Jackie may receive under

the QDRO.

Determination of the Marital Portion of 401(k) Plans

          Both  Gary  and  Jackie  contributed  to  401(k)  plans

through CSX before and during the marriage.  At the time of trial

          the balance in Garys account was $648,473 and the balance in

Jackies  account  was $302,548.  Gary began contributing  to  his

plan  in  February of 1982 and Jackie started her  plan  a  month

later.

          Early  statements for Jackies 401(k) plan were missing.

The  earliest  documents available were issued one  and  one-half

years  into  their  marriage.  Gary had written down  information

from  the missing statements in order to calculate the growth  of

each  investment  over time.  He testified that he  returned  the

originals to Jackies son, but Jackie claimed she could  not  find

them.   While  the originals were missing at the time  of  trial,

Garys  written  record of them was available.   The  trial  court

found that Gary had a total of 256 months in his plan, Jackie had

254  months  in hers, and that both parties had 125.5  months  of

marital participation.  The court prorated the funds according to

the  resulting coverture fractions.  Thus, 49% of Garys plan  and

49.4%  of  Jackies  were found to be marital property.   Applying

these  percentages to the current balance of each plan, the court

determined  $317,751 of Garys plan to be marital and $149,450  of

Jackies.

          Gary takes issue with the courts method.  He notes that

at  the  beginning of the marriage he had $212,886 in his  401(k)

account.   This was separate property, and the earnings  on  this

amount  during  the  marriage were also  separate  property.   He

contends  that the court should have traced the earnings  on  the

separate  property  in  the  account through  the  years  of  the

marriage.   When  this  is  done, the separate  funds  and  their

earnings  can be subtracted from the total amount in the  account

in  order  to  yield the portion of the account that  is  marital

property.   The court recognized that applying this method  would

result  in  Garys 401(k) having a marital portion worth $174,195,

in  contrast to the $317,751 allocated by the court when using  a

straight time proration.

          We agree with Gary that in a defined contribution plan,

as  distinct from a defined benefits plan, proration by funds  is

the  accurate  method  for distinguishing marital  from  separate

property.   Calculating  the marital portion  of  a  401(k)  plan

through  the  use of a coverture fraction assumes equal  periodic

contributions  and  an equal periodic rate  of  return.   Neither

assumption  is  likely to be accurate.  Further,  even  if  these

assumptions were accurate, the time proration method would  still

yield  distorted  results because it ignores compounding.   These

are  flaws  that can result in errors of considerable  magnitude.

To  use  this  case  as  an example, the  time  proration  method

overstates the marital portion of Garys account by $143,556.

          The  leading text on property divisions recognizes that

the  appropriate method for the valuation of the marital  portion

of non-defined benefit plans is the proration by funds method:

               Proration   by  funds  is   always   the
          preferred  method  for allocating  retirement
          benefits, as proration by time (the basis for
          the coverture fraction) assumes that the same
          contributions are made in each and every year
          of  employment  an assumption which is untrue
          in the great majority of cases.  Proration by
          time  is used for defined benefit plans  only
          because  the  complex nature  of  such  plans
          makes   proration  by  funds  impossible   to
          implement.[12]
          
The  few  cases that have ruled on this subject are generally  in

accord.13

          The  trial  court did not directly disagree with  Garys

argument as to how the marital portion of his 401(k) plan  should

be  determined.  Instead, the court focused on the fact that  the

original  statements for Jackies plan were missing for the  first

one  and a half years of their marriage.  According to the court,

the  absence  of  these  statements  made  accurate  use  of  the

proration  by  funds method as to Jackies plan  impossible.   The

court concluded that this justified using a time proration method

as to both plans.

          We  do not agree that the absence of a year and a halfs

information concerning Jackies plan would justify using a  method

          that yields a manifestly inaccurate result as to Garys plan.

There  is  no  indication  that  Gary  should  be  charged   with

responsibility  for  the lack of information  concerning  Jackies

plan.

          Further, the difficulties in using a proration by funds

method  for Jackies plan seem overstated.  Garys written  records

of  the  missing statements were not challenged as  to  accuracy.

His  records show that the allocations that Jackie made among the

seven investment vehicles14 available under the plan for the years

in  question, 1992 and 1993, were the same as those she made  for

1994,  the  first year for which original records are  available.

Further,  according to Garys records Jackies rate of  return  for

each  year  was  favorable from the standpoint of increasing  the

separate  property component of her plan.  In 1992  her  rate  of

return is shown to be about 9%, whereas his was about 8%, and  in

1993  her  rate of return was about 11%, approximately  the  same

rate  that he achieved during that year.  Thus there seems to  be

nothing inherently unreliable about Garys records.15

          We  conclude  that  the  court erred  in  dividing  the

separate  from the marital components of Garys 401(k)  plan.   We

recognize  that  there  may  be  instances  in  which  so  little

information is available about the parties contributions to their

401(k)  plans  that  application of  the  coverture  fraction  is

warranted,16  but  this  is  not such  a  case.   On  remand  the

components of the plan should be divided using a funds  proration

method.   With respect to Jackies plan we believe that the  court

should  also use a funds proration method in order to divide  its

separate and marital components.  In accomplishing this the court

may  use  Garys records if it finds them credible, or it may  use

other  evidence  including reasonable extrapolations  from  known

facts.   The superior court should choose the same starting  date

for  each  party, even if the court is working with Garys  actual

records and extrapolating from Jackies later records.

Other Issues

          Gary raises a number of other issues.  We conclude that

none  of  them  requires  reversal and  determine  each  of  them

summarily.  They are briefly discussed in the margin.17

          For  the  above reasons the judgment in  this  case  is

affirmed  except as to the allocation of the marital and separate

property components of the parties 401(k) plans.  With respect to

Garys 401(k) plan the allocation is reversed and with respect  to

Jackies  plan the allocation is vacated.  This case  is  remanded

for further proceedings consistent with this opinion.

          AFFIRMED  in  part, REVERSED and VACATED in  part,  and

REMANDED for further proceedings.

_______________________________
     1     The  standards  under which we  review  the  arguments
presented are as follows:

               The trial court has broad discretion  in
          fashioning a property division in  a  divorce
          action.  This court reviews the trial  courts
          determination of what property  is  available
          for distribution under an abuse of discretion
          standard.   If  in the course of  determining
          what  property is available the  trial  court
          makes   any   legal   determinations,    such
          determinations  are  reviewable   under   the
          independent judgment standard.  All questions
          of  law are reviewed de novo with this  court
          adopting  the  rule  of  law  that  is   most
          persuasive in light of precedent, reason  and
          policy.   However, the trial courts  findings
          that  the  parties intended to treat property
          as  marital  are  disturbed only  if  clearly
          erroneous.    The  valuation   of   available
          property  is  a  factual  determination  that
          should be reversed only if clearly erroneous.
          The  equitable  allocation  of  property   is
          reviewable   under  an  abuse  of  discretion
          standard  and will not be reversed unless  it
          is clearly unjust.
          
Cox  v.  Cox,  882  P.2d  909, 913-14  (Alaska  1994)  (citations
omitted).

     2    969 P.2d 1144, 1147 (Alaska 1998).

     3    956 P.2d 1222, 1227 (Alaska 1998).

     4     Zito, 969 P.2d at 1147 (quoting Wahl v. Wahl, 945 P.2d
1229, 1231 (Alaska 1997)).

     5    Broadribb, 956 P.2d at 1227.

     6    Zito, 969 P.2d at 1147-48.

     7    741 P.2d 649, 657 (Alaska 1987).

     8    Id.

     9    974 P.2d 417 (Alaska 1999).

     10    Id. at 426.

     11    Id.

     12    See Brett R. Turner, Equitable Distribution of Property
6.10, at 523 (2d ed. Supp. 2004).

     13    See In re Marriage of Hester, 856 P.2d 1048, 1049 (Or.
App. 1993) (When the value of a particular plan is determined  by
the amount of employee contributions, application of [a coverture
fraction]  could  result  in  a  division  of  property  that  is
demonstrably inequitable.); Paulone v. Paulone, 649 A.2d 691, 693-
94 (Pa. Super. 1994) (rejecting the use of the coverture fraction
and  adopting an accrued benefits test for the distribution of  a
defined contribution plan); Smith v. Smith, 22 S.W.3d 140, 148-49
(Tex.  App.  2000)  (finding that it was  incorrect  to  apply  a
coverture  fraction to a defined contribution account);  Mann  v.
Mann,  470  S.E.2d  605,  607 n.6 (Va. App.  1996)  (Applying  [a
coverture] fraction to a defined contribution plan could lead  to
incongruous  results,  and  such an  approach  is  not  generally
used.); Bettinger v. Bettinger, 396 S.E.2d 709, 718 (W. Va. 1990)
(rejecting the use of a discounted present value calculation  for
division  of a defined contribution plan because no consideration
was  given  to  the  fact  that the fund  was  earning  interest)
(quotation marks omitted).

     14     The  investment vehicles available consisted of  five
widely  available mutual funds, a guaranteed interest  fund,  and
CSX  stock.  Their rates of return for the years in question  are
known.

     15    Further, Gary would have had no reason to suspect that
the  information  he  copied  down  would  not  be  independently
verifiable  from original statements retained by  Jackie  or  the
plan administrator.

     16     See  Taylor v. Taylor, 12 S.W.3d 340, 346  (Mo.  App.
2000)   (applying  coverture  fraction  where  no  records   were
presented from partys 401(k) plan).

     17     Reimbursement of the Marital Estate for Taxes Paid on
Garys  Separate Property.  We reject Garys claim that  the  trial
court erred in requiring him to reimburse the marital estate  for
some $5,650 in taxes that the marital estate paid on his separate
property.  Although the court should have made findings  on  this
subject, no remand for findings is necessary because Gary  agreed
in  principle  at  trial with the proposition  that  the  parties
should  reimburse the marital estate for marital funds  spent  on
separate assets.

          Failing   To   Credit   the  Cost  of   Post-Separation
Improvements  Made  to  the  Marital  Home  from  Garys  Separate
Property.   Gary  claims that he paid $24,449 in  post-separation
marital  expenses, including some $7,109 used  in  replacing  the
deck on the marital home.  To pay for these and other expenses he
withdrew  some  $15,000 in marital funds, leaving  a  balance  of
$9,449  of  separate  income  that he spent  for  post-separation
expenses.   The  trial  court found that the  money  he  used  to
rebuild  the deck came from the $15,000 withdrawal.  This finding
is  not  clearly erroneous.  In order to make an effective  claim
for  reimbursement  Gary  would have to demonstrate  a  right  to
reimbursement    for   all   of   the   claimed   post-separation
expenditures, rather than just those concerning the deck.  He has
not attempted this.

          Transmutation  of  the  Kenai Cabin.   Given  the  very
substantial marital funds and marital efforts that were  used  to
maintain and improve this property, the trial court did  not  err
in  concluding  that  the  cabin was properly  considered  to  be
marital in character.

          Finding  that  a Fifty/Fifty Division of  Property  was
Appropriate.   The  record shows that the  court  considered  the
factors  relevant to the question as to how the marital  property
should be divided and did not consider any improper factors.  The
courts conclusion that an equal division of marital property  was
appropriate was not an abuse of discretion.