Purchased Pension Credits Is Community Property
In reversal, a California Court of Appeals has ruled that military service credit purchased during the marriage with community property funds is the parties’ community property, despite the fact that Husband’s military service took place prior to the parties’ marriage. In the case of In re Marriage of Green, Husband served in U.S. Air Force from July 23, 1982, to May 1, 1986. Beginning on June 16, 1989, Husband was employed as a firefighter by Dougherty Regional Fire Authority (DRFA) and he began participating in California Public Employees’ Retirement Services pension plan (CalPERS).
Husband married Wife in May of 1992. After DRFA merged with Alameda County Fire Department (ACFD) in July of 1997, Husband worked for ACFD and continued his CalPERS participation.
On August 1, 2002, Husband exercised his right to purchase service credits for his military service, as authorized by U.S. Government Code Section 21024 [CalPERS member may purchase up to 4 years of service credit for military service]. Husband chose to pay for the service credits through payroll deductions on a 15-year installment plan.
Husband and Wife separated on October 1, 2007. By that time, payroll deductions totaling $11,462 had been paid for the service credits. Wife filed for divorce in March of 2008, claiming, among other things, that Husband’s military service credit was community property; Husband countered that the credit was his separate property. Trial Court appointed a pension expert, who suggested that Trial Court should award 34.44% of the purchased service credits to Wife, representing Wife’s pro rata share of community property payments made to purchase those credits.
Wife was opposed to that idea, arguing that Trial Court should let her pay half of the future installments and award her half of the service credit, to be placed in a separate account for her through CalPERS. In opposition, Husband contended that the military service credit was his separate property because his right to purchase it was based on his pre-marriage service. Husband admitted, however, that funds used to make payments prior to separation were community property.
After a trial on the characterization issue, Trial Court determined that the military service credit portion of Husband’s CalPERS pension was his separate property, awarded it to Husband, and ordered Husband to pay $6,699 to Wife for her half of the community property funds used to purchase the military service credit, plus 6% interest.
Wife appealed Trial Court’s characterization of the military service credit. On its own motion, the California Court of Appeals sought input from Northern California Chapter of American Academy of Matrimonial Lawyers (AAML), who responded with an amicus brief. Husband and Wife filed answer briefs, and now, the Appellate Court has reversed the case and remanded it back to Trial Court. Deciding a case of first impression, the Court of Appeals finds that (1) CalPERS members with prior military service may purchase up to four years of military service credit, but must pay for the entire cost (no employer contribution); (2) Trial Court must characterize pension rights as community property or separate property of one of the parties based on the time when the spouse acquired property interest in them that was more than an “expectancy”; (3) Husband had no property interest in CalPERS retirement plan while he was in military service, and became eligible to purchase the military service credit only after he went to work for a CalPERS participant employer; (4) Husband’s right to purchase military service credit did not become more than an expectancy until he exercised his right of purchase (Husband’s abstract ability to purchase was not a property right); and (5) Husband purchased military service credit during the marriage with community property funds. Therefore, Court of Appeals has ruled that military service credit was the parties’ community property. As a result, Court of Appeals has reversed and remanded the case back to Trial Court to determine proper allocation of military service credit.