§30.03 Property and Expectancies Related to Employment

• Jurisdiction: Washington

§ 30.03 PROPERTY AND EXPECTANCIES RELATED TO EMPLOYMENT

The question of what employment-related benefits constitute "property" subject to distribution by the dissolution trial court is far from settled. An employment-related benefit should generally be analyzed by a two-step process. The first step is to determine whether the benefit is property. This initial determination is based on the results of two inquiries: the "property" versus "income" inquiry; and the "property" versus "expectancy" inquiry. When making these inquiries, here are some questions to ask:

• Is the benefit intended to be deferred compensation for past services, or is it meant to replace future lost wages?
• Is the right to receive the benefit a matter of private contract, government entitlement, or employer discretion?
• Has the right to receive the benefit matured?
• If not, is there a reasonable likelihood it will mature?
• Do the employee's actions affect whether the benefit matures?

Once you determine that an employment-related benefit is "property," the second step is to determine whether the property is community or separate.

The following subsections discuss cases that addressed various types of employment-related benefits. You may need to do more than simply compartmentalize a benefit by type, because similar benefits may be treated differently by the courts in different situations.

[1] Retirement Benefits

Pension and retirement benefits are generally considered property subject to distribution by the court in a dissolution action, whether or not the benefits are vested. Wilder v. Wilder, 85 Wn.2d 364, 534 P.2d 1355 (1975). In Wilder, the husband had served 18 1/2 years of the 20 years of service necessary for his Navy retirement benefits to vest. The Supreme Court upheld the trial court's award to the wife of a portion of the retirement benefits the husband would be eligible to receive in another year and a half. The trial court made the award contingent by excusing the husband from the duty to pay the wife if, through no fault of his own, the right to receive payments did not mature. Wilder, 85 Wn.2d at 369.

De Revere v. De Revere, 5 Wn. App. 741, 491 P.2d 249 (1971) (cited in Wilder as "a scholarly and well-reasoned discussion," 85 Wn.2d at 368), addressed the question of whether a 40-year AT&T employee's right to receive retirement benefits upon his retirement date (two years after the dissolution) constituted property to be distributed by the trial court. The Court of Appeals held that the unvested pension was "property subject to distribution."

The rulings in In re Marriage of Bishop, 46 Wn. App. 198, 729 P.2d 647 (1986), and Aetna Life Insurance Co. v. Wadsworth, 102 Wn.2d 652, 656, 689 P.2d 46 (1984) (see §§ 30.03[5] and 30.04, respectively), call into question any analysis that makes the blanket assumption that all unvested interests are "property."

Practice Tip: A key factor to consider when analyzing any unvested interest is the likelihood that the interest will vest. All other things being equal, an employee with eight years in a pension plan is more likely to meet a 10-year vesting requirement than an employee with four years in the plan. But other factors besides length of service should be considered. The pension plan participant's age and health will affect whether the vesting requirement will be met. Likewise, the employee's future job performance and the long-term success of the employer will affect whether he or she may be fired or laid off prior to meeting the vesting requirement. An employee's career or personal plans may also determine whether he or she will stay with the employer long enough to meet the vesting requirement.

Even if an unvested interest is not "property subject to distribution" by the trial court, the court may consider the potential of future income from the nonvested interest as a factor in awarding spousal maintenance and dividing property. See Heuchan v. Heuchan, 38 Wn.2d 207, 228 P.2d 470 (1951). If one party's potential receipt of a currently unvested interest is considered by the court in its division of property, this should be reflected in the findings of fact and conclusions of law, and the unvested interest should be awarded to one party in the decree. See In re Marriage of McKinney, 14 Wn. App. 921, 546 P.2d 456 (1976) (unvested pension considered by court, but not specifically awarded to one party, is held by parties as joint tenants).

[2] Social Security Old Age Benefits

Washington law now conforms to the rulings of most other state courts that Social Security old age benefits are not divisible property. In re Marriage of Zahm, 138 Wn.2d 213, 978 P.2d 498 (1999). Prior case law distinguished Social Security benefits from ordinary pension benefits (which are divisible property), because one can never acquire a contractual right to receive Social Security benefits. Caughey v. Emp. Sec. Dep't, 81 Wn.2d 597, 602, 503 P.2d 460 (1972). Even though Social Security benefits are not divisible property, the possibility that one or both parties may receive Social Security benefits is a factor the court may consider in making its distribution of property. Marriage of Zahm, 138 Wn.2d 213; Cleaver v. Cleaver, 10 Wn. App. 14, 17, 516 P.2d 508 (1973). The court may also consider the fact that a party will not receive Social Security benefits (because of that party's receipt of federal pension benefits). In re Marriage of Rockwell, 141 Wn. App. 235, 170 P.3d 572 (2007), review denied, 163 Wn.2d 1055 (2008).

Practice Tip: A divorced person who was married for 10 or more years to an individual contributing to the Social Security system may qualify for divorced spouse benefits of up to one-half the amount payable to his or her ex-spouse. See 42 U.S.C. § 416. As the federal government does not recognize a CIR, even though each party may have individual Social Security benefits, they will not be able to qualify for the divorced spouse benefit.

Given the "10-year rule," there might be certain cases in which the parties will reach a settlement before the 10-year anniversary of the wedding but agree to delay entry of the dissolution decree until after the 10-year anniversary.

A divorced spouse may receive benefits even if the ex-spouse worker has not begun to receive benefits. However, to be eligible in this instance, both the divorced spouse and ex-spouse worker must be 62 or older, and they must have been divorced for at least two years.

Spousal benefits cease when either the divorced spouse or the ex-spouse worker dies. If the ex-spouse worker predeceases the divorced spouse, the divorced spouse will usually be immediately entitled to widow's, widower's, mother's, or father's benefits.

Practice Tip: You may contact your local Social Security Administration office directly to obtain details on the estimated future benefits of the parties and the most recent benefits pamphlet.

[3] L&I Benefits

The court may take into account the assignment of L&I (Labor and Industries) benefits (workers' compensation) even though they cannot be assigned, on the same pattern as Social Security benefits. Persinger v. Persinger, 188 Wn. App. 606, 355 P.3d 291 (2015). In Persinger, the court held that "[b]ased on both the plain language of RCW 51.32.040 and relevant case law, Ms. Tatum did not have a right to receive a portion of Mr. Persinger's L & I benefits because it was a statutory entitlement personal to him." The court then clarified that although the assignment of benefits is void under RCW 51.32.040(2), "the statute does not expressly limit a court's ability to take into account such benefits in making a just and equitable property division." Persinger, 188 Wn. App. at 611 (citing Marriage of Zahm, 138 Wn.2d at 222).

[4] Deferred Compensation and Accrued Sick Leave, Vacation Pay, and Sabbatical Rights

A deferred compensation plan constitutes an asset that is subject to being divided in a marriage dissolution action. In re Marriage of Hurd, 69 Wn. App. 38, 848 P.2d 185, review denied, 122 Wn.2d 1020 (1993).

A Boeing employee's interest in the Boeing Financial Security Plan (a program through which Boeing employees can be paid at the time of termination of employment for accrued and unused sick leave), has been held to be property subject to distribution by the trial court. In re Marriage of Nuss, 65 Wn. App. 334, 828 P.2d 627 (1992).

Accrued vacation pay that can be "cashed in" upon retirement is property subject to distribution by the court in a dissolution action. Marriage of Hurd, 69 Wn. App. at 47 (citing 1 WASHINGTON FAMILY LAW DESKBOOK § 38.3(4) at 38-8 (Wash. State Bar Assoc. 1991).

In the same manner that accrued vacation pay is property, rights to a paid sabbatical that accrue during the marriage may also be property subject to distribution by the court in a dissolution action. Cf. Marriage of Hurd, 69 Wn. App. 38. On the other hand, some sabbaticals are more than extended paid vacations. The employee may be required to perform some approved activity during the sabbatical, and the employee may be required to return to employment for a fixed time after the sabbatical.

Many companies offer employees Health Savings Accounts (HSA) or Flexible Spending Accounts (FSA). Thousands of pretax dollars can be diverted to these accounts annually, with the expectation said funds will be used for family medical expenses. Upon dissolution, these accounts have a value that should be accounted for, whether in the determination of income, in the overall property division, or when determining child support. Although not yet addressed in Washington case law, courts in other, non-community property states have indicated that such accounts should play a role in issues of property division or income determination. See, e.g., Sweeney v. Sweeney, 420 S.C. 69, 80-81, 800 S.E.2d 148, 153-54 (S.C. Ct. App. 2017), aff'd, 426 S.C. 229, 826 S.E.2d 299 (2019) (HSA account is not marital property because held in name of eldest...