Are Post-separation Disability Allowance Payments Community Or Separate Property?

In the case, In Re Marriage of Walker, unpublished opinion of District 6 (Filed January 10, 2012), the Court answered this question regarding CalSTRS disability allowances.

Husband and Wife married in 1993 and separated in 2008. Husband worked as a public school teacher since 1988 and continued in that employment until January 2008 when he left due to a disability. Husband has been a member of CalSTRS since 1986.

Husband applied for a CalSTRS disability allowance after the couple separated and CalSTRS granted his application retroactive to December 2008. In June 2009, CalSTRS notified Wife that she would be entitled to 36.2% of Husband’s disability allowance based on the application of “the time rule” and said her “community interest” could be segregated. Based upon these representations, Husband agreed to the preparation of a Domestic Relations Order (DRO) that diverts 36.2% of his disability benefits to Wife.

In August 2010, Husband moved to set aside the DRO, claiming he was mistaken in believing the representations in the CalSTRS letter, by Wife’s attorney and from the DRO attorney, that Wife had a community property interest in his CalSTRS disability allowance. Husband claimed he had not learned the truth until his new attorney told him so in July 2010. Wife replied to Husband’s motion saying CalSTRS informed them that Husband’s disability benefits were not “separate” from his other CalSTRS benefits, and depended upon his contributions to his defined benefit account and were being paid out of his defined benefit account in which Wife had a community property interest.

The trial court denied Husband’s motion to set aside the 2009 orders, finding his CalSTRS disability benefits were not his separate property. The court also found that Husband did not make a mistake because, in fact, Wife had a community property interest in Husband’s disability allowance. In the court’s view, Husband’s disability allowance was “a service-connected disability pension which is meant to replace his retirement pension.” “[T]he disability benefits are being paid in lieu of a longevity pension. . . .” However, the California Court of Appeal reversed this ruling. Why?

A disability allowance and disability retirement are ” ‘[d]isability benefit[s]’ ” provided by CalSTRS to its members. But the two benefits are not the same. The amount of the disability allowance is not necessarily dependent on the member’s years of service because the amount of the disability allowance is the lesser of the amounts produced by two different calculation methods. One method takes into account the member’s years of service while the other does not. (Ed. Code, §§24006, 24007) The result is that a member with 20 years of service, such as Husband, will receive 70% of his final compensation until he reaches normal retirement age. The disability allowance then terminates and he becomes eligible for a service retirement. (Ed. Code, §24213(a))

A disability retirement allowance is never based on years of service. It is instead an allowance equal to 50% of final compensation payable in monthly installments plus 10% for each dependent child. Thus, a member with fewer years of service than Husband or with more dependent children could receive a larger amount as a disability retirement allowance than the member would be eligible to receive as a disability allowance.

Both disability benefits are distinguishable from a CalSTRS “service retirement”. A CalSTRS service retirement is not available until the member is 55 years of age or older. If a member retires at age 60 (the normal retirement age), the member receives an allowance equal to 2% per year of service multiplied by final compensation.

The CalSTRS statutes explicitly provide for the division of a community property interest in a CalSTRS member’s “retirement allowance or retirement benefit” (Ed. Code, §22655). There are no parallel provisions providing for division of a member’s “disability allowance”. Rather, the only role that a disability allowance plays with respect to a nonmember spouse’s community property interest in a member’s CalSTRS benefits is where the disability allowance commenced prior to the couple’s separation (Ed. Code, §22664, subd.(e).

Here, Husband’s disability allowance commenced after the couple’s separation, so it has no impact on Wife’s community property interest in Husband’s CalSTRS retirement benefits. Thus, Wife has no interest in Husband’s disability allowance and only in the CalSTRS retirement benefits which accumulated for years of service during the marriage.