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Saturday, April 4, 2015

BEST EXPLANATION OF TIME RULE FORMULA

TIME RULE FORMULA: HOW IT EQUALLY DIVIDES FUTURE PAYMENTS

Husband and wife divorce in 2000. They divide their assets by settlement agreement, including husband's Teamster's pension. 13 years later, wife files a motion to adopt a QDRO to allocate her share of the pension. Husband objects to her draft QDRO.

The agreement provided that the pension would be "...equally divided between [them] as of the date of entry of a final decree...."

Wife proposed the following language: 50% multiplied by [Husband's] total hours of benefit service under the Plan earned from the date of marriage to the date of dissolution divided by [Husband's] total hours of benefit service earned up to Alternate Payee's Benefits Commencement Date. Husband proposed different language for the QDRO, essentially arguing that she should receive half of his benefits as if he had quit on the date of the final decree. The trial court adopted wife's QDRO, finding that the Montana Supreme Court only allowed a "lump sum" division based on the present value of future payments or the "time-rule" formula proposed by wife. Husband appeals.

The Supreme Court held that the trial court did the right thing for the wrong reasons. The reasons stated by the trial court were wrong simply because the freedom to contract theoretically would allow other methods of dividing up pension benefits beyond the two stated methods.

The reason the Supreme Court found that the trial court did the right thing by adopting the time-rule formula is the most interesting part of the opinion. Here's the key language:

"There are three conceptual components to the value of the pension, given that the pension has yet to fully vest or to begin paying benefits and that the value of the pension is to be divided at one time and paid in the future.

First, there is the vested monetary value of the pension at dissolution, based on the employer and employee contributions and any growth - from interest or otherwise - to the date of dissolution

Second, there is interest that may accrue on the value of the pension between dissolution and when benefit payments are made. See Spawn, ¶ 15; Rolfe, 234 Mont. at 298-99, 766 P.2d at 226. 

Third, there is potential for growth or loss in value that is attributable to sources other than interest. This may include, for example, growth from increased contributions or losses due to termination or early retirement."

The time-rule formula takes all three components into account. Husband's proposed language only takes the first component into account. Literally a dollar 13 years from now is not worth the same as a dollar today. So to equally divide between two spouses the future monthly benefits accruing to one of them, the Court held that: 

"¶16 Equal division of an amount to be paid in deferred installments requires equal division of any interest that may accrue during deferral. Each "spouse is entitled to increases or accruals on her [portion] because of the delay in receiving those payments."
         
Finally, the Court found that before either of them receive any payments, there may be gains other than interest, based on employer contributions and increased contributions based on non-merit pay hikes. The time-rule formula takes this component into account.

("[T]he greater-value later years would not have been possible without the lesser-value earlier years. We cannot say the years after the marriage were more valuable than the years during the marriage."). Neither the post-dissolution potential for loss or gain is represented in the vested monetary value of the pension at dissolution, yet each is part of the value of the pension at dissolution. Only by apportioning this post-dissolution potential to each spouse can the value of the pension at dissolution be equally divided and paid at a point in the future." See paragraph 17.


CROSS APPEAL

There were two smaller points made. The parties had included a "prevailing party" attorney fee paragraph. Wife was not awarded attorney fees despite the fact that she clearly won. But she did not cross appeal. The Court ruled that "...a party must cross-appeal if the party seeks to change any part of the judgment below." Paragraph 25. Husband had included as part of his appeal a claim of trial court error in not awarding him attorney fees. That was not good enough. 


ATTORNEY FEES ON APPEAL

However, the Supreme Court awarded her prevailing party attorney fees on appeal, remanding to the trial court to determine the amount.

CADENA V. FRIES 2015 MT 90