Since 1988, Pennsylvania courts have created a confusing and sometimes contradictory body of case law on a basic issue in divorce cases - whether disability payments are, or are not, marital property.
The thicket began to form with Ciliberti u Ciliberti, 542 A.2d 580 (Pa. Super. 1988), when the Superior Court examined case law around the country, and decided that disability income paid in lieu of future lost wages is not marital property. They reasoned that even if the disability payments commenced before the date of separation, disability payments after the date of separation are not marital property, under what is called the "analytic" approach.
However, pension benefits acquired during a marriage are marital property, under Pennsylvania case law and the law of most jurisdictions around the nation.
Thus, in Ciliberti, the Superior Court found that where the pension benefit can be separated from the disability benefit, the pension benefit remains marital property.
"Where it can be shown, however, that a portion of the employee spouse's disability pension is representative of retirement benefits, the amount received by the disabled employee in lieu of retirement benefits remains marital property subject to distribution," the Ciliberti court said.
The majority of courts around the nation have adopted the analytic approach. In general, the periodical Fairshare said in a September 2000 article, "courts utilizing the analytical approach will separate the benefits into a retirement component and a true disability component, with the retirement component being classified as marital property and the disability component being classified as separate property."
Thus, the Ciliberti decision was in keeping with the analytic viewpoint, the majority approach in U.S. jurisdictions.
The crucial question that faced lawyers and judges in the wake of Ciliberti is how to separate the pension from the disability.
Suppose an employee commences disability benefits at age 50, well before retirement age. These disability payments are in lieu of lost wages. However, at retirement age, the payments may be considered pension payments. Beginning at retirement age, the payments are not in lieu of wages. If the employee terminated at the time of becoming disabled, there would still be the pension payments.
If the disability payments are a higher amount than the benefit calculated under the pension formula, the additional increment would still be considered disability, but payments beginning at normal retirement age that are calculated under the pension formula are pension payments, since they can be differentiated from disability payments. In fact, the Civil Service Retirement System, in its Handbook for Attorneys on Court-Ordered Retirement, has special language to distinguish disability payments from pension payments.
Thus, the Ciliberti decision reflects the treatment given disability pay in the federal system, as well as the majority position in case law.
Ten years later, in Moore v. Moore, 710 A.2d 633 (Pa. Super. 1998), the Superior Court dealt with disability payments under workers' compensation law. Again, the Superior Court found these payments are non- marital, since they replace future lost wages.
The Moore court dealt with a lump sum payment, rather than annuity payments, as was the case in Ciliberti. The Superior Court found that the "character of a benefit should not be determined by the manner in which it is paid. The benefits in question were paid in lieu of future earnings and, consequently, do not constitute marital property."
The state Supreme Court weighed in on the issue in 1999, in Drake v. Drake, 725 A.2d 717 (Pa. 1999).
In Drake, the courts dealt with a lump sum worker's compensation payment. The Drake case originated in Washington County. The master in this case found the commutation award to be marital property because it occurred during the marriage and because part of the lump sum represented wages lost during the marriage (from the date of disability until the date of separation). The lump sum covered payments from 1989 until 1998, and the date of separation was in 1993.
The Supreme Court reasoned that the lump sum commutation award is marital property, since the right to receive the lump sum occurred during the marriage.
The justices in Drake were aware that most of the lump sum payment represented future lost wages, but decided to uphold the master, under the "unitary" or "mechanistic" method.
The Supreme Court reasoned that the Divorce Code of Pennsylvania does not adopt the analytic method. The court reasoned that the critical question was whether or not "the right to seek a commutation ... accrued during the marriage." The issue of whether the award represented wages lost after the marriage was deemed irrelevant.
In his dissenting opinion, justice Ronald D. Castille argued that the part of the lump sum that represented lost wages during the marriage be considered marital, and be separated from the portion of the lump sum that represented lost wages after the marriage. In his dissent, Castille cited Moore. However, since Moore deals with a lump sum worker's compensation payment, it would appear that Moore is superseded by Drake.
The open question is whether or not Drake supersedes Ciliberti. Note the Supreme Court found that under the Divorce Code, Pennsylvania is a "unitary" jurisdiction, not "analytic." The court found the award to be marital because the "right to seek a commutation ... accrued during the marriage." Under a broad interpretation of Drake, one could argue that the right is the disability itself, and that annuitized disability payments after the marriage are marital property, even if they represent lost wages after the marriage.
Under this reasoning, Drake would supersede Ciliberti. However, the language of the Drake court specifically addressed a commutation award that occurred during the marriage. Ciliberti deals with disability payments offered by an employer, tied in with pension benefits, where there usually is no commutation. How can there be a right to seek a commutation when the employer does not offer commutation? Therefore, if one examines strictly the reasoning of the Supreme Court in Drake, Ciliberti appears to be distinguishable from Drake.
The Superior Court's April decision in Pudlish v. Pudlish, PICS Case No. 02-0445 (Pa. Super. April 3, 2002) Bender, J. (8 pages) follows directly from Drake and cites Drake.
Pudlish involved a worker's compensation commutation award. Because the settlement occurred after the date of separation, the Superior Court found the award was not marital property.
If settlement occurs before the date of separation, but the lump sum commutation is made after the date of separation, the award would still be marital property under Drake, since the right to receive the award (the settlement), preceded the date of separation.
Drake, Moore, and Pudlish share a common lineage. Drake supersedes Moore, and Pudlish follows directly from Drake. All of these cases deal with lump sum worker's compensation commutation awards. If the settlement is achieved before the date of separation, the award is marital property. But since Ciliberti deals with disability payments in the form of an annuity, whether or not Ciliberti has been superseded by Drake remains an open question.
John R. Mondschein is the principal member of Mondschein Associates located in Allentown. He is a member of the Pennsylvania Joint State Government Comission Advisory Committee on Domestic Relations Law, and the host of "Mondschein Talks Divorce," a radio program airing on WGPA, 1100 AM, Allentown. He is also a fellow of the American Academy of Matrimonial Lawyers.
Mark K. Altschuler is president and principal actuary of Pension Analysis Consultants, Inc. located in Elkins Park. He is a contributing author to Valuing Specific Assets in Divorce, published by Panel Publishers and edited by Robert D. Feder.
Published with permission from Pennsylvania Law Weekly
PAC provides pension valuations, QDROs and actuarial reports for divorce attorneys and marriage dissolution mediators nationwide. Our Philadelphia offices are located in the suburb of Elkins Park, Pennsylvania, from where we serve the needs of legal professionals nationally, including east coast states such as New York, New Jersey, Virginia, North Carolina, Florida, Washington, D.C., and Maryland. Our Florida office located in Coral Gables, FL serves Florida family attorneys.