Marriage of Ochoa, 2019 IL App (3d) 160537
The treatment of pension benefits in a divorce can sometimes raise puzzling questions. Pensions are typically earned over extended periods of time and the monthly payments do not start until an age requirement is met. As a result, pension benefits will frequently have marital and non-marital components. Separating the marital from the non-marital component is not always difficult. In some cases, however, disentangling the marital from the non-marital portion is quite complex. The Third District in Ochoa addressed such a problem.
The Facts in Ochoa
Louise Ochoa and Frank Ochoa were married in January 2000 and were divorced in May 2016: married for 16 years and 4 months. Prior to his getting married to Louise, Frank served in the military, on active duty, from 1974 to 1980. Approximately 10 years and four months before he married Louise, in August 1989, Frank joined the Illinois State Police and stayed with the State Police until August 1, 2011, when he retired.
Frank’s pension benefits would depend heavily on the length of time Frank worked for the State Police: the more service months Frank earned under the pension, the higher the pension benefit. A higher pension benefit translates into higher monthly payments under the pension after Frank retired.
When Frank retired from the State Police, he had accrued 263.50 months of service credit under the pension. The pension plan, however, offered Frank a method by which he could increase the number of months accrued on the plan. Specifically, the pension plan allowed Frank to make a payment to the pension plan to have the pension plan add the number of months Frank served in the military (the “Permissive Military Service Credit”) to Frank’s accumulated service credits.
During the marriage Frank decided to purchase the Permissive Military Service Credit that added 48 months to his pension. Frank used marital funds to purchase the Permissive Military Service Credit.
When Frank retired, his total monthly pension benefit was $9,088.86 per month. Of that total amount $1,363.33 was attributable to Frank’s purchasing the Permissive Military Service Credit.
When the parties divorced, they agreed that Louise would receive 50% of the marital portion of Frank’s monthly pension benefit. Putting aside the Permissive Military Service Credit, the calculation of the marital portion was straightforward. Frank had 263.50 months of service credit. Frank and Louise were married for 196 months, which means that approximately 72.8% of the pension was marital just looking at these two numbers.
Frank took the position that the 48 months of military service added to the pension though the Permissive Military Service Credit was not marital. While Frank recognized that he purchased the Permissive Military Service Credit with marital funds, he argued that he was only required to reimburse the marital estate with an amount equal to the purchase price of the Permissive Military Service Credit.
The Circuit Court agreed with Frank and held that the months added to the pension from the Permissive Military Service Credit were non-marital. The Circuit Court then ordered Frank to reimburse the marital estate for the marital funds he used to purchase the Permissive Military Service Credit.
The Court’s Decision
The Third District reversed the Circuit Court’s decision and held that the entire Permissive Military Service Credit was marital property. The Third District held that Frank’s right to obtain the Permissive Military Service Credit was “derivative of his entitlement to the pension in the first place.” The Third District then stated that the pension payments flowed from both Frank’s participation in the plan and the fact that he served in the military. Finally, the Third District stressed that Frank made the election to add the Permissive Military Service Credit during the marriage and that he used marital funds to purchase the Permissive Military Service Credit.
Determination of Marital vs. Non-marital Property
The ultimate basis for the Third District’s decision is not entirely clear. The fact the Permissive Military Service Credit was an option in Frank’s pension plan does not actually resolve whether the Permissive Military Service Credit that Frank purchased was marital or non-marital property. Every benefit and condition attached to a pension plan flows from or is derivative of the pension plan itself. Illinois law, however, expressly recognizes that some of the pension benefits an employee receives can constitute non-marital property.
The Third District’s decision appears to boil down to the fact that Frank made the election to purchase the Permissive Military Service Credit during the marriage. The Third District stated that “Frank’s military service had no relationship to his pension benefit until he exercised the option of purchasing the 48-months of additional credits, which was done during the marriage and with the use of marital funds.” Contained in the Third District’s statement are two conditions: (a) Frank elected to purchase the Permissive Military Service Credit during the marriage, and (b) Frank used marital funds to purchase the Permissive Military Service Credit. The Third District did not explain whether both of these conditions were required or if one would have sufficed to turn the Permissive Military Service Credit into a marital asset.
A Different Way to Look at the Case
Under Illinois law, when property is purchased during the marriage, a presumption arises that the purchased property is marital property. This presumption, however, is not absolute. Even property that is purchased during the marriage can be non-marital property for a number of varied reasons. In one situation, a spouse uses his or her own non-marital money to purchase some property during the marriage. If that spouse can prove in a divorce that non-marital funds were used to purchase the property, the property will be classified as being non-marital. In another situation, one spouse uses marital money to make repairs or improvements to some non-marital property. In this situation, the property remains non-marital, but the spouse who owns the property must reimburse the marital estate for the marital funds that were used to improve or repair the non-marital property.
The facts in Ochoa fall between the above situations. Frank used marital money to purchase an asset during the marriage. This supports treating the Permissive Military Service Credit as a marital asset. The problem is that the Permissive Military Service Credit Frank purchased only existed because of the military service Frank performed prior to the marriage. Under these conditions, the marital estate potentially gets a windfall by including the military service time in the marital estate.
It is well settled that the months Frank worked for the State Police prior to the marriage are not included in the marital estate with respect to his pension benefits. To this extent, there is no substantive difference between the months Frank worked for the State Police prior to the marriage and the months Frank served in the military. The case essentially turns on whether the focus is on the payment for the Permissive Military Service Credit, or when Frank performed the services that support the Permissive Military Service Credit. Focusing on when Frank performed his military service, however, is more consistent with the general approach to pensions, in which the court compares how many months were worked during the marriage with how many months were worked prior to or after the marriage.
Dealing with Complex Property Division in Illinois
The Third District’s decision in Ochoa shows how difficult issues surrounding the treatment of pension benefits can become. Sometimes, there are no clear answers. It is unclear how other courts in Illinois will address the issues raised in Ochoa. Different courts may very well go in different directions on this issue.