Before Judges Long, Stern & Kleiner.
On appeal from Superior Court of New Jersey,
Chancery Division, Family Part, Warren County.
Bonnie C. Frost argued the cause for appellant
(Einhorn, Harris, Ascher, Barbarito,
Frost & Ironson, attorneys; Ms. Frost, on the brief).
Sanford M. Kahan argued the cause for
respondent (Simon & Enright, attorneys; Mr.
Kahan, of counsel and on the brief).
The opinion of the court was delivered by
Plaintiff Linda Reinbold and defendant Frank Reinbold were married on October 29, 1960. Two children were born to them, both of whom are emancipated. After thirty-four years of marriage, plaintiff filed a complaint for divorce on June 20, 1994. At the time the complaint was filed defendant was 55 years old and had 28 years of service at Sandoz Pharmaceuticals ("Sandoz").
The parties entered into a Property Settlement Agreement which was incorporated into the final judgment of divorce on May 13, 1996. Among other provisions, the defendant agreed to pay plaintiff permanent alimony and the parties agreed to equally divide the marital assets. Paragraph 27 of the Property Settlement Agreement addressed the equitable distribution of defendant's pension which had been accrued through his employment with Sandoz:
27. The Husband has a pension plan through his employer, Sandoz. The Wife shall receive 50% of all of the benefits the Husband acquired in this pension from the date of marriage to the date of Complaint by way of a Domestic Relations Order. By virtue of the long term marriage, the Wife shall be named as a Joint Survivor on any Pre-retirement survivor annuity as well as on any post-retirement survivor annuity, accrued from the date of marriage to the date of the complaint for divorce, if permitted by the pension plan.
Under the Sandoz retirement plan (the "Plan"), defendant could take
normal retirement at age 62. The basic retirement benefit was to
be calculated based upon defendant's average annual compensation
and years of credited service (maximum 40 years) with a Social
Security offset. The Plan defined these terms as follows:
Average Annual Compensation
Your average annual compensation is initially based on your total compensation paid over the last ten calendar years preceding your date of retirement. From this ten-year period, your total compensation over the five highest possible average, is extracted and averaged. Total compensation is all compensation paid you in the form of salary and wages, overtime, shift premium, bonus and commissions. [example omitted].
Credited Service is used to determine the amount of your benefits under the Plan. Credited service is accounted for in years and months.
All service rendered by you to the company prior to your sixty-fifth birthday will be recognized as credited service, up to a maximum of forty years. If you terminate your employment with Sandoz and return to the company at a later date, or if in the past you terminated employment with the company and have since been rehired, all prior service rendered by you to the company will be recognized as credited service. However, your prior service will be recognized only after you have completed one year of continuous service since your most recent date of hire.
Primary Social Security Benefit
Your Primary Social Security Benefit is the Social Security Benefit to which you alone are entitled, and does not include any benefits applicable to your spouse and/or dependents.
The Social Security benefit on which your Social Security offset will be based will be determined by reference to actuarial tables supplied by the Retirement Plan Actuary. The use of these tables is intended to develop Social Security benefit values which closely approximate those an employee is likely to receive based on his/her final average compensation at Sandoz. These tables do not necessarily represent the exact actual Social Security benefit to which you are entitled.
Basic Retirement Benefit Formula
The Basic Retirement Benefit Formula is:
l l/2% of your Average Annual Compensation times
your Years of Credited Service minus
l l/4% of your Primary Social Security
your Years of Credited Service.
The calculation of defendant's pension benefit was to take place at
retirement because it depended on his length of service, his
average annual compensation and his Social Security benefit at that
time. Other benefits were also available including an early
retirement benefit bearing a penalty for each year prior to age
62.See footnote 1
In July of 1996, approximately two months after the divorce was finalized, Sandoz offered defendant a voluntary retirement incentive package as a result of its merger with Ciba-Geigy and the downsizing that this merger brought about. According to defendant, employees who were offered the retirement incentive package could either accept the package or face the possible elimination of their jobs. Defendant accepted the package and retired on October 1, 1996, more than two years after the divorce complaint was filed.
To qualify for the voluntary retirement incentive package defendant had to meet the following qualifications: be
a regular employee of Sandoz Pharmaceuticals, and,
as of December 31, 1996, are age 55 or older with at least 10 years of service, and
make your decision to participate and return the Election to Participate/Release Agreement form by August 30, 1996, and
agree to retire on October 1, 1996.
At the time this incentive package was offered to defendant he was
57 years old and had 30 years of service at Sandoz.
According to the incentive package, an employee's enhanced
pension benefit was to be determined by:
Adding five years means adding five years to
the service you actually have.
Adding five years of age means that you are
assumed to be five years older for determining
your early retirement reduction factor, if
For example, if you are age 56 and have 10 years of service, your pension benefit will be calculated as if you are age 61 with 15 years of service. The benefit will then be reduced by 2% for the year between ages 61 and 62 when 100% of the benefit would be payable. Without the enhancements offered by the [voluntary retirement incentive], a pension starting at age 56 would be reduced by 20%.
Pursuant to this package, five years were added to defendant's
age and years of service which thereby increased the value of the
pay-out. Although defendant was only 57 years old with 30 years of
service at the time he retired, he was deemed to be 62 years old
and credited with 35 years of service. Because he was assumed to
be 62 years old there was no early retirement reduction.
Defendant also received a "Special Incentive Payment
(Severance Pay)" of $56,924.4l which was calculated as follows:
In addition, he received extended medical and dental benefits, an
investment plan and special transitional benefits. Only the
enhanced pension is at issue here.
In furtherance of the Property Settlement Agreement, both
parties' counsel submitted a proposed form of QDRO (Qualified
Domestic Relations Order) to the pension administrator at Sandoz.
The parties agree that the methodology submitted to the pension
administrator was an effort to set forth a coverture fraction to be
applied to defendant's pension benefit at the time of retirement.
Due to letter transpositions, the fraction as actually set forth in
the QDRO proposal was inaccurate. At oral argument, the parties
acknowledged this and agreed that the QDRO provision should have
28 years (employment during coverture) x Pension x 50%
Number of years worked Benefit
Because the QDRO was not yet in place when defendant began receiving his pension, plaintiff did not receive her share at that time. Defendant, however, placed plaintiff's full one-half pension share into a separate interest bearing account until the matter was resolved. On March 20, l997, plaintiff filed a notice of motion for post-judgment relief seeking, among other things, a determination as to whether the enhanced pension was to be shared by her and also seeking counsel fees.
On April 7, l997, defendant filed a notice of cross-motion
seeking an order denying plaintiff's request to share in the
increased value of his pension. The judge determined that
plaintiff was not entitled to share in defendant's enhanced
This is a request by the plaintiff that the Court determine the denominator of the coverture f[r]action to consist of the defendant's entire years of service at Sandoz CIBA. Paragraph 27 of the judgment of divorce compels the defendant to turn over to the plaintiff 50 percent of all of the benefits the husband acquired in this pension from the date of the marriage to the date of the complaint, by way of a domestic relations order.
In July 1996, defendant was offered an early retirement package, which he took. [Plaintiff] feels she is entitled to share in the voluntary retirement incentive package. The defendant feels plaintiff should not share in same because this voluntary retirement incentive package was offered to the defendant two months after the divorce.
The language of the property settlement agreement judgment of divorce is clear. Plaintiff is to receive 50 percent of the pension up to the date of the filing of the complaint. [Defendant] received his package two months after the divorce. The complaint was filed June 20th, 1994; the divorce was granted on May 13th, 1996.
* * *
Counsel requests $2,362.50 attorney's fees which is denied.
Plaintiff appeals from this decision, contending that defendant acquired all the benefits in the plan during the marriage and that the voluntary retirement package was not a result of defendant's post-complaint work efforts. She also claims entitlement to counsel fees. Defendant counters that the trial judge acted properly by "refusing to modify the clear and precise terms of the property settlement agreement," that the pension enhancement is not subject to equitable distribution and that plaintiff is not entitled to counsel fees. We have carefully reviewed this record in light of the parties' arguments and have concluded that plaintiff is entitled to share in defendant's voluntary retirement package. Thus, we reverse.
We begin our analysis with the Property Settlement Agreement
itself which all parties acknowledge created a classic "deferred
distribution" scheme in which the "non-employee spouse does not
receive any benefit until the benefits are actually paid to the
employee spouse." Moore v. Moore, ll4 N.J. l47, l59 (l989).
Deferred distribution was chosen here because defendant's defined
benefit pension, which was dependent on how much he earned and how
long he worked and was subject to a Social Security set-off, would
not be calculated until he retired. See Marx v. Marx, 265 N.J.
Super. 4l8, 428 (Ch. Div. l993). In such a scheme the actual
numerator of the coverture fraction is fixed (here at 28 years, the
period of the marriage during which defendant worked for Sandoz up
to the filing of the complaint). The denominator is also fixed at
the number of years in all that defendant will have worked as of
retirement. Obviously, the number itself cannot be supplied until
retirement. The longer the employee spouse works, the larger the
denominator, thus reducing the non-employee spouse's percentage
share and assuring the employee spouse the benefits of his or her
post-divorce labors. In general, "the non-employee spouse will
receive a decreasing percentage of an increasing benefit." William
M. Troyan, Pension Evaluation and Equitable Distribution, l0 Fam.
L. Rep. 300l, 3007 (l983). Thus, in this case, as the parties
agree, if defendant had actually worked 35 years until age 62,
plaintiff would have been entitled to
28 (employment during coverture) x Benefit x 50%
35 (years actually worked)
The complicating factor here is the retirement incentive
package offered to defendant after the divorce. It is this package
which is the subject of the parties' contest over distribution. In
order to determine whether property is subject to equitable
distribution, it is necessary to assess whether it was "legally and
beneficially acquired" by the parties during the marriage. Kikkert
v. Kikkert, 177 N.J. Super. 471, 474-475 (App. Div.), aff'd o.b.,
88 N.J. 4 (1981). Whether the enhanced pension is includable in
the marital estate depends upon the nature of the property and how
it was earned. Whitfield v. Whitfield, 222 N.J. Super. 36, 47
(App. Div. 1987). See McGrew v. McGrew, 151 N.J. Super. 515, 518
(App. Div. 1977) (considering to what extent the pension benefits
have been produced by the mutual effort of the parties).
In Whitfield, the issue presented was whether the husband's
air force pension, which did not vest until four years after the
parties separated, was includable in the marital property subject
to equitable distribution. The parties separated after 16 years of
marriage. The husband argued that his pension was not "earned"
until he served 20 years and that was the time the pension was
acquired for includability purposes. Whitfield, supra, 222 N.J.
Super. at 45-46. We disagreed:
[Id. at 46. (emphasis added).]
Accordingly, we determined that the husband's pension was
includable as marital property and that it could not be excluded
from the distributable estate "because of the fortuitous timing of
the failure of this marriage." Ibid.
In Moore, supra, the issue presented was whether a husband's
post-retirement cost-of-living pension increases were marital
property subject to equitable distribution. The court determined
that the increases in the pension qualified as marital property.
Moore, supra, 114 N.J. at 158. In arriving at this conclusion, the
court cited Whitfield for the proposition that the nature of the
property and how it was earned is the crucial question in
determining whether it is subject to equitable distribution. Id.
at 157. (citation omitted). Because the increases in Moore were
found to be unrelated to either the husband or wife's future
efforts but attributable to "past contributions and services," the
Several other decisions are instructive on this issue. In
Hayden v. Hayden, 284 N.J. Super. 4l8 (App. Div. l995), another
panel of this court excluded a post-divorce pre-retirement cost-of-living increase in valuing a husband's pension. In reaching its
conclusion, the court recognized that the cost-of-living increases
in Moore were merely adjustments to "the pension payments for the
then current real value of the dollar." Id. at 423. As such, they
were "as much a part of the pension as the amounts initially
established by the pension system on retirement. . . ." Ibid. On
the contrary, the court in Hayden found, as a fact, based on its
analysis of the pension before it, that the cost-of-living
component of pre-retirement salary increases were directly related
to work performed after the divorce and thus outside the
distribution scheme. Id. at 424.
In Ryan v. Ryan, 26l N.J. Super. 689 (Ch. Div. l992) the issue
was whether the husband's severance pay, which he received over two
years after the divorce complaint was filed, was subject to
equitable distribution. The husband was offered a severance
payment by his employer as an "inducement to leave the company" and
as a result of his company's desire "to reduce its overall work
force." Id. at 693. The trial judge determined that the payment
was based upon the husband's weekly pay and years of service. Id.
at 696. Accordingly, the judge concluded that "the severance
payment was compensation for past labor, not a replacement for
future earnings, because the amount was based on the [husband's]
past services to IBM." Id. at 697. Therefore, the payment was
considered a marital asset subject to distribution.
Most recently, in Pascale v. Pascale, l40 N.J. 583, 611 (l995), the Supreme Court ruled that stock options awarded after the filing of a divorce complaint but obtained as a result of efforts expended during the marriage should be subject to equitable distribution:
[Id. at 6l2.]
Each of these cases recognizes and applies the same well-established rule: that assets acquired by gainful labor during the
marriage or as a reward for such labor are distributable while
assets acquired after dissolution due solely to the earner's post-complaint efforts are his or her separate property.
Here, defendant argues that the enhanced pension was not
earned during the marriage but was a "replacement for his future
earnings" which would otherwise have been his separate property and
thus not includable in the distributive pot. A review of the plan,
however, belies this view. The enhanced pension benefit was a
concomitant of the takeover of Sandoz by Ciba-Geigy, obviously
intended to thin the herd of aging Sandoz employees as part of an
overall downsizing. It was not offered to every employee who was
in danger of losing his or her job. On the contrary, the pension
incentive was only offered to employees who had reached age 55 and
had worked for Sandoz for l0 years. In other words, it was offered
in recognition of age and faithful service. Defendant had already
met the qualifications for the incentive package at the time the
divorce complaint was filed. He was then 55 years of age and had
worked for Sandoz for 28 years. No effort on his part beyond what
took place while he was married to plaintiff caused the accretion
of his pension. To be sure, accretion due solely to the diligence
and industry of a party go to him or her alone. Bednar v. Bednar,
l93 N.J. Super. 330, 333 (App. Div. l984). That is not the case
here. Here, defendant received the benefit of the pension
incentive package because of his age and as a reward for his length
of service which was attributable to his efforts during the
marriage. Pascale, supra, l40 N.J. at 609.
That the pension enhancer was not a substitute for "future
earnings" is underscored by the fact that Sandoz provided a
separate severance package for all terminated employees as a direct
replacement for future lost earnings. Under the Sandoz program,
every terminated employee would receive:
Defendant also received what Sandoz denominated as "severance
pay" at a rate of two weeks for each year of service (not three as
in the case of an employee who was involuntarily terminated) but
otherwise according to the same formula. This is the replacement
for future earnings component of defendant's benefit. Like future
earnings it is not subject to equitable distribution. In this
respect, we note our disagreement with the conclusion reached in
Ryan v. Ryan, supra, which we believe failed to account for the
nature of a severance benefit. There the trial judge characterized
a severance pay package as distributable because it was calculated
based on years of service. Ryan, supra, 26l N.J. Super. at 697.
The problem with this analysis is that it fails to differentiate
between entitlement and methodology. Only those benefits to which
an employee's entitlement arises out of labors during the marriage
are distributable. Severance pay is not such a benefit but is a
wage continuation initiative, replacing current and future earnings
which would unarguably be the earner's separate property after
divorce. In an alimony situation severance pay, as a replacement
for income, is a fund from which such alimony can be paid. Where
no alimony is involved, the severance pay belongs solely to the
terminated worker who, upon its receipt, is in no better economic
condition and whose ex-spouse is in no worse economic condition
than would have been the case if the worker had continued working
after the divorce. The fact that severance pay is calculated based
on years of service is of no consequence. This is simply a
mathematical device unrelated to the question of the nature of the
benefit and when it was earned. While it is true that longevity of
service increases the amount of severance pay, the same can be said
of post-divorce earnings, about which there is no suggestion of
distributability. Indeed, we note that plaintiff here made no
application to distribute the severance pay component of the
pension incentive package because she obviously understood this
In sum, the pension enhancer here was clearly distributable by
application of the coverture fraction the parties agreed on because
it was earned as a reward for service during the marriage. The
decision to take the early retirement package clearly benefitted
defendant. If economic justice is the goal, there is no reason why
plaintiff, who spent 28 years with defendant while he worked at
Sandoz during which years he qualified for the pension incentive,
should not share in that benefit.
This is not to suggest that parties cannot bargain away early
retirement incentives or other pension enhancers. However, where
they are earned in whole or in part during the marriage, they are
includable in the pot for equitable distribution absent a bargain
to the contrary. Lawyers should keep this in mind in negotiating
matrimonial settlements. Future pension benefits can be fluid and
changeable; it is often uncertain at the time a deal is struck what
the exact value of the bargained for benefit will be when it is
paid out. Thus, precision in setting forth the intent of the
parties as to future pension enhancements is crucial to avoiding
further acrimonious litigation.
We turn finally to the issue of what the denominator of the
coverture fraction should be in this case. Is it 28/30 which would
reflect the actual years worked by defendant or 28/35 reflecting
the years added to his service by the company? We think the former
is the correct denominator because it reflects reality. Defendant
worked two years after the filing of the complaint before he
retired. Thus 28/30 reflects the differential between employment
during coverture and further employment. The gift of 5 extra years
of service should not be used to reduce plaintiff's fractional
share of the pension when no work was actually performed for that
Reversed and remanded for calculation of plaintiff's share of defendant's pension consonant with the principles to which we have adverted and for a redetermination of plaintiff's application for counsel fees applying the standards of Williams v. Williams, 59 N.J. 229, 233 (l97l).