IN RE: the MARRIAGE OF Eileen K. and Ernest J. SASLOW.

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Court of Appeal, Fifth District, California.

IN RE: the MARRIAGE OF Eileen K. and Ernest J. SASLOW. Eileen K. SASLOW, Appellant, v. Ernest J. SASLOW, Appellant.

Civ. 4741.

Decided: May 26, 1983

Grant D. Telfer and Diane S. Gersten, Frederick A. Meiser, Jr., San Diego, for appellant (wife). Goldberg, Fisher, Randall & Quirk and Roger D. Randall, Bakersfield, for appellant (husband).

OPINION

This is an appeal and cross-appeal from an interlocutory judgment of dissolution of marriage.   The issues raised relate to characterization, extent and division of property, plus reimbursement.

The parties married on September 23, 1956, and separated 19 years later on September 8, 1975.   Prior to and during a portion of the marriage, the husband was a practicing physician.   Wife was a recently widowed school teacher, who owned her own home.

I. TRUST B 2

VI. DISABILITY INSURANCE PAYMENTS

During the marriage husband participated in no retirement or pension fund program.   He did purchase several disability insurance policies.   The premiums for the disability insurance policies were paid with community property.   In 1972 husband ceased practicing medicine due to a disability.

One policy paid benefits until age 60, several to age 70, one to age 75, and one policy paid so long as the doctor lived.   At time of trial the disability benefit payments were $1,881 per month.   At age 70, the benefits will be reduced to $631.   At age 75 they are reduced to $506.

The court concluded as a matter of law that the disability pension payments were the separate property of husband and ordered husband to pay one-half of the benefits received every month to wife as spousal support.5

Wife argues that such an order is not an appropriate solution.  “[Spousal support] lies within the discretion of the trial court and may be modified with changing circumstances:  ‘the spouse “should not be dependent on the discretion of the court ․ to provide her with the equivalent of what should be hers as a matter of absolute right.” ’ ”  (In re Marriage of Stenguist (1978) 21 Cal.3d 779, 787, fn. 8, 148 Cal.Rptr. 9, 582 P.2d 96.)

Disability benefits serve the principal purpose of compensating the disabled employee for his/her injury, including prospective loss of earnings and diminished earning capacity.  (In re Marriage of Samuels (1979) 96 Cal.App.3d 122, 128, 158 Cal.Rptr. 38.)   Disability payments paid after separation consistently have been held to be the separate property of the spouse who receives them, except for that portion of the payment which is payable as a pension.  (See In re Marriage of Stenquist, supra, 21 Cal.3d at pp. 784–787, 148 Cal.Rptr. 9, 582 P.2d 96;  In re Marriage of Jones (1975) 13 Cal.3d 457, 462–463, 119 Cal.Rptr. 108, 531 P.2d 420, disapproved on another point in In re Marriage of Brown (1976) 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561;  In re Marriage of Pace (1982) 132 Cal.App.3d 548, 552–553, 183 Cal.Rptr. 314;  In re Marriage of Samuels, supra, 96 Cal.App.3d at p. 128, 158 Cal.Rptr. 38;  In re Marriage of Webb (1979) 94 Cal.App.3d 335, 340–342, 156 Cal.Rptr. 334.)

Wife argues the above cases are distinguishable because in all of the cases cited the employee/spouse could not elect to contribute to the pension/disability plans;  they were all funded by withholding from the employee/spouse's wages or otherwise tied to the contract of employment.

 Whether bargained for as a part of the benefit package by a labor organization representing an employee, given as a matter of inducement to gain employee loyalty, or, as in governmental pensions, won as a result of political power, disability benefits are paid for by work performed by the employee/spouse, which is community property.

The only difference between the cited cases and the instant case is the husband here had more direct control over the process.   The disability benefits were not bargained for husband by his collective bargaining agent, won for him by political forces working on his behalf, or given to him by an employer anxious to gain employee loyalty.

There is no indication in the record that husband purchased the policies of disability insurance in contemplation of a separation or dissolution;  there is no evidence of when the policies were purchased.   There is nothing to suggest that husband sought to transmute community property into separate property.   The selection of disability insurance in lieu of placing monies in a retirement plan was fortunate.   It benefited the community from husband's disability in 1972 until separation in 1975.   And because the payments have been divided equally since that time, they have benefited both parties up to the present.

We acknowledge that retirement plans, as well as disability insurance, compensate for a loss of earnings.   One who retires at an advanced age has a diminished ability to compete in the open labor market which may equal or exceed that of one who has retired for disability.   As noted in In re Marriage of Stenquist, supra, 21 Cal.3d 779, 787, 148 Cal.Rptr. 9, 582 P.2d 96, disability pay may not serve exclusively as compensation for diminished ability to compete in the open labor market and for compensation for personal suffering caused by the disability.   As “normal retirement age” is approached, the provision of retirement-type support may become the predominate function served by the disability pension.

 Under the circumstances of the case at bench, as husband advances in age, one function of the disability payments is to provide a type of retirement support.   This is the predominate function of the “disability” policy payable at the rate of $506 per month until death.   This policy should have been characterized as community.

 However, as to the other policies, the fact that payments terminate at 60, 70 and 75 years indicates that insofar as the insurers and the insured were concerned, the primary objective was to provide disability insurance.   We should keep in mind that in the case of a physician, one may be desirous of continuing one's practice after “normal” retirement age.6

Since oral arguments, In re Marriage of Donnelly (1983) 142 Cal.App.3d 135, 190 Cal.Rptr. 756 has been decided and published.   Mr. Donnelly, a police officer, purchased an “income protection” policy with community funds during marriage.   He was injured in the performance of his duties and took disability retirement.   Thereafter the parties separated.   At issue in the dissolution proceeding were payments made on the policy following separation.

The trial court held the proceeds were community.   The appellate panel affirmed, relying on what it perceived as a weakening of the holding in In re Marriage of Jones, supra, 13 Cal.3d 457, 119 Cal.Rptr. 108, 531 P.2d 420 and upon Biltoft v. Wootten (1979) 96 Cal.App.3d 58, 157 Cal.Rptr. 581, an opinion relating to term life insurance.

Jones was discussed in In re Marriage of Stenquist, supra, 21 Cal.3d 779, 785, 148 Cal.Rptr. 9, 582 P.2d 96, where it was noted that In re Marriage of Brown, supra, 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561 undermined the premise in Jones that the award of a serviceman's disability pension as his separate property would not impair any community interest of his spouse.  Stenquist affirmed the finding of a community interest in that portion of the husband's pension that was allocable to retirement for age and longevity of service.   It also affirmed the trial court's holding that classified as separate property that portion of the husband's pension in excess of benefits for age and service.

We do not read Stenquist as weakening in any way the law that pure disability retirement benefits are to be classified as separate property.

Jones, as modified by Stenquist, has continuing vitality in cases where the payment is made after separation and no part of the benefit is paid by way of retirement pension.  (See In re Marriage of Flockhart (1981) 119 Cal.App.3d 240, 173 Cal.Rptr. 818 [compensation by federal government for loss of job when the situs of husband's employment was made a park];  In re Marriage of Wright (1983) 140 Cal.App.3d 342, 189 Cal.Rptr. 336 [severance pay upon termination of employment in recognition that employee would have difficulty in securing replacement employment];  In re Marriage of Samuels, supra, 96 Cal.App.3d 122, 158 Cal.Rptr. 38 [pure disability payments paid until age of retirement].)  We conclude the reasoning in Donnelly which is based upon Stenquist is misplaced.

The other foundation of the Donnelly decision—the holding in Biltoft v. Wootten, supra, 96 Cal.App.3d 58, 157 Cal.Rptr. 581—similarly crumbles upon examination.   Although one may criticize the formula for allocation utilized in Biltoft v. Wootten, the basic holding—that the community earns an interest in term insurance—has some logical basis.  Biltoft involved a dispute between the wife and daughter of a decedent who was the insured in a term insurance policy.   The policy was taken out during coverture and continued after separation, when the deceased changed the beneficiary designation from his wife to his children.   The policy had no cash surrender value and no accumulation of dividends.   If the deceased had ceased payments of the premium after separation the policy would have lapsed.   He did not and made some premium payments from post-separation (hence separate) earnings.   However, the payments of premiums during marriage avoided any restrictions of availability of insurance by reason of age or health after separation, and permitted continuance of the policy upon payment of premiums, with certain conversion privileges.   The court found that the community had earned a valuable contract right which should inure to the surviving spouse.

There are obvious differences between term life insurance and disability insurance.   The former is purchased as income protection of the beneficiary spouse, usually not the primary breadwinner.   It is to be paid after the marriage is terminated by death.   It comports with the parties' reasonable expectations that the noninsured spouse will benefit by the expenditure of community funds on maintenance of the policy.

 Disability insurance, on the other hand, is taken out to protect earning power.   A person's earning power during coverture is community;  his or her earning power after separation normally is considered separate (although available for consideration of ability to pay in spousal support considerations).

 We are unable to follow Donnelly.   If the rule for disability insurance is to be changed, it should be done by the Legislature or our Supreme Court.   The fact that husband had direct control over the decision to invest in disability insurance should not be a sufficient basis for establishing an exception to the rule that disability payments made to a separated spouse are his/her separate property.

 Other than “disability” payments which are payable until death, any distinction based upon the age at which disability benefits terminate would be arbitrary, since various persons will have disparate expectations on the length of expected productive employment.   There is no policy reason to depart from the traditional rule in this case since there is no suggestion of an attempt to transmute community property into husband's separate property by the purchase of disability, rather than retirement, benefits.   The trial court's decision finding the disability payments terminable at a designated age are separate property, but setting spousal support payments at one-half of disability benefits received, comports with law and equity.   It will not be disturbed.

VII. DISPOSITION

The judgment is affirmed for all issues except those discussed in parts II and III 7 and as to the “disability” policy payable until death in part VI.  (In this connection, an adjustment of spousal support will be necessary.)   The matter is remanded for further proceedings in reference to said parts.

Each party is to bear his/her own costs and attorney fees.

FOOTNOTES

2.   See footnote 1, ante, as to parts I through V.

5.   Husband already was voluntarily giving one-half of the benefits to wife.

6.   We note that, depending upon all the circumstances, when a policy continues disability payments beyond a normal retirement age, a trial court could properly make a finding of fact that the predominate purpose was to provide retirement benefits.

7.   See footnote 1, ante.

ANDREEN, Acting Presiding Justice.

MARTIN and HAMLIN, JJ., concur.

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