Teresa Gail Shown v. Robert Todd Shown ( 2007 )

RENDERED : SEPTEMBER 20, 2007
TO BE PUBLISHED
,Suyrrmr Courf of ~i
2005-SC-000855-DG
TERESA GAIL SHOWN APPELLANT
ON REVIEW FROM COURT OF APPEALS
V. CASE NUMBER 2004-CA-000988
OHIO CIRCUIT COURT NO . 03-CI-000221
ROBERT TODD SHOWN APPELLEE
OPINION OF THE COURT BY JUSTICE SCOTT
REVERSING
Appellant, Teresa Gail Shown, appeals from an opinion and order of the
Court of Appeals which affirmed an order entered by the Ohio Circuit Court in the
parties' divorce proceedings . The Ohio Circuit Court determined, among other
things, that Appellee, Robert Todd Shown, was permitted to exclude the full
amount of his Kentucky Teachers' Retirement System (KTRS) account from
classification and division as marital property pursuant to KRS 161 .700(2).
Appellant argues that both the trial court and the Court of Appeals erred in failing
to give effect to the provisions set forth in KRS 403.190(4) .
The parties were married on April 5, 1986, and separated on June 21,
2003. Appellee is employed with the Ohio County Board of Education and is also
an Army Reservist . Appellant is employed as a dental hygienist. During the
divorce proceedings, the parties were able to resolve most issues, but disagreed
as to the division of their retirement accounts. Appellee had approximately
$81,410 in his KTRS account while Appellant had approximately $1,896 in her
Fidelity Simplified Employee Pension (SEP-IRA) . Appellee argued that his KTRS
account was exempt from classification and division as marital property under
KRS 161 .700(2), while Appellant argued her SEP-IRA qualified as a retirement
account and therefore KRS 403 .190(4) overrode KRS 161 .700(2) and operated
to limit the amount of the KTRS funds which Appellee could claim as exempt.
The Court of Appeals affirmed the trial court, holding that KRS 403.190(4)
and KRS 161 .700(2) were in conflict, and thus, pursuant to principles of statutory
construction, the exemption provisions set forth in KRS 161 .700(2) would control
over the provisions set forth in KRS 403.190(4) . In the alternative, the Court of
Appeals held that KRS 403.190(4) is inapplicable unless both spouses have an
account that qualifies as a "retirement-benefit" as is defined in KRS 403.190(4),
holding that Appellee's SEP-IRA was not such a "retirement benefit" as defined
thereunder .
Having heard arguments of the parties, we reverse the trial court's
judgment and the opinion of the Court of Appeals on the basis that there is no
conflict between KRS 403 .190(4) and KRS 167.700(2) and a SEP-IRA does fall
within the definition of a "retirement account" as specifically defined by the
Legislature in KRS 403.190(4) .
Unless specifically exempt by statute, Kentucky treats all retirement
benefits accumulated during the marriage as marital property subject to
classification and division upon divorce . KRS 403.190 ; Holman v. Holman , 84
S .W.3d 903, 907 (Ky. 2002). We have reasoned that "[r]etirement benefits are
classified as marital property not because the General Assembly failed to include
them within the exclusions, but rather because they are a form of deferred
compensation or savings earned during the marriage similar to income earned or
savings accumulated during the marriage ." Holman, 84 S .W .3d at 907.
In this case, there is a statute which specifically exempts the KTRS
retirement benefits accumulated by Appellee during the marriage from being
classified and divided upon divorce . KRS 161 .700(2) reads as follows:
Retirement allowance, disability allowance, accumulated
contributions, or any other benefit under the [KTRS] retirement
system shall not be classified as marital property pursuant to KRS
403.190(1). Retirement allowance, disability allowance,
accumulated contributions, or any other benefit under the [KTRS]
retirement system shall not be considered as an economic
circumstance during the division of marital property in an action for
dissolution of marriage pursuant to KRS 403 .190(1)(d) .
(Emphasis added) . In Waggoner v. Waggoner , 846 S.W.2d 704 (Ky. 1993), this
Court held that the above statute was constitutional in large part because
"teachers are the only state employees not covered by Social Security ." Id. at
707. The Waggoner Court cautioned, however, that "[t]o even the effect of KRS
161 .700(2), the General Assembly enacted KRS 403.190(4)." Id. at 708 . It
reasoned that "[t]he combination of KRS 161 .700(2) and KRS 403.190(4)
protects the spouse of a teacher covered by the TRS plan." Id .
At the time Waggoner was decided, KRS 403.190(4) read as follows:
If the retirement benefits of one spouse are excepted from
classification as marital property, or not considered as an economic
circumstance during the division of marital property, then the
retirement benefits of the other spouse shall also be excepted, or
not considered, as the case may be .
Id. (Emphasis added) . Like the Waggoner Court, we believe it is impossible to
ignore the words emphasized above . The language set forth in KRS 403 .190(4)
clearly anticipates statutes such as KRS 161 .700(2) and thus, by the plain
language set forth therein, KRS 403.190(4) is meant to be read in conjunction,
not in conflict with, KRS 161 .700(2) . This interpretation, of course, is mandated
by well-settled rules of statutory construction which state that, above all else, "it is
the Court's duty to harmonize the law so as to give effect to both statutes ."
Commonwealth v. Phon, 17 S.W.3d 106, 107 (Ky. 2000). See also Turner v.
Turner, 908 S .W.2d 124,125 (Ky. App. 1995) (reading KRS 161 .700(2) in
conjunction with, and not to the exclusion of, KRS 403 .190(4)) .
Of course, an inequity in KRS 403.190(4) was revealed by our Court of
Appeals in Turner, supra. In Turner, a teacher spouse had much less
accumulated in her KTRS account than her spouse did in his non-KTRS
retirement accounts which would have been otherwise divisible had the teacher
spouse not had funds accumulated in a KTRS account. However, pursuant to
the plain language of KRS 403.190(4) as it was written at the time, the non-
teacher spouse's non-KTRS retirement benefits were completely exempt from
division as marital property due to the fact that the teacher spouse's retirement
benefits were qualified as exempt. Id. at 125 .
Soon thereafter, the General Assembly amended KRS 403 .190(4) to read
as follows:
If the retirement benefits of one spouse are excepted from
classification as marital property, or not considered as an economic
circumstance during the division of marital property, then the
retirement benefits of the other spouse shall also be excepted, or
not considered, as the case may be . However, the level of
exception provided to the spouse with the greater retirement benefit
shall not exceed the level of exception provided to the other
spouse.
(Emphasis added) . The General Assembly seemingly attempted to rectify the
inequity exposed in Turner, su ra, by adding the single sentence highlighted
above in the statute . We simply cannot ignore the fact that this sentence is
broad in its language and indicates by its plain words that its effect is meant to
apply to both spouses, not just teacher spouses . Thus, we are obligated to
enforce its apparent meaning . Wheeler & Clevenger Oil Co., Inc. v. Washburn ,
127 S .W.3d 609, 614 (Ky. 2004) ("This Court has steadfastly adhered to the
plain-meaning rule unless to do so would constitute an absurd result.") (internal
citation and quotation omitted) .
Accordingly, we do not accept the contrary interpretation set forth in the
Court of Appeals' opinion as we find no conflict in either the language or intent of
the statutes . Both case law and the statutory language itself demonstrate that
KRS 403 .190(4) was intended to serve as a limitation upon exemption statutes
such as KRS 161 .700(2) .
Appellee also argues that even if we give effect to the plain meaning of the
language set forth in KRS 403.190(4), it is inapplicable in this case because
Appellant has no retirement benefits as defined therein . Appellee cites the
language set forth in the statute, which states :
Retirement benefits, for the purposes of this subsection shall
include retirement or disability allowances, accumulated
contributions, or any other benefit of a retirement system or plan
regulated by the Employees Retirement Income Security Act of
1974, or of a public retirement system administered by an agency
of a state or local government, including deferred compensation
plans created pursuant to KRS 18A .230 to 18A.275 or defined
contribution or money purchase plans qualified under Section
401 (a) of the Internal Revenue Code of 1954, as amended.
KRS 403.190(4) (emphasis added). Of principal dispute is whether the language
"of a retirement system" stands alone to broadly include any retirement benefits
which derive from "any retirement system" or whether it only refers to those
"retirement systems" specifically listed therein .
Notably, if "retirement systems" is a broadly defined term, any privately
created retirement, whether tax-benefited or not, could qualify, as would
retirement benefits under the Social Security system - the largest "retirement
system" existing today. That, however, could not be the case given the "anti-
alienation clause" of the Social Security Act, 42 U .S.C.A . § 407(a) :
The right of any person to any future payment . . . shall not be
transferable or assignable, at law or in equity, and none of the
moneys paid or payable or rights existing . . . shall be subject to
execution, levy, attachment, garnishment, or other legal process . .
Although the Court of Appeals has noted that Social Security benefits may
be considered by a trial court "as one factor-among others-in dividing the over-all
marital estate," Gross v. Gross, 8 S .W.3d 56, 57 (Ky. App. 1999), they plainly
may not be divided by the court, as would be called for under KRS 403.190(4),
were they treated as benefits of a "retirement system" as defined thereunder .
And, "[i]t must, of course, be presumed that the Legislature is aware of the status
of the law at the time of the enactment of a statute ." Com ., Dept. of Banking and
Securities v. Brown , 605 S .W.2d 497, 498 (Ky. 1980) . KRS 403 .190(4) having
specifically referred to "a public retirement system administrated by an agency of
a state or local government," it could not fairly be said that the Legislature
intended to include a privately created plan outside the defined regulatory
scheme .
Moreover, "[a]Il words and phrases shall be construed according to the
common and approved usage of language, but technical words and phrases, and
such others as may have acquired a peculiar and appropriate meaning in the
law, shall be construed according to such meaning ." KRS 446 .080(4) . Thus, as
much as some would heart-fully disagree, we must interpret the statute to fairly
meet the intent of the Legislature, for it is not our constitutional prerogative to
legislate . Ky. Const. § 28 .
Thus, to trigger the divisionary rule of KRS 403.190(4), a retirement
benefit, allowance, accumulated contribution, or any other benefit, must flow from
a "retirement system or plan regulated by the Employees Retirement Income
Security Act of 1974, or of a public retirement system administered by an agency
of a state or local government, including deferred compensation plans created
pursuant to KRS 18A .230 to 18A.275 or defined contribution or money purchase
plans qualified under Section 401 (a) of the Internal Revenue Code of 1954, as
amended." KRS 403.190(4) .
As SEP-IRAs are defined under Section 408(K) of the Internal Revenue
Code of 1954, as amended, they cannot be a Section 401 (a) plan . Nor do they
constitute a public retirement system administered by an agency of a state or
local government, including deferred compensation plans created pursuant to
KRS 18A.230 to 18A.275 . They are, however, regulated by ERISA . See Garratt
v. Walker , 164 Fad 1249, 1251 (10th Cir. 1998)("[W]e follow the panel's decision
that a SEP is a pension plan within the meaning of ERISA") See also 29 U .S.C.
§§ 1002(2)(A), 1003(c) (2007) ; 29 C.F.R. § 2510.3-2(d)(1) (2007) ("For purposes
of . . . [ERISA] [a] `pension plan' shall not include an individual retirement account
. . . provided that - - (i) No contributions are made by the employer . . . .") . Thus,
unlike IRAs, SEP-IRAs, being employer funded, do trigger the divisionary rules of
KRS 403 .190(4) . Thus, as is illustrated by Garratt , supra, if a plan is covered by
any of the five (5) subparts of ERISA, it is an "ERISA regulated" plan. See 29
U .S.C. § § 1003, 1051, 1081, 1101, 1321 (2007) .
For the foregoing reasons, we reverse and vacate the judgment of the trial
court and the opinion of the Court of Appeals and remand this matter back to the
trial court for further proceedings consistent herewith . In so doing, the trial court
shall exercise the discretion vested in it under KRS 403.190(1) .
Lambert, C.J . ; Minton, Noble and Schroder, JJ ., concur. Cunningham, J .,
concurs in result only. Abramson, J ., not sitting .
COUNSEL FOR APPELLANT :
Candy Y. Englebert
1500 Frederica Street
P.O. Box 1794
Owensboro, KY 42302-1794
Darron Lee Brawner
1500 Frederica Street
P .O. Box 1794
Owensboro, KY 42302-1794
COUNSEL FOR APPELLEE:
Gregory Boyd Hill
P.O. Box 94
Hartford, KY 42347