Court Orders Ex-Spouse to Share Buyout

A divorced person who takes an early retirement buyout to avoid a layoff must share the money with a former spouse--even if the marriage ended years earlier, the California Supreme Court held Thursday.

The court ruled in favor of a Northern California woman, saying she was entitled to part of her former husband’s early retirement package even though he obtained it 14 years after their divorce.

The decision is expected to affect thousands of people because a growing number of companies have been offering such retirement buyout plans to trim the cost of their work forces. In addition, lawyers on both sides of the case predicted that the ruling may eventually give divorced people greater claims on their former spouses’ 401(k) plans.

During divorce negotiations, “people now have to realize that there is the potential down the road for their spouse to get a very much larger chunk . . . than they ever anticipated,” said Harry L. Styron, who represented retired utility worker Jack R. Lehman in the case.

Bernard N. Wolf, the lawyer for Lehman’s former wife, Marietta, said the ruling will affect tens of thousands of people touched by corporate downsizing. “This case deals with a change in the economic facts of life in the workplace,” he said.

The decision may also have an impact on how companies structure early retirement benefits. To avoid the impact of the court’s ruling, divorced workers may try to persuade employers to offer buyouts as a new benefit separate from their regular retirement packages.

“An employer who is conscious of this problem and wants to favor his employees has the opportunity to do that,” Styron said.

Jack Lehman had worked as a foreman for Pacific Gas & Electric Co. during his 19-year marriage. Marietta Lehman had not worked outside the home. The two divorced in 1979.

In 1993, in an effort to avoid layoffs, the utility offered older workers an incentive retirement plan. Jack Lehman, who had been told he might be laid off, accepted the offer and retired at age 54. The buyout gave him $709 more a month than he would have received if he had retired under the company’s regular plan at age 55. He has since remarried and works as a consultant to his former employer.

Generally, under California law, all property acquired during a marriage is community property, shared by both spouses. This includes retirement benefits--considered deferred compensation--accumulated during the years of the marriage.

Marietta Lehman, who has also remarried, contended that she was entitled to a share of the higher retirement benefits, prorated according to the number of years her former husband worked during their marriage. Jack Lehman insisted that his ex-wife should get only a portion of what the retirement benefits would have been if he had not taken the buyout.

Justice Stanley Mosk, who wrote the court’s decision, noted that if the husband’s benefits had been reduced before he retired, the wife would have been left with less money.

“Because the nonemployee spouse is compelled to share the bad with the employee spouse, he or she must be allowed to share the good as well,” Mosk wrote.

Justices Marvin Baxter and Ming W. Chin dissented, arguing that the ruling will make divorcing couples less likely to “divide their assets promptly and get on with their lives” because of the possibility of a windfall down the road.

In addition, they argued, the court was giving divorced spouses a portion of a new benefit that had not existed during the marriage.

“The majority’s result is at odds with the fundamental premise that community property is limited to that acquired during the marriage,” Baxter wrote.

Jack Lehman could have avoided his predicament if he had paid his former wife a lump sum for her share of his pension at the time of the divorce, his lawyer said.

“I am sure Mrs. Lehman would much rather have had her money 20 years ago,” said Wolf, her lawyer. “She could have invested it or used it.”

But Styron, Jack Lehman’s lawyer, said it is difficult to get a divorcing spouse to accept a lump sum payment. “You get a lot more money later,” he said.