In Re Marriage of Lehman , 74 Cal. Rptr. 2d 825 ( 1998 )

Opinion

MOSK, J.

We granted review in this cause in order to address an important question relating to the characterization of retirement benefits as community or separate property under a so-called “defined benefit retirement plan,” which specifies payments in advance in accordance with a formula that comprises factors such as final compensation, age, length of service, and a per-service-year multiplier: Does a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits under such a plan own a community property interest in the retirement benefits as enhanced? As we shall explain, we conclude that the answer is: Yes.

I

Jack R. Lehman (Husband) was bom on September 3, 1940, and Marietta Lehman (Wife) was bom on November 13, 1941. On June 15, 1959, he was hired by the Pacific Gas and Electric Company (PG&E). On June 11, 1960, the couple married. On May 1, 1962, he began to participate in PG&E’s defined benefit retirement plan, and thereby began to accrue a right to retirement benefits thereunder. On October 29, 1977, the couple separated. On December 19, 1978, they obtained an interlocutory judgment of dissolution of marriage from the superior court, which retained jurisdiction for purposes including the division of the community property interest in his retirement benefits at the time of retirement. On February 23, 1979, they obtained a final judgment of dissolution.

In March 1993, in order to avoid discharging certain employees, PG&E offered an enhanced retirement program, called the “Voluntary Retirement Incentive” (VRI). It described the VRI program as a “management tool” to “reduc[e] costs” by “bring[ing] our workforce in line with the needs of our changing business” through enhancement of retirement benefits by means of “two special improvements to the retirement benefit formula,” namely, the crediting of three putative years of service and the waiving of the normal actuarial reduction of 18 percent for early retirement, which is designed to account for more projected payments. It stated that the “decision to participate ... is completely voluntary.” For eligibility, it required, among other things, that the employee in question had attained the age of 50, and had accumulated 15 years of service, as of December 31, 1992. Husband met the conditions. He elected to retire early at about 54V3 years of age under the VRI program effective January 1, 1995, with enhanced retirement benefits in the amount of $3,059.30 per month—based on final compensation of $5,360.43 per month, length of service of 35.67 years, including 3 putative years, and a per-service-year multiplier of 1.6 percent. (Without the three-year putative service credit, he would have received enhanced retirement benefits in the amount of $2,802 per month; without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received enhanced retirement benefits in the amount of $2,508.63 per month.) Had he waited to retire early at 55 years of age, without the 3-year putative service credit and without the waiver of the normal 18 percent early retirement actuarial reduction, he would have received retirement benefits in the amount of $2,350.39 per month—based on (presumed) final compensation of $5,360.43 per month, length of service, of 33.42 years, and a per-service-year multiplier of 1.6 percent. Had he waited to retire at 65 years of age, without the 3-year putative service credit and also without any early retirement actuarial reduction (inasmuch as retirement at that age is not early), he would have received retirement benefits in the amount of $3,724.00 per month—based on (presumed) final compensation of $5,360.43 per month, length of service of 43.42 years, and a per-service-year multiplier of 1.6 percent. By electing to retire early at about 54V3 years of age under the VRI program instead of waiting to retire early at 55 years of age, he received enhanced retirement benefits in an amount of $708.91 per month.

After Husband retired, Wife made various motions in the superior court, seeking various orders together with a determination as to characterization that she owned a community property interest in his retirement benefits as enhanced. In response, Husband admitted that she owned such an interest in his retirement benefits, but denied that she owned one in them as enhanced. What was in contest was solely characterization, i.e., whether the enhancement was a community asset in any part, and not apportionment, i.e., to what extent the enhancement, if a community asset at least in some part, belonged to the community and separate estates. Generally following In re Marriage of Gram (1994) 25 Cal.App.4th 859 [30 Cal.Rptr.2d 792] (hereafter sometimes Gram), which had recently been decided, the superior court issued orders favorable to Wife, including the determination that, by owning a community property interest in Husband’s retirement benefits, she owned a community property interest in his retirement benefits as enhanced. As to apportionment, it applied the so-called “time rule.” (See, e.g., In re Marriage of Judd (1977) 68 Cal.App.3d 515, 522 [137 Cal.Rptr. 318]; In re Marriage of Adams (1976) 64 Cal.App.3d 181, 186 [134 Cal.Rptr. 298].) Under that method, the community property interest in retirement benefits is the percentage representing the fraction whose numerator is the employee spouse’s length of service during marriage before separation, here 17.39 years, and whose denominator is the employee spouse’s length of service in total, here 32.67 years; the separate property interest is the percentage representing the remainder of 100 percent minus the community property interest percentage. The superior court determined that the community property interest in Husband’s retirement benefits as enhanced was 53.23 percent and that the separate property interest therein was 46.77 percent. It proceeded to award Wife, as her share, one-half of the community property interest, here 26.62 percent—which yielded her an amount of about $814.39 per month, including about $188.71 per month attributable to the enhancement. It declined to follow Gram to the extent that Gram suggested that it had to add any putative years credited to the employee spouse’s service to the denominator of the time-rule fraction.

On Husband’s appeal, the Court of Appeal affirmed. Husband claimed that the superior court erred in its determination as to characterization that, by owning a community property interest in his retirement benefits, Wife owned a community property interest in his retirement benefits as enhanced. Reviewing the ultimate question, as it appears, independently, the Court of Appeal concluded that the superior court was correct in its characterization. In this regard, it agreed with Gram. At the same time, it disagreed with the then recent decision in In re Marriage of Frahm (1996) 45 Cal.App.4th 536 [53 Cal.Rptr.2d 31] (hereafter sometimes Frahm), which it read to be in conflict. Neither Husband nor Wife claimed that the superior court erred in its determination as to apportionment of Husband’s retirement benefits as enhanced between community and separate property interests through its application of the time rule. Hence, the Court of Appeal did not address the point.

On Husband’s petition, we granted review. We now affirm.

II

The question before us is one of characterization of retirement benefits as community or separate property under a defined benefit retirement plan, specifically, whether a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits under such a plan owns a community property interest in the latter’s retirement benefits as enhanced.

A

Generally, all property acquired by a spouse during marriage before separation is community property. (See Fam. Code, §§760, 771.)

Under the leading case of In re Marriage of Brown (1976) 15 Cal.3d 838 [126 Cal.Rptr. 633, 544 P.2d 561, 94 A.L.R.3d 164] (hereafter sometimes Brown) and its progeny, such property may include the right to retirement benefits accrued by the employee spouse as deferred compensation for services rendered. {Id. at pp. 841-842.) This is the case whether or not the right to retirement benefits is “vested” in the sense of “surviv[ing] . . . discharge or voluntary termination,” and whether or not it is “matured” in the sense of amounting to an “unconditional” entitlement “to immediate payment.” {Id. at p. 842.) What is determinative is not any “abstract terminology” of this sort {id. at p. 851), but rather a single concrete fact—time. The right to retirement benefits “represents] a property interest; to the extent that such [a] right[] derive[s] from employment” during marriage before separation, it “comprise^] a community asset. . . .” {Id. at p. 842.) “Throughout our decisions we have always recognized that the community owns all [such] rights attributable to employment during marriage” before separation. {Id. at p. 844.)

The right to retirement benefits is a right to “draw[] from [a] stream of income that . . . begins to flow” on retirement, as that stream is then defined. {In re Marriage of Cornejo (1996) 13 Cal.4th 381, 383 [53 Cal.Rptr.2d 81, 916 P.2d 476]; see In re Marriage of Gillmore (1981) 29 Cal.3d 418, 428 [174 Cal.Rptr. 493, 629 P.2d 1]; In re Marriage of Brown, supra, 15 Cal.3d at p. 848.)¹

The stream’s volume at retirement may depend on various events or conditions after separation and even after dissolution. (See In re Marriage of Gillmore, supra, 29 Cal.3d at p. 428; In re Marriage of Brown, supra, 15 Cal.3d at p. 848.) Such events and conditions include both changes in the retirement-benefit formula (see In re Marriage of Brown, supra, 15 Cal.3d at p. 849, fn. 11; In re Marriage of Gowan (1997) 54 Cal.App.4th 80, 86 [62 Cal.Rptr.2d 453]; In re Marriage of Bergman (1985) 168 Cal.App.3d 742, 767-768 [214 Cal.Rptr. 661]), and also changes in the basis on which the retirement-benefit formula operates (see In re Marriage of Judd, supra, 68 Cal.App.3d at p. 523; In re Marriage of Adams, supra, 64 Cal.App.3d at p. 186). Changes in the retirement-benefit formula may be frequent. (See, e.g., University of San Francisco Faculty Assn. v. University of San Francisco (1983) 142 Cal.App.3d 942, 950, fn. 2 [191 Cal.Rptr. 346] [changes in the retirement-benefit formula are provided for annually in a collective bargaining agreement].) Changes in the basis on which the retirement-benefit formula operates are virtually constant. (See, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at p. 186 [changes in the basis on which the retirement-benefit formula operates are effected continuously through “additional years of service,” “increase in earnings,” and “increase in age”].)

Thus, the stream’s volume at retirement may turn out to be even less than feared, as when the right to retirement benefits fails to vest or mature {In re Marriage of Brown, supra, 15 Cal.3d at p. 848), or when the employment itself ceases because the employer ceases to do business. By contrast, it may turn out to be even more than hoped for, as when the employer increases the per-service-year multiplier of the retirement-benefit formula (see In re Marriage of Bergman, supra, 168 Cal.App.3d at pp. 767-768 [referring to “future liberalized pension rules or conditions”]; see also In re Marriage of Gowan, supra, 54 Cal.App.4th at p. 86 [recognizing the possibility of such liberalization]), or when the employee spouse lives to a greater than expected age, or serves more than expected years, or attains a higher than expected final compensation (In re Marriage ofGillmore, supra, 29 Cal.3d at p. 428, fn. 9).

That the nonemployee spouse might happen to enjoy an increase, or suffer a decrease, in retirement benefits because of postseparation or even postdissolution events or conditions is justified by the nature of the right to retirement benefits as a right to draw from a stream of income that begins to flow, and is defined, on retirement (see In re Marriage of Cornejo, supra, 13 Cal.4th at p. 383; In re Marriage of Gillmore, supra, 29 Cal.3d at p. 428; In re Marriage of Brown, supra, 15 Cal.3d at p. 848), with the nonemployee spouse, at one and the same time, holding the chance of more (see In re Marriage of Anderson (1976) 64 Cal.App.3d 36, 39 [134 Cal.Rptr. 252]; In re Marriage of Adams, supra, 64 Cal.App.3d at p. 186), and bearing the risk of less (In re Marriage of Brown, supra, 15 Cal.3d at p. 848), equally with the employee spouse. Because the nonemployee spouse is compelled to share the bad with the employee spouse (see ibid.), he or she must be allowed to share the good as well.

Hence, if the right to retirement benefits accrues, in some part, during marriage before separation, it is a community asset and is therefore owned by the community in which the nonemployee spouse as well as the employee spouse owns an interest. (In re Marriage of Brown, supra, 15 Cal.3d at pp. 841-842.)

The employee spouse is “free[] to change or terminate . . . employment, to agree to a modification of the terms of . . . employment (including retirement benefits), or to elect between alternative retirement programs”—in a word, he or she is “free[]” to “define ... the nature of the retirement benefits owned by the community.” (In re Marriage of Brown, supra, 15 Cal.3d at pp. 849-850.)

But regardless how the employee spouse might choose to exercise such freedom, the “nonemployee spouse owns an interest” in what he or she chooses by owning an interest in the community. (In re Marriage of Gill-more, supra, 29 Cal.3d at p. 425.)

It follows that a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. That is because, practically by definition, the right to retirement benefits that accrues, at least in part, during marriage before separation underlies any right to an enhancement. (See Reddall, The Characterization and Apportionment of Early Retirement Enhancements in Pre-Judgment Cases—Again (Summer 1994) 17 Fam. L. News 22, 22-23 (hereafter Reddall).)²

The fact that a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced does not mean that the enhancement is a community asset in its entirety. But the question what extent such an enhancement belongs to the community and separate estates is one of apportionment and not characterization.

B

At the outset, both the Gram court and the Frahm court recognized that the issue of characterization of property, including the right to retirement benefits and retirement benefits themselves, as the community property of the employee spouse and the nonemployee spouse or the separate property of the employee spouse alone, does not turn on the motive of the employer. In any context, motive is, at best, hard to discern. (See, e.g., Buss v. Superior Court (1997) 16 Cal.4th 35, 52, fn. 14 [65 Cal.Rptr.2d 366, 939 P.2d 766].) In this context, it is also “irrelevant.” (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 543; see In re Marriage of Gram, supra, 25 Cal.App.4th at p. 862.) That is because the employer acts for its own business reasons, and not for reasons bearing on the characterization of property for employee spouses and nonemployee spouses. (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 543; In re Marriage of Gram, supra, 25 Cal.App.4th at p. 862.)

Beyond that point, however, the Gram court and the Frahm court diverged in their analytical approaches to resolve the issue of characterization.

In Gram, a nonemployee spouse owned a community property interest in an employee spouse’s retirement benefits under a defined benefit retirement plan because the latter had accrued a right thereto during marriage before separation. (See In re Marriage of Gram, supra, 25 Cal.App.4th at p. 861.) Years after dissolution, in an attempt to avoid discharging certain employees, the employer offered incentives for early retirement, including an “Enhanced Early Retirement Option”—which was similar to PG&E’s VRI program. (See id. at pp. 861, 866.) As the record therein reflects, the “Enhanced Early Retirement Option” involved, among other things, the crediting of five putative years of service and five putative years of age. (See also id. at p. 861.) The employee spouse elected to retire early under the “Enhanced Early Retirement Option.” (Id. at p. 862.) By doing so, he received enhanced retirement benefits each month. (Ibid.) He did not receive any other benefits, such as a severance payment. The superior court characterized the enhancement as his separate property. (Ibid.)

The Gram court disagreed. After invoking a test derived from a series of decisions in the area of severance payments,³ which looks to whether the benefit in question constitutes deferred compensation for services during marriage before separation or present compensation for loss of earnings thereafter, and after considering what it deemed to be “relevant factors” identified in those decisions (In re Marriage of Gram, supra, 25 Cal.App.4th at pp. 862-866), it held that the nonemployee spouse owned a community property interest in the employee spouse’s retirement benefits as enhanced (id. at pp. 866-867): The “enhanced retirement benefit should have been included in the computation of’ the nonemployee spouse’s “community interest in the retirement payment” because “it was a part of, and intended to be, the realization of’ the employee spouse’s “retirement expectation and thus a form of deferred compensation for services rendered” (ibid.).

In Frahm too, a nonemployee spouse owned a community property interest in an employee spouse’s retirement benefits under a defined benefit retirement plan because the latter had accrued a right thereto during marriage before separation. (See In re Marriage of .Frahm, supra, 45 Cal.App.4th at pp. 537-538, 541-542, 545.) Years after dissolution, in an attempt to avoid discharging certain employees, the employer offered incentives for early retirement, including a “Voluntary Separation Incentive Program”—which was different from PG&E’s VRI program. (See id. at pp. 541-542.) As the record therein reflects, the “Voluntary Separation Incentive Program” involved both a severance payment and also retirement benefits, which were available together either in a lump sum or by monthly installments. (See ibid.) The employee spouse elected to separate himself under the “Voluntary Separation Incentive Program.” (Id. at p. 542.) By doing so, he received, in a lump sum as he had chosen, both a severance payment and also retirement benefits. (Id. at pp. 537-538, 542, 544.)⁴ As the record therein reflects, the employee spouse admitted that his retirement benefits were a community asset. (See also id. at pp. 537-538.) The superior court characterized the severance payment as his separate property. (Id. at pp. 538, 542.)

The Frahm court agreed. After reviewing Gram itself and the “severance payment” decisions on which it relied, it stated that it found little “guidance” therein. (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 543.)⁵ “The cases said ‘they were following one bright-line rule or another, but in fact they’ve simply looked at the menu of factors that point toward separate or community property, selected one or two, and then molded them into a result. The factor that carries the day in one case may not be determinative in the next. . . . About the only “bright line” in these cases is the differentiation between compensation for past services and compensation for future lost wages.’ ” (Ibid., quoting Comment, 1994 Cal.Fam.L.Rep. 6298.) “Applying the reasoning of these cases to our facts works as well as trying to fit a square peg into a round hole. . . . [T]he results are inconsistent.” (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 543.) At bottom, the “past services or future compensation test is inapt for determining the character of the benefit. . . .” (Ibid.) The Frahm court then turned back to Brown, from which it distilled a “simple” “message”: “An employment benefit ... is community property to the extent a right to it accrues during marriage” before separation. (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 544.) It held that the nonemployee spouse did not own a community property interest in the employee spouse’s severance payment because the latter had not accrued a right thereto during marriage before separation. (Id. at pp. 544.545 )⁶ it recognized that the amount of the severance payment that the employee spouse received was based, in part, on his years of service. (In re Marriage of Frahm, supra, 45 Cal.App.4th at pp. 544-545.) But it declared this fact “irrelevant” because his right to receive the severance payment was not based thereon. (Id. at p. 545 & fn. 2.) “The time rule determines the amount of the community share. It does not determine the character of the benefit. Stated another way, a court first looks to see if the right to the payment accrued during marriage. If so, the time rule determines the extent of the community interest in the payment. But if the right to the payment did not derive from employment, it is separate property.” (Id. at p. 545, fn. 2.)

On their respective facts, Gram and Frahm are each correct in its result as to characterization. Gram concludes that a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. For its part, Frahm concludes that a nonemployee spouse does not own a community property interest in an employee spouse’s severance payment when the latter accrues a right thereto solely after separation.

Apart from their results, however, Frahm is sounder in its reasoning as to characterization because it cleaves closely to Brown, and Gram is weaker because it wanders away in the direction of ad hoc decisionmaking. As we held in Brown, what is determinative is the single concrete fact of time. To the extent—and only to the extent—that an employee spouse accrues a right to property during marriage before separation, the property in question is a community asset.

To recall what we made plain in Brown: The right to retirement benefits “represent[s] a property interest; to the extent that such [a] right[] derive[s] from employment” during marriage before separation, it “comprise[s] a community asset . . . .” (In re Marriage of Brown, supra, 15 Cal.3d at p. 842.) “Throughout our decisions we have always recognized that the community owns all [such] rights attributable to employment during marriage” before separation. (Id. at p. 844.)

And to recall what we made plain in Brown and its progeny: The right to retirement benefits represents a certain kind of property interest. It is a right to draw from a stream of income that begins to flow, and is defined, on retirement. (See In re Marriage of Cornejo, supra, 13 Cal.4th at p. 383; In re Marriage of Gillmore, supra, 29 Cal.3d at p. 428; In re Marriage of Brown, supra, 15 Cal.3d at p. 848.) Hence, it is a right to payments specified in accordance with a formula as such payments may be specified in accordance with such formula as then obtains—not to some “pre-retirement” payments specified in accordance with some “pre-retirement” formula. As stated, various events and conditions after separation and even after dissolution may affect the amount of retirement benefits that an employee spouse receives. But not their character. Once he or she has accrued a right to retirement benefits, at least in part, during marriage before separation, the retirement benefits themselves are stamped a community asset from then on.

In Olivo v. Olivo (1993) 82 N.Y.2d 202 [604 N.Y.S.2d 23, 624 N.E.2d 151] (hereafter sometimes Olivo), the New York Court of Appeals spoke words that are pertinent here.⁷ “By its very nature, a pension right . . . owned as” community property “is subject to modification by future actions of the employee. Should the employed spouse retire early, both parties receive a smaller benefit than they would have otherwise. The employee is, of course, free to do so, even though it incidentally and adversely affects the other party’s rights, and the nonemployee spouse would have no grounds for recovery of the ‘loss’. On the other hand, an employee who engages in extended employment at progressively higher wages is not entitled to .keep the ‘excess’ earned beyond what would have accrued at the time of expected retirement.”. (Olivo v. Olivo, supra, 82 N.Y.2d at p. 209 [624 N.E.2d at p. 155]; see In re Marriage of Gillmore, supra, 29 Cal.3d at pp. 425, 428; In re Marriage of Brown, supra, 15 Cal.3d at pp. 849-850.) “Similarly, both parties’ rights are generally subject to changes in the terms of a retirement plan, as well as to circumstances largely beyond their control, such as the salary level finally achieved by the employee and used to calculate the pension benefit. What the nonemployee spouse possesses, in short, is the right to share in the pension as it is ultimately determined. . . . [Any] enhancement” in the amount is a “modification of an asset not the creation of a new one.” (Olivo v. Olivo, supra, 82 N.Y.2d at pp. 209-210 [624 N.E.2d at p. 155], italics added; see In re Marriage of Gillmore, supra, 29 Cal.3d at pp. 425-426; In re Marriage of Brown, supra, 15 Cal.3d at p. 849, fn. 11.)

Ill

Turning to the proceeding at bar, we now consider the decision of the Court of Appeal sustaining the superior court’s determination as to characterization that, by owning a community property interest in Husband’s retirement benefits under PG&E’s defined benefit retirement plan, Wife owns a community property interest in his retirement benefits as enhanced by the VRI program.

At the threshold, we believe that the Court of Appeal properly reviewed the superior court’s determination as to characterization, as it apparently did, independently. Inasmuch as the basic “inquiry requires a critical consideration, in a factual context, of legal principles and their underlying values,” the determination in question amounts to the resolution of a mixed question of law and fact that is predominantly one of law. (Crocker National Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888 [264 Cal.Rptr. 139, 782 P.2d 278].) As such, it is examined de novo. (Ibid.)

On the merits, we also believe that the Court of Appeal properly concluded that the superior court’s determination as to characterization was correct.

The superior court did not err insofar as it determined that Wife owns a community property interest in Husband’s retirement benefits. That is undisputed and indisputable. Indeed, Husband admits the point.

Neither did the superior court err insofar as it determined that Wife owns a community property interest in Husband’s retirement benefits as enhanced. As explained, a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. Husband’s right to retirement benefits, which accrued,-in part, during marriage before separation, underlies the right to the enhancement, which is derivative thereof. It bears emphasis that the enhancement is not a separate retirement benefit, still less a benefit separate from the retirement benefits themselves. It is the mere description that we apply to the result that we reach when we subtract the amount of retirement benefits that Husband would have received if he had waited to retire early at 55 years of age from the amount that he did in fact receive by electing to retire early at about 54 Vs years of age under the VRI program. It is no different from an enhancement effected through “additional years of service,” “increase in earnings,” or “increase in age”— which is uncontestedly a community asset (In re Marriage of Adams, supra, 64 Cal.App.3d at p. 186).

Husband argues against our conclusion as to characterization. He proves unpersuasive.

Husband asserts that Wife does not own a community property interest in his retirement benefits as enhanced. He concedes that, as a general matter, a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits owns a community property interest in the latter’s retirement benefits as enhanced. He maintains, however, that a nonemployee spouse does not own a community property interest in the employee spouse’s retirement benefits as enhanced through a postseparation “contract” between the employee spouse and the employer independent of any right to retirement benefits that accrued, in some part, during marriage before separation—whereby, for example, the employer gives the enhancement in consideration for immediate retirement, and the employee spouse immediately retires in consideration for the enhancement. Husband’s retirement benefits, however, were not enhanced by a “contract” of this sort. Any such “contract” was derivative of the right to retirement benefits that

accrued, in some part, during marriage before separation. Contrary to his position—to quote Olivo—the “enhancement” is a “modification of an asset not the creation of a new one.” (Olivo v. Olivo, supra, 82 N.Y.2d at p. 210 [624 N.E.2d at p. 155].) By its very terms, it results from “improvements to the retirement benefit formula” under PG&E’s existing defined benefit retirement plan, not from a new plan altogether. Husband’s premise, viz., that he accrued a right to the enhancement solely after separation, is unsupported.

Husband then asserts, more radically, that Wife does not own a community property interest in his retirement benefits as enhanced because the enhancement amounts to a severance payment and, as such, is his separate property. The enhancement here, however, was not a severance payment either in name or in nature. It called itself, and was in fact, an increase in retirement benefits. Distinguishable, accordingly, is In re Marriage of Lawson, supra, 208 Cal.App.3d 446. There, the court held that a nonemployee spouse did not own a community property interest in a severance payment given to an employee spouse after separation. (Id. at pp. 448-454.) But, unlike Husband and his retirement benefits, the employee spouse had not previously accrued any right to the payment whatsoever. (Ibid.) Distinguishable as well is In re Marriage of Nelson (1986) 177 Cal.App.3d 150 [222 Cal.Rptr. 790]. There, the court held that a nonemployee spouse did not own a community property interest in a stock option granted to an employee spouse after separation. (Id. at pp. 156-158.) Again, unlike Husband and his retirement benefits, the employee spouse had not previously accrued any right to the option whatsoever. (Ibid.)⁸ At oral argument, Husband acknowledged that what the employer does is material and not why. It is of no consequence that PG&E enhanced his retirement benefits because it wanted him to retire immediately. Just as it would be of no consequence that he himself enhanced his retirement benefits, as by seeking and obtaining higher final compensation, because he wanted to retire comfortably. (See In re Marriage of Gillmore, supra, 29 Cal.3d at p. 428, fn. 9.) Rather, it is dispositive that PG&E enhanced his retirement benefits—in which Wife admittedly owns a community property interest.

Although neither Husband nor Wife claimed in the Court of Appeal, or claims here, that the superior court erred in its determination as to apportionment of Husband’s retirement benefits as enhanced between community and separate property interests through its application of the time rale, we shall address that question because their arguments about characterization may be deemed to reach apportionment by implication.

The superior court must apportion an employee spouse’s retirement benefits between the community property interest of the employee spouse and the nonemployee spouse and any separate property interest of the employee spouse alone. (See, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at pp. 186-187; In re Marriage of Bergman, supra, 168 Cal.App.3d at pp. 748-751.) It has discretion in the choice of methods. (See, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at pp. 186-187; see also In re Marriage of Henkle (1987) 189 Cal.App.3d 97, 99 [234 Cal.Rptr. 351]; In re Marriage of Poppe (1979) 97 Cal.App.3d 1, 8 [158 Cal.Rptr. 500] (per Kaufman, J.).) Such methods include the time rale, which is apparently the one that is employed most frequently. (In re Marriage of Henkle, supra, 189 Cal.App.3d at p. 99; In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 8.) Whatever the method that it may use, however, the superior court must arrive at a result that is “reasonable and fairly representative of the relative contributions of the community and separate estates.” (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 11.)

Reviewing the matter, as we must, for abuse of discretion (see, e.g., In re Marriage of Adams, supra, 64 Cal.App.3d at p. 187), we believe that the superior court did not err in its apportionment of Husband’s retirement benefits as enhanced between community and separate property interests through its application of the time rale. The use of the time rale is not unreasonable when the “amount of the retirement benefits is substantially related to the number of years of service.” (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 8; accord, In re Marriage of Judd, supra, 68 Cal.App.3d at pp. 522-523.) That is the case here. The amount of Husband’s retirement benefits as enhanced was the product of his final compensation, length of service, and a per-service-year multiplier. Moreover, the result of the time rale is not unreasonable when the “relative contributions of the community and separate estates” are accounted for. (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 11.) That is also the case here. Reflecting Husband’s length of service of 17.39 years during marriage before separation and his length of service of 32.67 years in total, the community property interest in Husband’s retirement benefits as enhanced was fixed at 53.23 percent and his separate property interest was fixed at 46.77 percent.

We find unsound Gram’s suggestion that, in applying the time rale to apportion an employee spouse’s retirement benefits as enhanced between community and separate property interests, the superior court must add any putative years credited to the employee spouse’s service to the denominator of the time-rule fraction. (See Reddall, supra, 17 Fam. L. News at pp. 23-24 [criticizing the suggestion of In re Marriage of Gram, supra, 25 Cal.App.4th at p. 867].) Such years are fictive—they have no independent existence, but are merely a means by which the employer effects the enhancement. The employer can achieve exactly the same outcome, for example, by crediting a putative sum to the employee spouse’s final compensation—in this proceeding, $492.23 to $5,360.43 per month, for a total of $5,852.66 per month. Or by increasing the per-service-year multiplier in the retirement-benefit formula that operates on the basis provided by the employee spouse—in this proceeding, from 1.6 percent to 1.74692 percent. Neither the community nor the employee spouse supplied the putative service credit as a mechanism of enhancement. The employer did. But both the community and the employee spouse supplied part of the basis on which the retirement-benefit formula operates, specifically, the years of service. And they both must share in what the putative service credit yields, because that credit amounts to a postseparation and even postdissolution event or condition on which the volume of the stream of income that constitutes retirement benefits depends. When, in a case such as this, the superior court uses the time rule, with the employee spouse’s length of service during marriage before separation in the numerator, and with the employee spouse’s length of service in total in the denominator, it arrives at a result that is “reasonable and fairly representative of the relative contributions of the community and separate estates.” (In re Marriage of Poppe, supra, 97 Cal.App.3d at p. 11.) The superior court would disturb the balance if it were to add to the denominator any putative years credited to the employee spouse’s service: the employee spouse did not supply this fiction. It would not restore the balance if it were to add such putative years to the numerator as well: even if the fact that the community did not supply this fiction is ignored, the value of a fraction, other than Vi, does not remain constant through the addition of the same number to both numerator and denominator. It must, accordingly, leave the balance as it finds it, without adding any putative years credited to the employee spouse’s service to either the numerator or the denominator. To the extent that Gram is to the contrary, it is disapproved.

IV

For the reasons stated above, we conclude that we must affirm the judgment of the Court of Appeal.

It is so ordered.

George, C. J., Kennard, J., Werdegar, J., and Brown, J., concurred.

1 Contrary to what appears to be the view of our dissenting colleagues, an employee spouse and a nonemployee spouse could not reasonably understand the right to retirement benefits other than as a right to draw from a stream of income that begins to flow on retirement, as that stream is then defined. In the typical case at least, the employee spouse is notified by the employer—and the nonemployee spouse must be deemed to be informed by the employee spouse—that, except as to what is vested, the employer reserves the right to amend or even terminate the underlying defined benefit retirement plan prior to the time of retirement. For example, in materials relating to PG&E’s defined benefit retirement plan under the VRI program, it is stated: “Since future conditions affecting the company cannot be foreseen, the Board of Directors reserves the right to amend or terminate the plan[] at any time. Although any change in [the] plan or the termination of [the] plan will not affect the benefits paid to plan members before the date the plan was changed or ended, such change may result in reduced levels of benefits or benefit coverage, or increased retiree contributions, after the effective date of any such change. [ID However, no amendment of a plan may deprive any person of a vested interest” therein.

2 It is conceivable that, in a given case, a nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits might not own a community property interest in the latter’s retirement benefits as enhanced, as perhaps where the right to the enhancement is not derivative. (See In re Marriage of Adams, supra, 64 Cal.App.3d at p. 187, fn. 8 [stating in dictum that “we can envision an increase in benefits after separation that might be caused solely by the employee spouse’s earnings”].) Such a case, however, seems the exception and not the rule. In any event, the issue is not presented, and hence need not be resolved today.

3 See In re Marriage of Skaden (1977) 19 Cal.3d 679 [139 Cal.Rptr. 615, 566 P.2d 249]; In re Marriage of Lawson (1989) 208 Cal.App.3d 446 [256 Cal.Rptr. 283]; In re Marriage of DeShurley (1989) 207 Cal.App.3d 992 [255 Cal.Rptr. 150]; In re Marriage of Horn (1986) 181 Cal.App.3d 540 [226 Cal.Rptr. 666]; In re Marriage of Kuzmiak (1986) 176 Cal.App.3d 1152 [222 Cal.Rptr. 644]; In re Marriage of Wright (1983) 140 Cal.App.3d 342 [189 Cal.Rptr. 336]; and In re Marriage of Flockhart (1981) 119 Cal.App.3d 240 [173 Cal.Rptr. 818].

4 Although there is certain language in Frahm that may be read to suggest that the “Voluntary Separation Incentive Program” involved both a severance payment and also enhanced retirement benefits (see In re Marriage of Frahm, supra, 45 Cal.App.3d at p. 542), the record therein shows that any such suggestion is incorrect.

5 In a misstep, the Frahm court treated Gram as though it too dealt with a severance payment (In re Marriage of Frahm, supra, 45 Cal.App.3d at p. 540), instead of retirement benefits (In re Marriage of Gram, supra, 25 Cal.App.4th at pp. 861-862).

6 The Frahm court asserted that the severance payment therein “resulted solely from” the employer’s “beneficence.” (In re Marriage of Frahm, supra, 45 Cal.App.4th at p. 544.) Whether or not that is true (cf. In re Marriage of Brown, supra, 15 Cal.3d at p. 845 [holding that retirement benefits “ ‘do not derive from the beneficence of the employer’ ”]) is of no consequence here.

7 Although the law of New York is that of equitable distribution and not community property, it has developed in accord with Brown. (See Majauskas v. Majauskas (1984) 61 N.Y.2d 481, 492, fn. 6 [474 N.Y.S.2d 699, 463 N.E.2d 15].)

8 In In re Marriage of Hug (1984) 154 Cal.App.3d 780 [201 Cal.Rptr. 676, 46 A.L.R.4th 623], the court suggested in dictum that a nonemployee spouse might not own a community property interest in a stock option granted to an employee spouse after dissolution if the employee spouse—unlike Husband and his retirement benefits—had not accrued any right thereto during marriage before separation. (See id. atp. 793.) Noting, however, that the “issue [was] not before” it in that matter, it passed on. (Ibid.) So shall we.