Do unvested military retirement benefits count as assets to be considered in a divorce? That’s the question that came before us – the Ohio Supreme Court – in the divorce case of Christen and Sean Daniel.
Christen and Sean were married in 1995. They had three children, who were aged 13, 11, and 7 at the time of the divorce. During the marriage, Sean and Christen separated on two occasions – from fall 2004 until December 2005, and from January 2008 through the date of the divorce decree in 2011.
Prior to getting married, Sean enlisted in the National Guard, and at the time of the divorce hearing, he had been in the Guard for 16 years. Just before the hearing he reenlisted for an additional six years; he will be eligible to receive retirement benefits once he accumulates 20 years of credit.
Fortunately, Sean and Christen entered into an agreement regarding custody of the three children, so their divorce trial related only to the division of property and debt.
The magistrate who heard their case concluded that “Ohio law does not permit the court to divide a non-vested pension benefit.” Christen objected to this finding, arguing that since Sean is “already contractually committed to remain in the military through vesting ‘age,’ the court should have divided one-half of his retirement benefits during the years of marriage.” Christen contended that the court erred in concluding that unvested military benefits cannot be divided.
The trial court, however, overruled her objection and adopted the magistrate’s decision. In its final order, the trial court found that Sean’s military retirement benefits were a “mere expectancy” and concluded that there were “no retirement benefits for the court to divide.”
The court of appeals affirmed that decision, even though it implied that the trial court’s analysis might have been incorrect. The majority of the court of appeals concluded that there was no need to decide whether unvested pension benefits are a marital asset, because insufficient evidence regarding Sean’s retirement benefits was presented at trial to require division of the asset.
After the court of appeals ruling, Christen filed an appeal with our court to determine whether unvested military retirement benefits are marital assets subject to division in divorce proceedings.
In the past, we have said that in any divorce action, the starting point for a trial court’s analysis is an equal division of marital property. In this case, the trial court essentially concluded that because Sean’s military retirement benefits had not vested, they were not marital property and were therefore not subject to division.
As defined by Ohio law, “marital property” includes “all real and personal property that currently is owned by either or both spouses” and “all interest that either or both of the spouses currently has in any real or personal property, including…the retirement benefits of the spouse, and that was acquired by either or both of the spouses during the marriage.”
The law doesn’t distinguish between vested or unvested retirement benefits. In a case from 1990, we held that vested pension benefits are marital property. But we’ve never addressed unvested benefits.
In writing our majority opinion in this case, Justice William M. O’Neill noted, “Admittedly, it may be difficult to ascertain the value of the benefits that have not yet vested and may never vest. But it does not follow that those future benefits have no value. Most states hold that unvested retirement benefits accrued during the marriage constitute marital property subject to division.”
In dividing pension benefits, courts have fashioned two approaches. The “present cash value” method, which requires the court to place a value on the benefit as of the date of the final decree and divide that value between the parties, and the “deferred distribution” method, in which the court devises a formula for dividing the only benefit at the time of the decree, but defers distribution until the benefits become payable.
In that previously mentioned 1990 case, we recognized that while it is desirable to bring finality to the parties’ marriage by dividing assets once and for all, doing so is not possible in all cases, because it sometimes leads to an inequitable result. And while the dollar amount in all likelihood will change as retirement approaches, the percentage interest of the parties in the pension will not.
The court of appeals seems to have understood that Sean’s unvested retirement benefit was marital property, but then concluded that since the precise value of the benefit could not be ascertained, it could not be divided. But, as Justice O’Neill noted, “fixing a precise present value and the date of vesting isn’t mandatory. And in the case of such an important asset, a court can and should seek other reasonable methods of achieving equity.”
In this case, the trial court was provided with all of the information it needed to make the calculations: the dates of the marriage, the dates of Sean’s military service, and the dates the two overlapped. That’s all that was necessary to award Christen a percentage share of Sean’s military retirement benefit.
“The fact that its precise value will not become fixed, if it ever does, until some future date is irrelevant,” Justice O’Neill wrote. “The trial court had enough information in this case to make an equitable division of the benefits.”
We determined that the trial court and the court of appeals were mistaken in concluding that Sean’s unvested pension was not a divisible asset. Christen was entitled to share in the sole remaining asset that was earned during the marriage. The trial court erred as a matter of law, and as a result, its division of property was inequitable and an abuse of discretion.
We concluded – by a four-to-three vote – that unvested military retirement benefits earned during marriage fall within the definition of marital property, and must be considered for division. We therefore reversed the judgment of the court of appeals and sent the case back to the trial court for further proceedings.
Paul Pfeifer is an Ohio Supreme Court Justice.