- When dividing a pension, the court may utilize a “hybrid” approach with elements of both the present cash value method and the reserved jurisdiction method.
- The court may require the employee-spouse to obtain a term life insurance policy to ensure that the non-employee spouse receives their full interest if the employee-spouse dies prematurely.
Procedural History
The parties were married in 1995. Husband was a police officer and had a substantial PSPRS pension of $7,800 per month. Husband was also participating in the DROP program and had two other defined contribution accounts.
At trial, Wife’s retirement expert testified that the actuarial value of Husband’s pension was almost $2.7 million and suggested that Husband obtain a life insurance policy to ensure that Wife receives her full interest in the pension. If Husband were to die prematurely, Wife’s monthly pension benefits would end.
The trial court divided the pension using a “hybrid” approach. The court awarded Wife 44.6% of Husband’s PSPRS pension and DROP account (reserved jurisdiction method), and the remaining 5.4% came from awarding Wife the entirety of Husband’s defined contribution accounts (present cash value method). The court also ordered Husband to obtain a term life insurance policy for $1 million and name Wife as the sole owner and beneficiary. The parties were to share the cost of the life insurance policy for the first five years, and then Wife would become solely responsible.
Husband appealed, challenging the court’s hybrid approach and the requirement to obtain a life insurance policy.
Ruling
The preferred method of dividing a pension is the present cash value method, where the non-employee spouse receives an immediate cash payout for their interest in the pension. This is preferable to the reserved jurisdiction method, where the court defers the division of the pension until the employee-spouse retires. But the present cash value method is not achievable in every case, especially where the parties have insufficient assets for a lump-sum payment.
Using a hybrid approach, as the court did here, is an acceptable method of dividing a pension. The court cited Koelsch and noted that the parties and court should be “as creative and flexible as possible” to ensure that the non-employee spouse receives their share of the benefits and to avoid making the employee-spouse retire against their wishes.
The court of appeals also approved of the trial court’s order requiring Husband to maintain a life insurance policy. The court rejected Husband’s argument that the order created a new asset in violation of A.R.S. § 25-318 because it only required a term policy, which has no cash value and no payout until the insured dies. “The life insurance policy is merely a vehicle to ensure the proper division of existing community assets.” Requiring the employee-spouse to maintain a life insurance policy is within the trial court’s board discretion to fashion an equitable division of community property.
Hoobler v. Hoobler, 1 CA-CV 21-0331 FC, 2022 WL 5240102 (App. Oct. 6, 2022).