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Jackson v. Sollie

Court of Appeals of Maryland

July 19, 2016

MILTON EVERETT JACKSON
v.
GAYLE ANN SOLLIE F/K/A GAYLE S. JACKSON

          Argued: February 8, 2016

         Circuit Court for Howard County Case No. 13-C-14-101240

          Barbera, C.J. [*] Battaglia Greene Adkins McDonald Watts Hotten, JJ.

          OPINION

          Greene, J.

         In this case, we address whether a trial judge has the authority to consider Social Security benefits, and whether a judge may offset those benefits against the marital portion of a Civil Service Retirement System ("CSRS") pension[1] when determining the division of marital property.

         Milton E. Jackson ("Jackson") filed for an absolute divorce[2] from his spouse, Gayle S. Jackson ("Sollie").[3] Concerning the distribution of marital property, the parties were unable to reach a consensus as to how to divide their respective pension plans. As an older federal employee, Jackson is a participant in the CSRS pension program.[4] Upon retirement, he will be entitled to a pension, but only limited Social Security benefits. Sollie, however, participates in the Maryland State Retirement Service ("MSRS") plan, and will be entitled to a pension as well as full Social Security benefits.

         Jackson acknowledges that generally, under Maryland law, in a divorce proceeding, retirement plans are considered marital property subject to division, and Social Security benefits are considered non-marital property, which are not subject to division. He argues, however, that the marital portion of the CSRS pension should be reduced in order to reflect an offset. The offset, he states, is an implicit embedded Social Security element representing the amount of Social Security benefits Jackson would have been entitled to had he not participated in the CSRS. By accounting for the offset, Sollie's share of the marital portion of the CSRS pension would be reduced, and, in Jackson's opinion, this would result in a more equitable distribution of the marital assets.

         The Circuit Court rejected Jackson's offset argument, and ordered the retirement plans be divided so that each party would receive 50% of the marital share of the other party's retirement plan. For the reasons explained below, we agree with the Circuit Court on this point, and hold that, under the doctrine of federal preemption, a trial judge may not offset the value of hypothetical Social Security benefits against the marital share of a CSRS pension when dividing marital assets in a divorce proceeding. We, however, vacate the judgment of the Circuit Court, and remand the case for that court to take into consideration the parties' anticipated Social Security benefits as a relevant factor under Md. Code (1984, 2012 Repl. Vol.), § 8-205(b) of the Family Law Article ("FL").

         FACTUAL AND PROCEDURAL BACKGROUND

         The parties were married on June 21, 1980. By this time, each party was already employed and contributing to their respective pension plans. After thirty-five years of marriage, Petitioner filed a complaint for an absolute divorce. Although the parties agreed to divide other marital assets equally, they were unable to reach a consensus as to how to dispose of their respective pension plans. On June 25, 2015, the parties appeared before the Circuit Court for Howard County for a trial. The trial judge bifurcated the case, and heard the grounds for divorce first, followed by testimony concerning the disposition of Jackson's CSRS pension, and Sollie's MSRS pension. In the latter proceeding, the trial judge heard testimony from Jackson, his expert witness, and Sollie's expert witness.

         Jackson testified about his employment history, including twelve years in the private sector and over thirty-eight years with the Social Security Administration where he remains a full-time employee. As a federal employee, Jackson enrolled in the CSRS, and began making contributions on January 18, 1977.[5] He explained that, as a CSRS employee, he does not qualify for Social Security benefits, because his employer does not withhold Social Security taxes from his salary. He further explained that he would be eligible to receive limited Social Security benefits, because he previously worked in the private sector, and contributed to the program.

         Jackson explained that when an individual, such as himself, is eligible for Social Security benefits as well as a pension from a position that did not contribute to the Social Security program, the individual will be adversely impacted by two statutory provisions enacted by Congress. First, under the Windfall Elimination Provision ("WEP"), a special formula is used to reduce the amount of Social Security benefits that the individual is entitled to receive. Windfall Elimination Provision, Social Security Admin. (Jan. 2016), www.ssa.gov/pubs/EN-05-10045.pdf [https://perma.cc/DX2K-WF4X ]. If Jackson were to receive Social Security benefits starting at age 66, the WEP would reduce his estimated benefits of $381 per month to $131 per month. Second, under the Government Pension Offset ("GPO"), there is a similar reduction in the Social Security spousal or survivor benefits an individual, including a former spouse, may receive. Government Pension Offset, Social Security Admin. (July 2015), www.ssa.gov/pubs/EN-05-10007.pdf [https://perma.cc/Y7W3-K5D6].

         Jackson called an expert witness in the areas of the CSRS and pensions to testify on his behalf. The expert explained that a portion of Jackson's salary is withheld to fund the CSRS instead of Social Security. Therefore, in the expert's opinion, the Circuit Court should account for the embedded Social Security element that allegedly exists within the CSRS pension:

[T]he Social Security element means the amount of Social Security that [Jackson] would have had if he had been a private company employee or participated in the FERS program. So if you set that aside and allocate [the value of the embedded element] to Mr. Jackson and then divide the balance of that, the remainder, by the marital fraction, so in essence attributing some of Mr. Jackson's CSRS Pension to Social Security, then this, in my opinion, provides an equitable distribution of the retirement pensions.

         In essence, because Social Security benefits are non-marital property, and thus, not subject to division by a court in a divorce proceeding, the expert proposed that the embedded Social Security element should be similarly treated as non-marital. Otherwise, according to the expert, an inequitable division would occur, because a portion of that embedded element would be distributed to Sollie.

         Although Sollie did not testify, she did call an expert witness in the areas of pension, pension valuations, and Social Security benefits. The expert testified about Sollie's employment history, and explained that Sollie has contributed to the MSRS for over twenty-eight years, beginning on August 1, 1986, as well as to Social Security. As a result, upon retirement, Sollie will be entitled to a pension as well as Social Security benefits. Sollie's expert disagreed with the pension valuation calculations made by Jackson's expert. The expert explained that any attempt to value the hypothetical Social Security element would be speculative, because the element does not exist within the CSRS. The CSRS and Social Security are separate and distinct programs with distinguishing characteristics. Additionally, the expert explained that state courts are federally preempted from interfering with Social Security, and that Jackson was trying to circumvent Congressional intent by suggesting that the trial court could offset the value of Social Security benefits. Congressional intent is expressed by the interplay between the CSRS, the WEP, and the GPO: Jackson, as a CSRS employee, is entitled to reduced Social Security benefits.

         On June 30, 2015, the Circuit Court entered its judgment granting Jackson an absolute divorce. On the issue of how to equitably divide the retirement plans, in its memorandum opinion, the Circuit Court stated:

It is not the role of the Court to make things equal, only to divide marital property equitably . . . . Each party's retirement shall be divided in accordance with the Bangs Formula, giving each party 50% of the marital share of the other party's retirement, with the marital share being defined as the number of months of the employee's qualifying participation in the plan from June 21, 1980 and June 25, 2015 and the denominator being the total number of months of the employee's qualifying participation in the plan.

         On July 16, 2015, Jackson filed a notice of appeal in the Court of Special Appeals, and, on August 25, 2015, he filed a petition for writ of certiorari with this Court. Before the commencement of proceedings in the intermediate appellate court, we granted certiorari to answer the following question:

Should Maryland adopt the [position of a] majority of states and require a trial judge to consider whether social security benefits should be offset against the marital portion of [a] CSRS pension upon dividing assets as a result of [a] divorce?

Jackson v. Sollie, 445 Md. 19, 123 A.3d 1005 (2015). For the reasons stated below, we shall answer twofold: (1) in a divorce proceeding, a trial judge is preempted by federal law from dividing Social Security benefits (including its hypothetical value) directly or by way of an indirect offset when determining the equitable distribution of marital property; (2) on the basis of the evidence presented, a judge must consider a party's actual or anticipated Social Security benefits as a relevant factor under FL § 8-205(b) when determining whether to grant a monetary award to adjust the equities and rights of the parties concerning marital property. "A court that grants a divorce has authority to determine which property is marital property, to assess its value, to order the transfer of ownership of certain categories of property, and to grant a monetary award to adjust 'the equities and rights of the parties.'" Robinette v. Hunsecker, 439 Md. 243, 245–46, 96 A.3d 94, 95 (2014) (quoting FL §§ 8-201 through 8-205). Accordingly, we vacate the judgment of the Circuit Court, and remand this case for the judge's consideration of the parties' anticipated Social Security benefits in determining whether it would be equitable to enter a monetary award.

         STANDARD OF REVIEW

         The question before this Court is a question of law as it concerns the limits of a trial court's authority in a divorce proceeding. "As with all questions of law, we review this matter de novo." Toms v. Calvary Assembly of God, Inc., 446 Md. 543, 551, 132 A.3d 866, 870–71 (2016) (citing State v. Johnson, 367 Md. 418, 424, 788 A.2d 628, 631 (2002)).

         DISCUSSION

         We are asked to address an issue of first impression in Maryland, and to determine whether a trial court, in a divorce proceeding, may consider hypothetical Social Security benefits, allegedly located within the CSRS pension, and offset that amount when determining whether to make a monetary award in order to achieve an equitable distribution of marital property. First, we shall address whether a judge may offset the value of hypothetical Social Security benefits.

         Social Security and Federal Preemption

         We are guided by the United States Supreme Court on the issue of whether Maryland courts are federally preempted from indirectly dividing Social Security benefits by way of an offset. We know from Flemming v. Nestor that Social Security benefits are distinguished from annuities, and are not considered an accrued property right. 363 U.S. 603, 610, 80 S.Ct. 1367, 1372, 4 L.Ed.2d 1435, 1444 (1960). "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to everchanging conditions which it demands." Id. "It is apparent that the noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments." Flemming, 363 U.S. at 610, 80 S.Ct. at 1372, 4 L.Ed.2d at 1443–44.

         An analysis of the Social Security program as discussed in Hisquierdo v. Hisquierdo provides additional guidance. 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979). At issue in Hisquierdo was a state court's power, in a divorce proceeding, to divide or offset the value of an expected interest in federal retirement benefits administered under the Railroad Retirement Act ("RRA"). The Supreme Court held that the statutory scheme enacted by Congress, which it analogized to the Social Security Act ("SSA"), preempted state courts from directly or indirectly interfering with the RRA benefits. Hisquierdo, 439 U.S. at 586, 588, 99 S.Ct. at 810–11, 59 L.Ed.2d at 14. Under the RRA, an employee's spouse qualified for benefits, but any entitlement to those benefits terminated upon an absolute divorce. Hisquierdo, 439 U.S. at 575, 99 S.Ct. at 805, 59 L.Ed.2d at 7. Thus, any benefits derived from the RRA cannot be subject to division in a divorce proceeding. The Supreme Court acknowledged that "[t]he burden of marital dissolution may be particularly onerous for a spouse who, ...


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