Gordon v. Gordon , 425 P.3d 142 ( 2018 )

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, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
GREGORY GORDON, )
) Supreme Court No. S-16639
Appellant, )
) Superior Court No. 3KN-13-00583 CI
v. )
) OPINION
PATRICIA GORDON, )
) No. 7273 – August 10, 2018
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Kenai, Anna Moran, Judge.
Appearances: Noah H. Mery, Gilman & Pevehouse, Kenai,
for Appellant. William Walton, Walton, Theiler &
Winegarden, LLC, Kenai, for Appellee.
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger,
and Carney, Justices.
BOLGER, Justice.
I. INTRODUCTION
The superior court issued a decree divorcing Gregory Gordon and Patricia
Gordon and dividing the marital estate. One of the largest components of the marital
estate was a retirement medical benefit earned by Patricia during the marriage through
her employment with the State of Alaska. The superior court found that the benefit was
entirely marital, but the court concluded that including the full value of the benefit in the
marital estate (which the court determined should be divided 50/50) would result in a
“windfall” to Gregory. The court therefore applied “the coverture fraction as if [Patricia]
had remained working for the State” — even though Patricia had in fact quit her job with
the State during the marriage.
We agree with Gregory’s argument that the court erred in applying this
adjusted coverture fraction. The coverture fraction is used to determine what part of a
retirement benefit is marital property and what part is separate property. It should not
be used to discount the value of marital property or as a guideline for equitably dividing
marital property. The superior court should have characterized the retirement medical
benefit as marital or separate in accordance with the actual coverture fraction, valued the
benefit at its full value, and divided the marital estate — including the retirement medical
benefit — between the parties according to the statutory equitable factors. We therefore
reverse the court’s equitable distribution of the marital estate and remand for further
consideration.
II. FACTS AND PROCEEDINGS
Gregory and Patricia married in 2000 and separated in 2013 following a
domestic violence incident. For much of the marriage — from 2001 until shortly before
the parties’ separation — Patricia worked for the State of Alaska.1 During that time,
Patricia was enrolled in the Public Employees’ Retirement System (PERS) and earned
a pension and a retirement medical benefit. Patricia earned these benefits entirely during
the marriage, and the benefits vested during the marriage.
1
Actually, Patricia worked for both the City of Kenai and the State. For ease
of reference, in this opinion we refer to her employment as only being with the State.
-2- 7273
Patricia filed for divorce soon after the parties’ separation, and the superior
court held a trial over several days in May, June, and August 2016. A major point of
contention at trial was Patricia’s PERS medical benefit.
Financial planner Sheila Miller gave expert testimony on the value of the
PERS pension and medical benefits. She estimated the present value of the pension at
$154,727 and the present value of the retirement medical benefit at $195,610. Reports
outlining Miller’s assumptions and methodology were admitted into evidence.
Miller also testified about the mechanics of equitably distributing the value
of the PERS benefits. Patricia was 42 years old at the time the trial ended and would not
be eligible to receive the pension and medical benefit until she turned 60, the applicable
retirement age. Moreover, the medical benefit was personal to her, and she could not
share it with Gregory or sell it. Miller suggested that the superior court could divide the
PERS pension and medical benefits using a qualified domestic relations order (QDRO).2
Assuming “a 50/50 division,” Miller testified that the QDRO would assign Gregory a
share of Patricia’s monthly pension payment equal to 50% of the monthly pension
payment plus 50% of the value of Patricia’s monthly medical benefit. Because the
medical benefit and pension were of comparable value, Miller’s proposed QDRO would
as a practical matter assign “basically . . . all of the” pension to Gregory, leaving Patricia
with the medical benefit.3
2
See Laing v. Laing, 741 P.2d 649, 658 (Alaska 1987) (“[A] ‘qualified
domestic relations order’ (QDRO) can be filed with the administrator of the employee
spouse’s pension plan. If and when the employee spouse’s pension vests and matures,
the plan administrator makes appropriate payments directly to the non-employee former
spouse in accordance with the QDRO.” (citation omitted)).
3
For example, in one post-retirement year, the health benefit is worth
approximately $1,800 per month and the pension worth approximately $1,130 per
(continued...)
-3- 7273
Patricia addressed the PERS benefits in her testimony, as well. She stated
that she would prefer to withdraw her PERS contributions — worth approximately
$64,000 — immediately and have these contributions divided between the parties, even
though doing so would result in forfeiture of her retirement health benefit and the
employer contributions to her pension. She explained that she did not want the medical
benefit if she would have to assign practically all of her pension to Gregory.
Following trial, the superior court issued a divorce decree with
accompanying findings of fact and conclusions of law. Among other things, the decree
distributed the marital estate. The court began its equitable distribution analysis by
discussing some of the factors listed in AS 25.24.160(a)(4), including the parties’
respective ages, health issues, work histories, educational backgrounds, earning
capacities, and finances.4 Based on these factors, the court determined that a “50/50
3
(...continued)
month, and thus under a 50/50 division, Gregory would be entitled to $900 + $565 =
$1,465 per month. The proposed QDRO would assign Gregory the entire $1,130
pension, and Patricia would pay Gregory $335 out of pocket to cover the balance. In
another year, Patricia’s medical benefit is worth about $1,000 per month and her pension
around $1,160 per month, and thus the QDRO would assign Gregory $500 + $580 =
$1,080 of the monthly pension payment. Patricia would not have to pay Gregory
anything out of pocket, but he would receive almost all of the pension payment.
4
The AS 25.24.160(a)(4) factors are:
(A) the length of the marriage and station in life of the
parties during the marriage;
(B) the age and health of the parties;
(C) the earning capacity of the parties, including their
educational backgrounds, training, employment skills, work
experiences, length of absence from the job market, and
custodial responsibilities for children during the marriage;
(continued...)
-4- 7273
property division [was] appropriate.”
The superior court then proceeded to discuss the parties’ principal assets.
It identified “the valuation and division of [Patricia’s] medical retirement benefit” as the
“most difficult and contentious issue” in the case. The court determined that Patricia’s
PERS medical benefit was marital property as it was “earned during the marriage,” and
the court calculated that a 50/50 division of the marital estate would result in Patricia
“ow[ing] [Gregory] $97,805 [i.e., half of $195,610] for his portion of the medical
retirement benefit.” The court stated that such a division would be inequitable and would
constitute “a windfall” to Gregory. The court noted Miller’s suggestion that Patricia
“reimburse [Gregory] for his portion of the medical retirement benefits” by “giv[ing] him
her full PERS [pension].” But the court found this option problematic as it “would leave
[Patricia] with no retirement except for medical benefits.”
4
(...continued)
(D) the financial condition of the parties, including the
availability and cost of health insurance;
(E) the conduct of the parties, including whether there has
been unreasonable depletion of marital assets;
(F) the desirability of awarding the family home, or the
right to live in it for a reasonable period of time, to the party
who has primary physical custody of children;
(G) the circumstances and necessities of each party;
(H) the time and manner of acquisition of the property in
question; and
(I) the income-producing capacity of the property and the
value of the property at the time of division.
-5- 7273
The court discussed Hansen v. Hansen5 and Engstrom v. Engstrom,6 cases
addressing application of a coverture fraction to retirement medical benefits.7 After
summarizing the cases, the superior court concluded that “[t]he coverture fraction
discussed in Hansen and Engstrom does not technically apply because [Patricia] no
longer works for the State of Alaska.” The court also concluded that “[t]o date, the
Alaska Supreme Court has not addressed th[e] precise issue” of how to prevent “marital
retirement benefits that vest during a marriage from becoming a windfall to the other
spouse if the court cannot use the coverture fractions suggested in Hansen and
Engstrom.”
The superior court reasoned, however, that it had power as a “court of
equity” to craft a solution in light of “the financial condition of the parties, the conduct
of the parties, including any conduct causing the unreasonable depletion of assets, [and]
the circumstances and necessities of the parties” — factors set forth in
AS 25.24.160(a)(4). The court proceeded to consider these factors and ultimately
determined that an “equitable approach would be to award [Gregory] $34,407 for his
portion of [Patricia’s] medical retirement [benefit].” The court explained:
The court reached this figure by using, as a guideline, the
coverture fraction as if [Patricia] had remained working for
the State of Alaska. If [Patricia] had continued to work for
5
119 P.3d 1005 (Alaska 2005).
6
350 P.3d 766 (Alaska 2015).
7
The coverture fraction is “the portion of [a retirement benefit] which the
law deems to have been acquired during the marriage.” 2 BRETT R. TURNER, EQUITABLE
DISTRIBUTION OF PROPERTY § 6:25, at 149 (3d ed. 2005). It is calculated by dividing the
number of years that a spouse worked during the marriage for the employer who is
providing the benefit by the total number of years that the spouse worked for the
employer. Engstrom, 350 P.3d at 770-71.
-6- 7273
the State of Alaska until age 60 she would have had 33 years
of service. The marital or coverture portion would be 11.6
years [based on Patricia’s employment between 2001 and
2013]. Using the coverture fraction of 11.6 years over 33
years of service means the [marital] portion would be 35% of
the medical retirement benefit. Under this analysis, the
marital share of the medical retirement benefit equals
[$68,8158] and [Gregory’s] one half-share would be $34,407.
Thus, the superior court effectively awarded Gregory 18% of the PERS medical benefit
and Patricia 82% of the benefit.
The court divided the rest of the marital estate, including the PERS pension,
50/50. By splitting the PERS medical benefit 18/82 and the rest of the marital estate
50/50, the court effectively awarded Gregory 41% of the estate and Patricia 59% of the
estate (accepting Miller’s valuations of the PERS benefits).
Gregory now appeals. He argues that the superior court “erred in
characterizing [the] PERS medical retirement benefits as a ‘windfall’ ” and in
determining “that the coverture fraction ‘does not technically apply.’ ” He further argues
that the court erred in “imput[ing] an additional 21.4 years of theoretical” employment
to Patricia, thus reducing “the coverture . . . from 100% to 35%.” He contends that the
court should have considered the full value of the PERS medical benefit in dividing the
marital estate 50/50.
III. STANDARD OF REVIEW
The equitable distribution of a marital estate is a three-step process. First,
the trial court “determin[es] what property is available for distribution” — that is, the
8
In its analysis, the superior court stated that the marital share is $68,615.
But we substitute $68,815 because this is the value the superior court provided in its
property table and is more consistent with the court’s determination that Gregory’s “one
half-share would be $34,407.”
-7- 7273
court characterizes property as marital or separate.9 Second, the trial court values the
property.10 And third, the trial court “divid[es] the property equitably.”11
The first step — the characterization of property as marital or separate —
may require the trial court to make factual findings concerning “the parties’ intent,
actions, and contributions to the marital estate.”12 We review these factual findings for
clear error, “but whether the trial court applied the correct legal rule . . . is a question of
law that we review de novo.”13 “The second step, valuation of assets, is a factual
determination that we review for clear error.”14 “We review the trial court’s third step,
the equitable allocation of property, for an abuse of discretion.”15 We will find an abuse
of discretion if the division was “based on a clearly erroneous factual finding or mistake
of law,” or if the division was “clearly unjust.”16
9
Horning v. Horning, 389 P.3d 61, 63-64 (Alaska 2017) (quoting Limeres
v. Limeres, 320 P.3d 291, 296 (Alaska 2014)).
10
Id. at 63.
11
Id. (quoting Limeres, 320 P.3d at 296).
12
Beals v. Beals, 303 P.3d 453, 459 (Alaska 2013).
13
Id. (quoting Hanson v. Hanson, 125 P.3d 299, 304 (Alaska 2005)).
14
Id.
15
Id.
16
Wagner v. Wagner, 386 P.3d 1249, 1251 (Alaska 2017).
-8- 7273
IV. DISCUSSION
In Hansen v. Hansen we explained that “post-retirement health insurance
benefits are compensation for work previously performed.”17 Accordingly, retirement
“[h]ealth insurance benefits earned during the marriage are a marital asset of the insured
spouse,” whereas retirement health insurance benefits earned before or after the marriage
are typically the insured spouse’s separate asset.18
If a spouse earned a medical retirement benefit through employment both
during and outside the marriage, the benefit will be partly marital property and partly
separate. In that situation, the trial court must “determine the percentage of the benefit
that is marital by calculating the ‘coverture fraction.’ ”19 “This fraction is calculated by
dividing the number of years worked during the period of coverture” — that is, the
number of years worked for the employer during the marriage — “by the total number
of years worked” for the employer.20
Thus, the coverture fraction is a tool used during the characterization step
of the equitable distribution process. It is used to determine the portion of a retirement
medical benefit (or any other retirement benefit) that should be counted as marital
property and the portion that should be counted as separate property.21 The coverture
17
119 P.3d 1005, 1015 (Alaska 2005).
18
Id.; see id. at 1009 (“Marital property includes all property acquired during
the marriage ‘excepting only inherited property and property acquired with separate
property which is kept as separate property.’ ” (quoting Lewis v. Lewis, 785 P.2d 550,
558 (Alaska 1990))).
19
Id. at 1015.
20
Id.; see also Engstrom v. Engstrom, 350 P.3d 766, 770-71 (Alaska 2015).
21
See 2 TURNER, supra note 7, § 6:25, at 150 (“[T]he coverture fraction is
(continued...)
-9- 7273
fraction is not used during the valuation step or the division step of the equitable
distribution process. Other principles govern those steps. In particular, a trial court
should value a retirement medical benefit based on “the amount of the premium subsidy
provided by the employer.”22 And a trial court must divide the marital estate — which
includes the marital portion of a retirement medical benefit — in light of the equitable
factors in AS 25.24.160(a)(4) and “the presumption that an equal division of marital
property is most equitable.”23
In distributing the PERS medical benefit value in the present case, the
superior court began its analysis correctly, by characterizing the benefit as a marital
asset. The court did not calculate the coverture fraction, and there was no need for it to
do so: Patricia’s employment with the State occurred exclusively during her marriage
to Gregory; she did not work for the State before or after the marriage, and there is
nothing in the record indicating she planned to resume working for the State. Therefore
all of Patricia’s PERS medical benefit was marital property. Had the superior court
calculated the coverture fraction, it would have equaled 100%.
After characterizing the PERS medical benefit as marital property, the
superior court valued the benefit. The court implicitly accepted Miller’s testimony and
report and thus found that the benefit was worth $195,610. Neither party challenges this
valuation on appeal.
21
(...continued)
used to determine only the marital share of the pension.”).
22
Hansen, 119 P.3d at 1016; see also Grove v. Grove, 400 P.3d 109, 114-15
(Alaska 2017) (approving the use of premiums of “analogous plans” in estimating the
“premium subsidy value”).
23
Odom v. Odom, 141 P.3d 324, 339 (Alaska 2006) (quoting Fortson v.
Fortson, 131 P.3d 451, 456 (Alaska 2006)).
-10- 7273
The superior court then proceeded to the third step of the equitable
distribution process, the division step. The court had concluded earlier in its analysis that
it would be equitable to divide the marital estate 50/50, but the court determined that it
would not be fair to divide the value of the PERS medical benefit using this ratio. The
court determined that it would instead be equitable to divide the value of the
PERS medical benefit by assigning 18% of the value to Gregory and 82% to Patricia.
The court arrived at this ratio by calculating an adjusted coverture fraction as if Patricia
had continued working for the State until age 60 and then dividing the adjusted coverture
share (35%) in half.
The court erred when it applied this adjusted coverture fraction during the
division stage of the equitable distribution process. First, as explained above, the
coverture fraction is used during the characterization step of the equitable distribution
process, not the division step. The coverture fraction depends on only two variables:
(1) the number of years worked during the marriage for the employer providing the
benefit and (2) the total number of years (both during and outside the marriage) worked
for this employer.24 These variables are not among the equitable division factors listed
in AS 25.24.160(a)(4) and they have no inherent relation to those factors. The coverture
fraction is thus not suited to the task of dividing marital property; it should only be used
for characterizing property as marital or separate.
Second, the court arrived at its adjusted coverture fraction using
counterfactual data: The court calculated the “coverture fraction as if [Patricia] had
remained working for the State” until age 60 even though she had in fact quit her job
with the State in 2013 (at age 39). While the true coverture fraction was 100%, the
court’s adjusted coverture fraction was 35%, and the court then divided this fraction
24
See Engstrom, 350 P.3d at 770-71; Hansen, 119 P.3d at 1015.
-11- 7273
by 2 to conclude that Gregory was entitled to 18% of the PERS medical benefit. The
court did not explain why calculating an adjusted coverture fraction in this manner and
then dividing it by 2 would produce an equitable ratio for distributing the value of the
medical benefit.
The superior court discussed various equitable factors in its analysis. First,
in determining that it was appropriate to divide most of the marital estate equally, the
court considered each party’s age, health, work history, educational background, earning
capacity, and financial condition. Second, in deciding how to divide the PERS medical
benefit, the court considered “the financial condition of the parties, the conduct of the
parties, including any conduct causing the unreasonable depletion of assets, [and] the
circumstances and necessities of the parties.” In particular, the court expressed concern
about Patricia being left “with no retirement except for medical benefits,” and it found
that various post-separation actions by Gregory had caused financial hardship to Patricia.
The court moreover found that Patricia had left her employment with the State to start
a daycare business with Gregory and that this plan was derailed following an incident in
which Gregory assaulted Patricia, resulting in the parties’ separation.
It was appropriate for the superior court to consider these circumstances in
its equitable division analysis,25 but the court failed to explain their relationship with the
adjusted coverture fraction. Indeed, most of these circumstances have no apparent
relationship with the coverture fraction.
One of the circumstances — the fact that Patricia left her job with the State
to start a daycare business — does have an arguable connection to the adjusted coverture
25
In particular, although a trial court may not consider marital fault — that
is, fault for the breakdown of the marriage — in dividing the marital estate, the court may
consider the parties’ conduct and how that has affected their financial situations. See
Jerry B. v. Sally B., 377 P.3d 916, 935 (Alaska 2016).
-12- 7273
fraction. Had Patricia not left her job with the State — and if Patricia had been projected
to continue working for the State until retirement age — the court’s coverture fraction
would have been legally accurate. By applying the adjusted coverture fraction, the court
arguably gave Patricia the benefit of the coverture fraction that she lost by quitting her
job with the State.
But this reasoning rests on a misunderstanding of the coverture fraction’s
purpose. The coverture fraction is not a benefit or a right that Patricia forfeited when she
quit her job with the State. Nor is the coverture fraction designed — in the superior
court’s words — to prevent “marital retirement benefits that vest during a marriage from
becoming a windfall to the other spouse.” Rather, as explained above, the coverture
fraction is a tool for determining what portion of a retirement benefit is marital property.
Moreover, Patricia did not lose any of her PERS medical benefit by quitting her job with
the State because the benefit had already vested. Application of an adjusted coverture
fraction thus did not compensate her for anything she lost.
It could be argued that by reducing Gregory’s share of the PERS medical
benefit value, the coverture fraction addressed the superior court’s concerns about
Patricia’s finances and retirement needs. But if the adjusted coverture fraction did
address these concerns, it did so on an entirely ad hoc basis. Application of a coverture
fraction less than 100% always reduces the share of the retirement benefit subject to
division — and thus, in a way, helps to protect the needs of the spouse who earned the
benefit — but the amount by which the coverture fraction reduces the marital share does
not have any inherent relation to that spouse’s needs.
In sum, it was error for the superior court to apply the adjusted coverture
fraction during the division stage of the equitable distribution process: The coverture
fraction was not designed — and is not suited — for this purpose, and the adjusted
coverture fraction in this case had no legitimate relation to the various equitable factors
-13- 7273
that the superior court considered. Because the superior court exercised its discretion in
light of an erroneous legal principle, we must reverse the court’s distribution of the
marital estate and remand for further consideration. On remand, the superior court
should apply the actual coverture fraction and thus include the entire retirement medical
benefit in the marital estate. Because application of the actual coverture fraction “will
affect the marital estate’s overall value,” the court “may revisit the larger question of how
best to equitably divide” the marital estate.26 The court should divide the estate
according to the statutory equitable principles.
V. CONCLUSION
We REVERSE the superior court’s application of the adjusted coverture
fraction to Patricia’s retirement medical benefit. We REMAND so that the superior court
can apply the actual coverture fraction and equitably divide the marital estate.
26
Grove, 400 P.3d at 115-16 (quoting Hanson v. Hanson, 125 P.3d 299, 306
n.22 (Alaska 2005)).
-14- 7273