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Gordon v. Gordon

Supreme Court of Alaska

August 10, 2018


          Appeal from the Superior Court No. 3KN-13-00583 CI of the State of Alaska, Third Judicial District, Kenai, Anna Moran, Judge.

          Appearances: Noah H. Mery, Gilman & Pevehouse, Kenai, for Appellant.

          William Walton, Walton, Theiler & Winegarden, LLC, Kenai, for Appellee.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.


          BOLGER, JUSTICE.


         The superior court issued a decree divorcing Gregory Gordon and Patricia Gordon and dividing the marital estate. One of the largest components of the marital estate was a retirement medical benefit earned by Patricia during the marriage through her employment with the State of Alaska. The superior court found that the benefit was entirely marital, but the court concluded that including the full value of the benefit in the marital estate (which the court determined should be divided 50/50) would result in a "windfall" to Gregory. The court therefore applied "the coverture fraction as if [Patricia] had remained working for the State"-even though Patricia had in fact quit her job with the State during the marriage.

         We agree with Gregory's argument that the court erred in applying this adjusted coverture fraction. The coverture fraction is used to determine what part of a retirement benefit is marital property and what part is separate property. It should not be used to discount the value of marital property or as a guideline for equitably dividing marital property. The superior court should have characterized the retirement medical benefit as marital or separate in accordance with the actual coverture fraction, valued the benefit at its full value, and divided the marital estate-including the retirement medical benefit-between the parties according to the statutory equitable factors. We therefore reverse the court's equitable distribution of the marital estate and remand for further consideration.


         Gregory and Patricia married in 2000 and separated in 2013 following a domestic violence incident. For much of the marriage - from 2001 until shortly before the parties' separation - Patricia worked for the State of Alaska.[1] During that time, Patricia was enrolled in the Public Employees' Retirement System (PERS) and earned a pension and a retirement medical benefit. Patricia earned these benefits entirely during the marriage, and the benefits vested during the marriage.

         Patricia filed for divorce soon after the parties' separation, and the superior court held a trial over several days in May, June, and August 2016. A major point of contention at trial was Patricia's PERS medical benefit.

         Financial planner Sheila Miller gave expert testimony on the value of the PERS pension and medical benefits. She estimated the present value of the pension at $ 154, 727 and the present value of the retirement medical benefit at $ 195, 610. Reports outlining Miller's assumptions and methodology were admitted into evidence.

         Miller also testified about the mechanics of equitably distributing the value of the PERS benefits. Patricia was 42 years old at the time the trial ended and would not be eligible to receive the pension and medical benefit until she turned 60, the applicable retirement age. Moreover, the medical benefit was personal to her, and she could not share it with Gregory or sell it. Miller suggested that the superior court could divide the PERS pension and medical benefits using a qualified domestic relations order (QDRO).[2]Assuming "a 50/50 division," Miller testified that the QDRO would assign Gregory a share of Patricia's monthly pension payment equal to 50% of the monthly pension payment plus 50% of the value of Patricia's monthly medical benefit. Because the medical benefit and pension were of comparable value, Miller's proposed QDRO would as a practical matter assign "basically... all of the" pension to Gregory, leaving Patricia with the medical benefit.[3]

         Patricia addressed the PERS benefits in her testimony, as well. She stated that she would prefer to withdraw her PERS contributions - worth approximately $64, 000 - immediately and have these contributions divided between the parties, even though doing so would result in forfeiture of her retirement health benefit and the employer contributions to her pension. She explained that she did not want the medical benefit if she would have to assign practically all of her pension to Gregory.

         Following trial, the superior court issued a divorce decree with accompanying findings of fact and conclusions of law. Among other things, the decree distributed the marital estate. The court began its equitable distribution analysis by discussing some of the factors listed in AS 25.24.160(a)(4), including the parties' respective ages, health issues, work histories, educational backgrounds, earning capacities, and finances.[4] Based on these factors, the court determined that a "50/50 property division [was] appropriate."

         The superior court then proceeded to discuss the parties' principal assets. It identified "the valuation and division of [Patricia's] medical retirement benefit" as the "most difficult and contentious issue" in the case. The court determined that Patricia's PERS medical benefit was marital property as it was "earned during the marriage," and the court calculated that a 50/50 division of the marital estate would result in Patricia "ow[ing] [Gregory] $97, 805 [i.e., half of $195, 610] for his portion of the medical retirement benefit." The court stated that such a division would be inequitable and would constitute "a windfall" to Gregory. The court noted Miller's suggestion that Patricia "reimburse [Gregory] for his portion of the medical retirement benefits" by "giv[ing] him her full PERS [pension]." But the court found this option problematic as it "would leave [Patricia] with no retirement except for medical benefits."

          The court discussed Hansen v. Hansen[5] and Engstrom v. Engstrom, [6] cases addressing application of a coverture fraction to retirement medical benefits.[7] After summarizing the cases, the superior court concluded that "[t]he coverture fraction discussed in Hansen and Engstrom does not technically apply because [Patricia] no longer works for the State of Alaska." The court also concluded that "[t]o date, the Alaska Supreme Court has not addressed th[e] precise issue" of how to prevent "marital retirement benefits that vest during a marriage from becoming a windfall to the other spouse if the court cannot use the coverture fractions suggested in Hansen and Engstrom.'

         The superior court reasoned, however, that it had power as a "court of equity" to craft a solution in light of "the financial condition of the parties, the conduct of the parties, including any conduct causing the unreasonable depletion of assets, [and] the circumstances and necessities of the parties" - factors set forth in AS 25.24.160(a)(4). The court proceeded to consider these factors and ultimately determined that an "equitable approach would be to award [Gregory] $34, 407 for his portion of [Patricia's] medical retirement [benefit]." The court explained:

The court reached this figure by using, as a guideline, the coverture fraction as if [Patricia] had remained working for the State of Alaska. If [Patricia] had continued to work for the State of Alaska until age 60 she would have had 33 years of service. The marital or coverture portion would be 11.6 years [based on Patricia's employment between 2001 and 2013]. Using the coverture fraction of 11.6 years over 33 years of service means the [marital] portion would be 35% of the medical retirement benefit. Under this analysis, the marital share of the medical retirement benefit equals [$68, 815[8] and [Gregory's] one half-share would be $34, 407.

         Thus, the superior court effectively awarded Gregory 18% of the PERS medical benefit and Patricia 82% of the benefit.

         The court divided the rest of the marital estate, including the PERS pension, 50/50. By splitting the PERS medical benefit 18/82 and the rest of the marital estate 50/50, the court effectively awarded Gregory 41% of the estate and Patricia 59% of the estate (accepting Miller's valuations of the PERS benefits).

         Gregory now appeals. He argues that the superior court "erred in characterizing [the] PERS medical retirement benefits as a 'windfall'" and in determining "that the coverture fraction' does not technically apply. '"He further argues that the court erred in "imput[ing] an additional 21.4 years of theoretical" employment to Patricia, thus reducing "the coverture ... from 100% to 35%." He contends that the court should have considered the full value of the PERS medical benefit in dividing the marital estate 50/50.

         III. ...

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