IN RE: MARRIAGE OF Mary Frances and Melvin J. BASSETT. Mary Frances BASSETT, Respondent and Cross-Appellant, v. Melvin J. BASSETT, Appellant and Cross-Respondent.
Melvin Bassett (Melvin) appeals from a judgment after dissolution of their marriage deferring the sale of his and Mary Bassett's (Mary) family residence and requiring him to pay one-half of the trust deed payments, and portions of the taxes and insurance on said residence. Mary appeals from that portion of the judgment ruling that a lump-sum disability benefit from Melvin's disability insurance policy was Melvin's separate property. We affirm the judgment.
Melvin, now age 71, and Mary, who is in her mid-sixties, were married in 1936. They have two adult daughters. Melvin has been totally disabled since 1969 and since mid-1978 has been receiving 24-hour care at the Motion Picture and Television Country Home (“Motion Picture Home”) in Woodland Hills, California. Mary has continued to reside in the family residence in Canoga Park, California.
Mary petitioned for dissolution of the marriage on July 13, 1978. An interlocutory judgment was entered October 1, 1980. Trial of the reserved issues was held June 21, 1982. On July 6, 1982, a notice of intended decision was filed.
In several post-trial proceedings, additional evidence was presented establishing that, under an agreement Melvin signed as a condition of admission to the Motion Picture Home, he was obligated to reimburse that facility for medical and other services rendered to him when financially able. The by-laws of that Home provide that funds expended to provide medical care will be recouped from the assets of the applicant or his estate “whenever the Board of Trustees determines such action to be fair and equitable as to the applicant, his dependents, or heirs, as the case may be.” Melvin's account with the Motion Picture Home exceeded $136,000 as of April, 1983. The fair market value of the family residence was estimated to be approximately $95,000. It was further established that Melvin received approximately $520 per month in social security retirement benefits and Mary received approximately $194 per month in social security retirement benefits. These were the sole sources of income for the parties.
After Melvin and Mary separated, but before the interlocutory judgment of dissolution was entered, the parties stipulated that Melvin's insurance policy, purchased with community funds, would be cashed in and the proceeds divided equally between the parties. The policy provided both death benefits and disability benefits. Melvin had received disability insurance payments for nine years during the marriage. When the policy was cashed in, the cash surrender value of the life insurance coverage, $9,111.00, was divided equally between the parties, while Melvin received a lump sum of $17,271.00, representing the total cash surrender value of the disability insurance.
On December 20, 1983, a “judgment and order on all bifurcated issues” was filed, in which the court expressly reserved jurisdiction with regard to all issues concerning the family residence, deferring its sale “․ until such time as [Melvin] is no longer permitted to remain at the ․” Motion Picture Home and no longer entitled to receive their care on a 24-hour basis. Mary continues to reside in the residence. The court ordered Melvin to pay one-half the monthly trust deed payments and portions of the insurance and taxes on the residence, and reserved jurisdiction over the issue of spousal support. The disability benefit lump sum payment received by Melvin was determined to be his separate property.
On January 13, 1984, Melvin filed a notice of appeal and on February 17, 1984, Mary filed a notice of cross-appeal.1
Melvin contends that the court committed reversible error 1) in deferring the sale of the residence and 2) in ordering Melvin to pay one-half the cost of the trust deed, and portions of the taxes and insurance on the residence.
Mary contends on cross-appeal that the court erred in ruling the disability benefit portion of the life insurance policy to be Melvin's separate property.
The Sale of Family Residence Was Properly Deferred
Civil Code section 4800 provides, in relevant part:
“(a) ․ [T]he court shall, either in its judgment of dissolution of the marriage, ․ or at a later time if it expressly reserves jurisdiction to make such a property division, divide the community property ․ equally․
“(b) Notwithstanding subdivision (a), the court may divide the community property ․ as follows:
“(1) Where economic circumstances warrant, the court may award any asset to one party on such conditions as it deems proper to effect a substantially equal division of the property.”
Subdivision (a) of section 4800 mandates an equal division of community property (In re Marriage of Horowitz (1984) 159 Cal.App.3d 368, 372, 205 Cal.Rptr. 874) and normally this is accomplished by the immediate sale of a community property residence and distribution of the proceeds equally to the parties. Under subdivision (b)(1), “[w]here economic circumstances warrant” the court may award the property to one spouse “conditioned upon later payments or making offsetting awards of the community assets.” (In re Marriage of Brigden (1978) 80 Cal.App.3d 380, 390, 145 Cal.Rptr. 716.)
The court may even order later payments by the purchasing spouse without providing for interim interest payments to the selling spouse as a form of child support (In re Marriage of Horowitz, supra, 159 Cal.App.3d at pp. 371–372, 205 Cal.Rptr. 874), or spousal support. (In re Marriage of Hurtienne (1981) 126 Cal.App.3d 374, 380, 178 Cal.Rptr. 748; but see In re Marriage of Horowitz, supra, 159 Cal.App.3d at p. 374, fn. 7, 205 Cal.Rptr. 874.)
In the case at bench, the court exercised the discretion granted it under subdivision (a) of Civil Code section 4800, to divide the community property equally “at a later time”, expressly reserving jurisdiction to do so. The question is whether the court abused its discretion in making the complained of order.
The evidence shows that Melvin will in all probability remain in the Motion Picture Home, and that his needs will be provided for there. If the residence were sold now a large part, if not all, of Melvin's one-half of the net proceeds would have to be paid to the Motion Picture Home. Since the trial court deferred the sale of residence only until such time as Melvin is not permitted to remain at the Motion Picture Home, he will be able to seek an order for the sale of the residence, at its then value, should he be forced to seek residence elsewhere. Deferral of the sale will protect Melvin, in that his need for a new residence, should it occur, will be considered in determining his financial ability to repay the Motion Picture Home.
On the other hand, an immediate sale of the residence would have a severe impact upon Mary. She is of retirement age, and the judgment states that she is unemployed and unemployable. Her income is limited to her $194 per month social security benefit. Due to inflation, her ability to obtain suitable replacement housing is severely limited. Clearly, her portion of the net proceeds of the sale of the house would be insufficient for that purpose.
In the special circumstances of this case, we find that the trial court did not abuse its discretion when it retained jurisdiction over all issues concerning the family residence, and deferred its sale.
The Order Requiring Melvin To Pay Portions Of The Residence Expenses Was Proper
Melvin argues that, as the amount he was required to pay toward the trust deed, taxes and insurance could be paid only from his social security benefits, his sole source of income, the order to make those payments constitutes a division of separate property.
Division of social security benefits under state community property laws has been held to interfere with the express statutory scheme of the Social Security Act and is forbidden by the supremacy clause of the United States Constitution. (In re Marriage of Nizenkoff (1976) 65 Cal.App.3d 136, 141, 135 Cal.Rptr. 189.) Such benefits are not subject to division and they cannot be recognized by any alternative provision employing a set-off. (In re Marriage of Cohen (1980) 105 Cal.App.3d 836, 843, 164 Cal.Rptr. 672; see also In re Marriage of Kelley (1976) 64 Cal.App.3d 82, 99, 134 Cal.Rptr. 259; In re Marriage of Hillerman (1980) 109 Cal.App.3d 334, 341, 167 Cal.Rptr. 240.)
There is a critical distinction between the case at bench and the cited cases; here, there was no attempt to divide Melvin's social security benefits nor employ them as a set-off in equalizing the division of the property. The payments are to be applied toward the expenses of owning property which is still community property. The federal supremacy and anti-garnishment principles explained in the above-cited cases do not protect Melvin's social security benefits from consideration in making an order of this kind.
In the unique circumstances of this case, the payments help support Mary in an incidental manner by contributing to maintaining the family residence, but they are not payments which she can apply to any other purpose and are not labelled as “spousal support.” They contribute towards the maintenance of community property, and any increase in value thereof is to the benefit of Melvin or his estate, as well as Mary.
The order directing Melvin to contribute to these residence costs did not amount to a division of Melvin's social security benefits.
The Trial Court Properly Ruled That The Lump Sum Disability Benefit Was Melvin's Separate Property
In In re Marriage of Jones (1975) 13 Cal.3d 457, 461–462, 119 Cal.Rptr. 108, 531 P.2d 420, our Supreme Court found that military pension benefits paid on account of a disability, and before the right to ordinary retirement pension benefits had “vested,” were the separate property of the serviceman, reasoning that such compensation was intended to mitigate current suffering and lost earning capacity. At the time of the decision in Jones, nonvested pension rights were considered mere expectations, rather than property interests.
A year later, in In re Marriage of Brown (1976) 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561, the court abolished the distinction between vested and nonvested retirement pension rights, holding that all such rights constitute property interests and, therefore, that to the extent such rights, whether vested or unvested, derive from employment during marriage, they constitute valuable community assets deserving of protection.
In In re Marriage of Stenquist (1978) 21 Cal.3d 779, 148 Cal.Rptr. 9, 582 P.2d 96, the court characterized a disability pension received by a serviceman in lieu of a retirement pension as his separate property only to the extent that it exceeded the amount he would have received had he elected to take a retirement pension. The court stated, at pages 786–787, 148 Cal.Rptr. 9, 582 P.2d 96:
“We cannot permit the serviceman's election of a ‘disability’ pension to defeat the community interest in his right to a pension based on longevity. In the first place, such a result would violate the settled principle that one spouse cannot, by invoking a condition wholly within his control, defeat the community interest of the other spouse. [Citations.] As the court explained in In re Marriage of Mueller (1977) 70 Cal.App.3d 66 [137 Cal.Rptr. 129] ․, a case indistinguishable from the present appeal, the employee spouse retains the right to determine the nature of the benefits to be received. [Fn. omitted.] It would be inconsistent with community property principles ‘to permit that spouse to transmute what would otherwise be community property into his or her separate property.’ [Citation; fn. omitted.]
“In the second place, ‘only a portion of husband's pension benefit payments, though termed “disability payments,” is properly allocable to disability. It would be unjust to deprive wife of a valuable property right simply because a misleading label has been affixed to husband's pension fund benefits.’ [Citations.]”
The Stenquist court recognized that military retirement pay based on disability does not serve only the purposes enumerated in Jones. “Because it replaces a ‘retirement’ pension, and is computed in part on the basis of longevity of service and rank at retirement, it also serves the objective of providing support for the serviceman and his spouse after he leaves the service. Moreover, as the veteran approaches normal retirement age, this latter purpose may become the predominate function served by the ‘disability’ pension.” (In re Marriage of Stenquist, supra, 21 Cal.3d at p. 787, 148 Cal.Rptr. 9, 582 P.2d 96.)
The court adopted the method of allocating such a disability pension previously explained in In re Marriage of Mueller (1977) 70 Cal.App.3d 66, 137 Cal.Rptr. 129, where the court stated that “where the employee spouse elects to receive disability benefits in lieu of a ․ right to retirement benefits, only the net amount thus received over and above what would have been received as retirement benefits constitutes compensation for personal anguish and loss of earning capacity and is, thus, the employee spouse's separate property. The amount received in lieu of ․ retirement benefits remains community property subject to division on dissolution.” (Id., at p. 71, 137 Cal.Rptr. 129; In re Marriage of Stenquist, supra, 21 Cal.3d at p. 788, 148 Cal.Rptr. 9, 582 P.2d 96.)
We find a number of court of appeal decisions, filed both before and after Stenquist, consistent with its conclusion that post-separation benefits paid on account of disability, rather than longevity of service, constitute separate property (e.g., In re Marriage of Briltz (1983) 141 Cal.App.3d 17, 189 Cal.Rptr. 893; In re Marriage of Pace (1982) 132 Cal.App.3d 548, 552–553, 183 Cal.Rptr. 314; In re Marriage of Samuels (1979) 96 Cal.App.3d 122, 126–128, 158 Cal.Rptr. 38; In re Marriage of Webb (1979) 94 Cal.App.3d 335, 340–343, 156 Cal.Rptr. 334; In re Marriage of Mason (1979) 93 Cal.App.3d 215, 225–226, 155 Cal.Rptr. 350; In re Marriage of Cavnar (1976) 62 Cal.App.3d 660, 663–665, 133 Cal.Rptr. 267; In re Marriage of Olhausen (1975) 48 Cal.App.3d 190, 192–194, 121 Cal.Rptr. 444), and only one such decision to the contrary (In re Marriage of Donnelly (1983) 142 Cal.App.3d 135, 137, 190 Cal.Rptr. 756). In Donnelly, the court characterized as community property benefits received under an income protection insurance policy purchased by the husband during the marriage, although the benefits became payable following separation upon the husband's becoming totally disabled. The husband, a police officer, also took disability retirement from the police department. The court reasoned that the policy in question, a private contract of insurance providing for the payment of a flat sum of $400 per month for total disability for a fixed term of five years, and purchased with community earnings, closely resembled a life insurance policy, which is, in like circumstances, considered a community asset (Thoen v. Thoen (1967) 248 Cal.App.2d 354, 356, 56 Cal.Rptr. 614), and that the separate property treatment of disability benefits propounded in In re Marriage of Jones, supra, 13 Cal.3d 457, 119 Cal.Rptr. 108, 531 P.2d 420, had been weakened by the subsequent decisions of the Supreme Court in In re Marriage of Brown, supra, 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561, and In re Marriage of Stenquist, supra, 21 Cal.3d 779, 148 Cal.Rptr. 9, 582 P.2d 96.
As is apparent from our earlier discussion, we find no such dilution of the basic premise of Jones that post-separation benefits attributable to disability, rather than longevity of service, constitute separate property.2 Nor do we find anything in the record before us to suggest that the portion of Melvin's policy providing for disability benefits is more like a life insurance policy than a disability policy.
The trial court properly characterized Melvin's lump sum disability benefit as his separate property.
The judgment is affirmed.
I concur in that portion of the judgment entered below which defers the sale of the family residence and requires husband to pay one-half of the trust deed payments, taxes and insurance on such residence. However, I would reverse that portion of the trial court's judgment which holds the cash surrender value of disability benefits in the policy to be husband's separate property.
I disagree with the majority's reasoning that the Supreme Court's decision in In re Marriage of Stenquist (1978) 21 Cal.3d 779, 148 Cal.Rptr. 9, 582 P.2d 96 is dispositive on the question of disability benefits present here. Stenquist involved a military disability pension the husband elected to receive in lieu of a retirement pension. A federal military pension is different because such pension benefits are earned as a result of longevity of service rather than by the purchase of a policy of insurance.
It is undisputed that community property funds were used to purchase the policy which contained both life and disability benefits. The portion of the cash surrender value for disability benefits amounted to $17,271 and represented an investment feature of the policy as contrasted with protection benefits. These disability benefits constitute community property because they more closely resemble life insurance benefits rather than benefits payable exclusively as a result of a disability.
There appears to be some conflict in the appellate court decisions regarding whether disability benefits are separate or community property. In my view, the result reached in In re Marriage of Donnelly (1983) 142 Cal.App.3d 135, 137, 190 Cal.Rptr. 756, is more persuasive, equitable and in point with the situation at hand than the decisions relied upon by the majority.1 Unlike Stenquist, this appeal does not concern an election to receive disability benefits in lieu of retirement benefits which is used to defeat the nonemployee spouse's interest in community assets.
Since the premiums for such policy were paid from community funds, the judgment entered below should have at least provided for reimbursement to the wife for her portion of the community funds used to purchase such benefits.
The question of whether the proceeds of a private disability policy is community or separate property is now before the Supreme Court in In re Marriage of Saslow, No. SF 24613. Hopefully, our Supreme Court will provide specific guidance on this question.
1. Pursuant to California Rules of Court, rule 12(a), we have augmented the record on appeal by ordering the entire superior court file to be transmitted to this court.
2. The issue is presently pending before our Supreme Court in In re Marriage of Saslow, S.F. 24613, hearing granted August 11, 1983 (formerly 143 Cal.App.3d 392, 191 Cal.Rptr. 749).
1. The decisions cited by the majority on pages 314 – 315 which were issued before and after Stenquist are distinguishable. None of those decisions dealt with the acquisition of a private disability policy with use of community funds. Those decisions generally stand for the proposition that disability benefits from governmental or private pension plans are the separate property of the employee's spouse but are community property to the extent that they are received after retirement or in lieu of retirement pay.Prior to the separation of the parties herein, the benefits paid on the disability policy and social security were the sole source of support for the husband and wife. Once the disability insurance benefits were “cashed in” and paid over to husband as his separate property, the wife's income was reduced to only her social security benefits. The husband's decision to cash in the policy severely limited the wife's ability to continue to support herself on the same basis as the previous nine years.
DANIELSON, Associate Justice.
ARABIAN, J., concurs.