Since the most recent tax reform was adopted in December 2017, this writer has been wondering what it really meant to average people.  My averages will be a bit on the high side, but when I ran across a 1995 tax table I decided to try running some tests.  Here are the results and I welcome comments and criticisms to my methodology.  I am happy to publish any comments or corrections that merit consideration.

My test case is a single person earning $100,000 in 2019.  To compare that fairly I need to adjust for inflation.  In 2019, the CPI ended just under 257.  In 1995, it was at 150.  I understand that for many, wage growth has not kept pace with the rate of inflation but forgive me, this is a blog and not a study in labor statistics.  However, if I stick we CPI, the person making $100,000 would have been making about $58,500 a quarter century ago.  So, with that qualification let’s do some math based on a single person:

  1995 2019
Wages 58,500 100,000
Standard deduction 3,900 12,200
Personal exemption 2,500 0
Taxable income 52,100 87,800
Federal tax 11,552 15,246
Tax rate on gross income 19.75% 15.25%

 

Social Security and Medicare are for these folks, about the same.  7.65% of earned income.  More on that later.

So we have good news right?  Federal taxes as a percentage of gross income have declined by 22.8% while employment taxes remain static.  Government is much more efficient to accomplish that, right?  Hmmmm….

In 1995, the economy was stable and growing.  Still, the government ran expenses of $1.5 trillion and the federal debt was $4.974 trillion.  Today, in a full employment economy and with a SP500 index 7x greater than 1995, we have federal expenses of $4.5 trillion.  Therefore, we spend 3x more than we did 25 years ago.  But wait, we should inflation-adjust that as well.  Fair point.  So federal expenses are just about twice what they were in 1995 after we adjust for inflation. Meanwhile effect tax rates are 23% lower.

Readers of this blog understand that, in the end, divorce is a financial transaction.  It is a process imbued with enormous emotional consequence.  People marry and have children hoping and often expecting the best.  We know it does not always turn out that way, and along the way, people turn to lawyers to develop a financial plan for the hereafter.

In an effort to keeps things “objective,” I have searched for tools to help evaluate complex financial decisions in a post separation world.  So, for many years I have sought guidance on how much is the reasonable cost of a car?  I have read a lot of material on mortgage/rental cost.  It suggests that core housing costs (mortgage, taxes, insurance) should be not more than 28% of gross income, but that total household debt should not exceed 41% of your gross.  There are markets where clients will laugh at those percentages, contending they would live in their cars on that kind of budget.  My impression is that lenders are willing to push the envelope and accept higher percentages, but they want facts that will otherwise make them feel comfortable with the loan.

Back to cars.  I saw no “standard” until this month when I read the November Bulletin for the American Association of Retired Persons (AARP).  The article’s title is “How much car can you afford?”  This article has a formula that makes a lot of sense, even for those who are not separated or divorced.  Let’s follow the bouncing automotive ball.

Gross Monthly income before taxes              $9,000

(that should include support you receive)

Divide that number by 3                                       $3,000

Add the following monthly debts:

Mortgage/rent                                                           $1,800

Credit card payments                                            $600

Other car loans                                                         $0

Student loans                                                             $200

Other debt                                                                  $100

Total:                                                                              $2,700

Subtract the monthly debt from the gross income, divided by 3 and you get $300.

AARP says that $300 is your maximum monthly payment.  The AARP charts then employ a device to show how credit ratings and 48/60 month payouts affect the costs.  That’s a little more complicated than this article can digest.  They help define your maximum loan eligibility.  The chart also suggests that depending on how many miles your car has, you need to plan on costs of 6-12 cents per mile as a maintenance budget.  So 12,000 miles a year means be prepared for $700-$1,000 for maintenance.  The average cost of auto insurance in the U.S. is $70 a month, but if you live in and around Philadelphia, $400 a month is not a crazy number.  Regular gas is $2.80 a gallon.  If you drive a car that scores 20 miles a gallon and you drive those 12,000 miles, you are going to need 600 gallons of that $2.80 fuel.  $140 a month.  So real cost:

$300 for the car

$125 for the insurance

$  70 for the maintenance

$140 for the gas

The AARP article indicates that the reasonable costs are measured by the car payment/lease payment and not the add-ons. Nevertheless, the add-ons can’t be ignored.  Consider what it costs to operate a Range Rover versus a Camry.  And, realize that the gas, maintenance and insurance can easily rival the cost of the car itself.

People who are not happy at home sometimes find spending as a kind of emotional outlet.  For men in particular, cars are a frequent indulgence that may not look so bad when a couple is together, but seems wildly extravagant when we graduate to two households and payment of spousal or child support.

If you have $9,000 a month in income and take the standard deduction as a single filer, you will have standard deduction of $1,000 a month.  So your taxable income is $8,000 a month and your federal tax will be roughly $1,500 a month.  Social Security and Medicare will eat another $575 and state and local taxes $300.  All in, you will have $6,625 to spend on everything you need after those taxes are deducted.  Put 27% to housing and $2,160 is gone.  $4,465 is left for everything.  That car we just priced out is $635 a month “all in.”  That brings you down to $3,830.  In a nutshell, $120 a day for health insurance, food, clothing, vacations, dry cleaner and yes, CABLE.

Clients don’t like this analysis.  However, the reality of it cannot be denied.  AARP just helped us balance the equation that all too often does not “balance.”  Housing and auto costs are often totally out of whack with what is objectively reasonable.

That comment was once delivered to me across a crowed lobby during a negotiation for the upcoming holiday.  My client had proposed that the other parent have custody Thanksgiving morning until the afternoon. It was an attempt at compromise over a last minute demand by the other side to allow one of the parties two children to spend the holiday with the non-custodial parent. For a multitude of issues which need not be referenced here the other parent has limited custody of one child, no custody of another, and there is no existing holiday schedule.

In this instance, my client’s extended family was hosting a traditional Thanksgiving dinner and  wanted the opportunity to have the children see cousins and extended family. The other party did not have similar plans for the holiday and, as it was relayed to me, their demand was based on the lack of a holiday schedule and a perceived inadequate custodial time. I asked what the parent’s plans were for the day and was told that it was irrelevant: if that parent wanted to make TV dinners and play Xbox with the child for Thanksgiving, they should be permitted to do so.

Admittedly, I generally agree with that concept.  What is really being said is that parents can and should use their custodial holidays to create new and fun traditions with the children.   Which is why I could not understand the resistance to “Thanksgiving breakfast” in this situation. Unfortunately, I knew it was not about “new traditions,” but merely a way for the non-custodial parent to indirectly impose their presence over my client’s family gathering.

That is a short-sighed and self-defeating attitude because while holiday schedules can be difficult to determine and difficult to adjust to, they create the possibility of helping to normalize a custodial schedule to a child and, in this case, an extra chance for the non-custodial parent to spend time with the child. If parties can be creative and flexible in their approach, often solutions to a holiday schedule exist in their existing traditions (i.e. celebrating on Christmas Eve instead of Christmas Day) or through the elimination of old traditions (i.e. traveling to both sets of grandparents over a holiday).  New traditions may also make the holidays a little easier on a child struggling with the reality that the “old” traditions they enjoyed while their parents were together aren’t available anymore.  Everyone’s lives have changed, but there are still opportunities for creating positive memories through creative solutions if the parties are open to it.

Even if it means serving Thanksgiving breakfast.

In the divorce business, there are few alleys as dark as of the college financial aid.  We are commonly asked how separation and divorce may affect eligibility for student aid and loans.  The October 21, 2019 Wall Street Journal sheds some light on this murky subject and is worth a full read.  But, the main points we derived from it can be summarized.

For FAFSA purposes, a parent is a biological or adoptive parent including same sex couples who have adopted.  Other family members generally are not counted in the data BUT custodial parents who have remarried are required to report their new spouse’s income even though that spouse is not obligated to support the college student.  Note as well the status is determined when the application is filed, thus it would seem that parties can marry after the application is submitted without having to amend it to add the new spouse’s income data.

As one might expect where both parents are living in the same household, both incomes are considered relevant for FAFSA even though they may be legally separated. It means that the form needs to say, “married” even though “separated.”  If the parents are physically and legally separated or divorced, only that parent with whom the child has lived primarily for the preceding 12 months needs to provide his/her financial data.  If during that time custody was equally shared, it is the parent who provides more financial support.  That’s a slippery question but one would think it is the parent earning the higher income, which is what the IRS does.  Bear in mind that shared physical custody could prove to be a disadvantage for the FAFSA applicant because the higher earning parent’s income is going to be the one considered.

If you have remarried or if you are separated and still filing joint income tax returns, the article indicates that you should be carefully delineating parent income from non-parent income or income of the other parent whose income is not supposed to count. This may flag additional inquiries in the application process, but that’s not a reason to avoid drawing the distinctions.  It may also be helpful to present the situation to the financial aid office of the recipient educational institution rather than wait for them to inquire.

Unfortunately, FAFSA is often just one leg of the financial aid empire.  Four hundred schools also require a form created by the College Board known as a CSS Profile.  The standards are different.  Some of these schools are looking for financial data from both parents without regard to marital status.  This may make it worth looking at a site called: https://cssprofile.collegeboard.org/.  Remarriage invites CSS applicants to provide all household information including non-parents and people with whom the child is living.  Each college in the CSS empire has its own standards but each is also getting a lot more data, which could damage eligibility.  If the non-parent is unwilling to provide data, it is considered best to let the school know.  A resource here is: https://cssprofile.collegeboard.org/info-divorced-separated-parents.

Whenever I start these kinds of articles, I stop to ask, “Is this subject really relevant to the process of divorce?”   Separation and divorce are realities of modern day life.  Education of the children who come into this world through marriage is not just a major expense.  For any caring parent, it is also a major responsibility.

Unfortunately higher education is also an increasingly troublesome responsibility.  I graduated from George Washington University in 1977.  My expenses were roughly $5,000 a year, all in.  Today, alma mater projects $55,000 in costs and $15,000 for housing and food.  The $55,000 tuition expense is calculated by someone to be $35,000 after grants and subsidies.  That’s better, but it is still $50,000 after tax dollars.  That means $75,000 pre-tax dollars if you get the typical grant package, or as much as $100,000 pre-tax dollars if you don’t.  Since the late 1980s the cost of college has grown at four times the rate of inflation and eight times that of household incomes according to an article published on September 9, 2019 in The New Yorker reviewing anthropologist Caitlin Zaloom’s new study “Indebted: How Families Make College Work at Any Cost.”

Those numbers are staggering.  Admittedly, there are many lower cost options than private universities.   However, parents who are separated or divorced face some special challenges.  The first is that they are no longer “sharing” costs of a single household.  Even affluent intact families do not typically have $75,000 to $100,000 dollars of unallocated annual income to cast about.  So today, parents embark on a process that seems more closely associated with a minefield than an education choice.  As divorce lawyers, even we are mystified by a process where a child not only has the challenge of admission but then “graduates” to a process of making the selected college financially achievable.

The Saturday August 22, 2019 edition of the Wall Street Journal discusses the latest trend: college failure. The article is titled “Is Your Child Emotionally Ready for College?”  It reports studies reflecting the fact that 85% of college students feel “overwhelmed” and a majority reporting that at some time the process of completing an undergraduate degree seemed “hopeless.”  The data indicate that their concerns are not without basis.  George Washington accepts 40% of those who apply.  72% graduate in four years.  80% have completed their degree in six years.  This still leaves 20% unaccounted for.   Compare this with Arizona State University where the same numbers for 4/6 year graduation are 43% and 63% respectively.  Admittedly, the out of state cost of ASU is much less than GWU (at $44,000), but, if you factor in the graduation data, I submit the costs may be similar.

The authors of the article note that kids today face not only huge costs, but also a very fickle labor market at the back end.  It is a market where entry-level salaries vary wildly and where employment stability is viewed by both the employer and the employee as something of a crap shoot.  In the 1970s, despite a rather serious recession, an engineering student who succeeded in getting a job offer at Ford or GM could reasonably expect a lifetime of employment.  Today, in a full employment economy, GM is closing four plants and Ford has announced that it is leaving the sedan business.

The article also notes that younger people today seem to lack resiliency and maturity.  Many are also the product of parents who were over involved in their children’s lives such that both parent and child have problems separating.  The authors quote Anna Freud (Sigmund’s daughter) who aptly observed; “Your job [as parent] is to be there to be left.”  Amen.

Nevertheless, there are some other issues involved here which merit some attention.  First, as noted, the cost of college has skyrocketed well beyond almost any other cost of living measure aside from healthcare.  Second, despite the evolution of 529 plans, college savings have not kept pace with inflating college costs.  Third, intuitively, kids know this because they can see the anguish on their parents’ faces when letters of admission and financial aid packages arrive.  Meanwhile, parents often send some very mixed messages.  Most parents want to tell their children that they can go wherever they are admitted.  They want to do that because that is what their parents told them.  Some parents feel guilty in limiting their child’s college placement because they feel that the child’s life was marred by a separation or divorce.  They think they owe their kids.  Unfortunately, as lawyers, we also see parents who run in the opposite direction, and “run” is the apt term.  They tell their kids they don’t have any money for this enterprise and the kid will have to figure it out alone.  These parents, often they console themselves by telling their child that college is not a good investment given the costs, the graduation rate and the job placement rate of many recent college graduates.

Is there any reason to wonder why recent matriculates are stressed?  They commonly see one parent take a second job and forsake personal indulgences like a vacation to support them in college.  They may see their other parent abdicate any responsibility to help, leaving one parent effectively holding the bag.  They know that four-year graduation rates are declining while costs are rising.  They have friends and classmates who have graduated with enormous debt and few job prospects.  Part of this is attributable to our new data driven economy.  But, it’s not just the economy, stupid.

So what is the solution?  As suggested by Drs. Anthony Rostain and Janet Hibbs, it is not to ignore these issues but to address them with the child’s involvement in a problem-solving atmosphere, and to do that at the beginning of the application process.  High School is not too early to discuss in practical terms what you can and cannot afford to contribute to an undergraduate degree. It is also a perfect time to discuss with a child what it means to incur debt, and how student debt comes infected with problems that make it more difficult to manage.  Many parents who read this article are almost as ignorant of these issues (affordability & cash management) as are their kids. A parent needs to do his/her homework first.  As lawyers, we have seen far too many parents sign or guarantee hundreds of thousands of dollars in student loans while blissfully hoping that their children will have lucrative jobs waiting for them in eight short semesters.  Others have borrowed against or liquidated significant portions of their own retirements so their child can pursue a dream.  The pursuit of dreams is fraught with peril.

Children in college in 2019 are confronted with far greater and more complex stresses than those of us who attended college a generation ago. This is not an unexpected crisis.  College costs have been steadily rising and four-year graduation rates have been steadily declining.  Separation and divorce statistics have added to the problem because dual households are more expensive to maintain than one.  Yet, these problems are manageable and both you and your child will benefit from learning to manage in contrast to wishing for a positive outcome and enduring the four + year stress of seeing how it turns out.  As a parent, you cannot insulate your child from the academic stress of measuring elasticity of demand in a freshman econ course.  You can try to help that child understand what is realistic, in terms of which college expenses are affordable and which are not.  In so doing you will not only be alleviating your own stress but that of your family as well.

This debate is as old as “guns vs. butter” but it has intensified in the past decade as interest yields have collapsed.  As we “head to the Fed” meeting next month a 10 year treasury note gets you 2.06% and we are told that a rate cut is on the way.  There was a time when you could buy a stock like GE and get a good yield plus some hope for appreciation.  That time ended two years ago.

This trend of low interest rates has put a lot of pressure on alimony as a device to make up for bad yields.  But, alimony is a remedy infected with misery.  Heck, they even removed the deductibility beginning this year unless you have your deal in place.

July 30th an article published by Charles Sizemore in Kiplinger’s online magazine “11 Stocks to Buy That Prove Boring is Beautiful” produced a ray of hope.  Sizemore identified 11 stocks that produced a healthy dividend without being investments at risk of either a price collapse or a dividend cut.  Nothing in financial life is certain and some readers may cringe when they see Altria (the old Phillip Morris) on the list.  But, we are looking for income and Sizemore’s picks seemed worthy of some consideration.

Here is the list with the stock symbol and the current yield:

Crown Castle 3.5 CCI
ATT 5.9 T
Altria 6.4 MO
CVS 3.6 CVS
Macquarie 9.6 MIC
Enterprise 5.9 EDP
3M 3.3 MMM
Iron Mountain 8.2 IRM
Realty Inc. 3.9 O
Vereit 6.0 VER
Albermarle 7.0 ALB

Combined: 58.3/11 = 5.3%

So that’s an average 5.3% return with at least some prospect for dividends being qualified for capital gain rates.  It’s also a reasonably diversified portfolio, which includes real estate, manufacturing and retail.

As attorneys we often are asked, “If I get $300,000 in assets I can invest, what should I expect as a return?”  Treasuries have provided little solace for quite some time and it seems it will get worse before it gets any better.  However, there are dividend stocks out there and Kiplinger’s may be on to something offering a ray of hope.

Yields are a moving target as we noted in our last post on this subject on February 9, 2017.

Hopefully, or perhaps, despondently, all of us recall early 2009.  The stock market crash of 2008 hit bottom in early 2009, and, thankfully, we began to emerge from the greatest financial crisis of our lifetimes.  In 2009, the broad S&P 500 Index was working its way back to 1,000; a low it had not seen since 2003.  Today it closed at 3,000 which means that if you had $1 invested, then it today is worth $3, a triple in baseball parlance.  Lest you celebrate your triple too much, bear in mind that if you invested a dollar in late August 2000, that dollar had no gain in value for almost 13 years.

In 2009 Northwestern Mutual Life began to survey people about their financial affairs including their expectations.  This year marks a 10th anniversary of this data collection.  While some are reporting upon this news as negative, I am not so pessimistic.  The survey generally shows that people are devoting more time and energy to managing their financial affairs.  By in large, they are saving more for retirement although a significant portion of Americans still are reliant entirely on social security for their golden years.  They are more conscious of their debt and what it costs to carry.  This is good news.  In my career dividing families and their assets I have seen a few times when people saw the economic sky as limitless; in the late 1980s real estate was the flavor.  In the late 1990s it was tech stocks.  In 2000 Cisco Systems was $80 a share.  Today it is $15.  The 2008 economy was a more mixed bag although the financial service sector was the leading indicator at the time.

As noted, stocks have come back and in recent weeks have reached new highs as the Federal Reserve backs off from increased interest rates.  But the tariff wars are starting to take a toll on U.S. manufacturing and the financial sector is asking itself how much more “up” is in the cards.

The bigger concern in the Northwestern survey relates to optimism about the future.  As bad as 2009 was with an unemployment rate approaching 10% and negative growth in the economy, people were more optimistic about their ability to succeed and live the American dream than they are today.  So, today unemployment is less than half of 2009, the economy is growing at 2.5% and the markets are at record highs.  Yet, while people might be living the dream they don’t feel the love.  American optimism as measured by Northwestern is less when the S&P is at 3,000 than it was when the S&P was at 900.  We can’t easily figure out why, but one integer that triggers my interest is the US labor force participation rate.  It tells us how many Americans are either working or actively looking for work.  That number, currently 63%, is less than England, France, Russia, Netherlands, Italy and Canada.  Want the good news? We beat Japan, Brazil, Germany and Mexico, but not by much.  Another indicator of change is that the number of people comfortable taking financial risks has declined precipitously while the number who were inclined to take career risks fell by a lesser, but still significant amount.

The upshot is that we feel more financially secure, however, it also appears that we feel more vulnerable.  This makes a lot of sense.  Companies like General Electric, Intel and Hewlitt Packard once considered the bulwarks of the economy have floundered.  Eastman Kodak and Sears are very close to “lights out.”  In 1981 IBM introduced the personal desktop computer for business.  Fifteen years later it exited the computer manufacturing business entirely.  The computers they placed in every office in America now predict for us how many employees we need and when we need them.  Thus in a full employment economy, Ford announced 7,000 layoffs in May 2019.  That followed 10,000 layoffs at GM.  The survey reminds us that the only thing certain about future employment trends, is their uncertainty.

The study merits attention.  You can read Northwestern Mutual’s article The Financial States of America: 2019 vs 2009 here and perhaps become depressed.  Or you can read it with the Chinese proverb in mind, “Within each crisis there is opportunity.”

The photo of 25-year-old Albert Almora a few days ago tells the story best. The 25-year-old Chicago Cubs outfielder has his head in his hands as he copes with the fact that his line drive foul ball struck and fractured the skull of a two-year-old in Houston. It could scarcely be more personal for Almora, who is himself the father of a two-year-old child.

Today, another story of summer fun gone awry. A 14 year old from Raleigh North Carolina was put on a plane to Newark so that he could make a transfer and fly to Sweden. Instead, he boarded a flight to Germany. This follows another story of a 7 year old with high functioning autism who was placed on a flight from Las Vegas to Oregon. That story ended happily because the person sharing the aisle with the seven year old befriended him.

The top five airports in the US handle an average of 80,000,000 passengers a year. That is over 200,000 passengers a day. And it’s not where you might think. Atlanta processes almost twice the number of passengers as JFK.

Why is this in a family law blog? Because one of my part time jobs is travel agent for kids on vacation. Kids whose parents want them to fly unaccompanied. After all, the airlines think it’s safe, right. Well try asking the mother who was notified that her child would land 700 miles from his destination without anyone to greet him or anywhere to stay. I have personally made this mistake and it was a harrowing experience even though I was over 30 at the time.

We want children to have life experiences. Yet in our haste to enlist kids in these opportunities we sometimes forget that bad things can and do happen. As a lawyer, I see also that parents are prone to conflate their fun with fun for a child. Truth is tiny children cannot experience the wonders of Disney any better than Dorney Park or Shadyside. They cannot understand that their 9-year-old brother does not hit as well as Albert Almora.

Is this the ranting of an aging fraidy cat? I submit not. I recently did the research and argued in court that statistically a trip to Israel for a bat mitzvah presented less risk than one to Chicago. The child was permitted to go in the company of the other parent. Despite my inattention to which commuter flight I boarded in a rainstorm, I have traveled the Amazon and been plenty of places where young men are keeping me safe on the beach with the help of automatic weapons. Nevertheless, I assumed that risk, and I had no child to look out for.

There is another force at work as well here. When parents separate, there are often “issues” over how children should be managed. One parent thinks that baseball parks and unaccompanied flights are “fine” because management allows these things. Another parent is against all of it. What the indulgent parent tends to forget is that the stress endured by the conservative “fraidy cat” parent is absorbed by the hapless child. Thus, you take your son or daughter to a first baseball game only to have the child say things like “Are we safe sitting here?” “What if a ball comes at us?” “Shouldn’t we be behind one of the nets?” That child is not having a good time and after the third inquiry, I suspect that the parent who laid out $160 for the tix and $30 for the parking is not doing so well either.

So, there are two forces at work here. One is real risk. We tend to underestimate it or not give consideration to the fact that children don’t need the same quality of travel or entertainment that adults do (little league vs. big league; McDonalds beats Morton’s). The second is whether the anxiety of the other parent will crush the fun. That sucks, but so does throwing $250 on an evening out only to have the nine year old cowered behind the seat you paid for him to sit in. And, lest we forget where this story started, why not spare the 25-year-old outfielder or the 45-year-old flight attendant the anguish of trying to cope with your hope that things would not go wrong for your child.

On April 30, 2019, the Superior Court published a panel decision related to a retirement benefit divided in divorce.  This wasn’t just any pension, but one established for a Pennsylvania municipality.  As this author learned in organizing a recent seminar for the Doris Jonas Freed American Inn of Court, municipal pensions are a very special and unwieldy animal.  The decision in Conway v. Conway v. City of Erie Police Relief & Pension Association demonstrates why.

The facts are easy.  The Conway’s married in 1991 and separated in 2007.  Husband was a cop in Erie, Pennsylvania.  On August 19, 2016 they executed a Property Settlement Agreement by which husband would transfer to wife $30,000 from his Erie Deferred Compensation Plan and “a share of his pension,” via a Qualified Domestic Relations Order (QDRO).  The educated reader is stopping here to ask, “what share?”  A great question, but not one addressed in this case.

Municipal pensions are not the creatures of state or federal law.  State law authorizes them, but the plans are governed by municipal ordinance.  Erie’s 2011 pension ordinance expressly allowed for QDRO’s, and that such Orders could grant a former or surviving spouse a share of the employee’s pension.

The parties must have known that something was brewing in Erie’s City Council because they were divorced three days after the Settlement Agreement was signed.  But before they could race a QDRO through the courts, Erie passed an amendment to its Pension Ordinance expressly forbidding former spouses from acquiring any interest in a municipal pension.

The QDRO was drafted and submitted to the pension administrator six days after the new Ordinance was passed, seven days after the Decree incorporating the Agreement was entered. The Plan administrator rejected the QDRO because it did not conform to the current Ordinance. Wife appears to have sued to join the Pension Plan as an additional defendant and secure an order compelling it to honor the Agreement formed before the Pension Ordinance was changed. The Erie County Court decided in favor of the Plan noting that the amendment preceded the pension administrator’s receipt of the QDRO.

Wife appealed not to Commonwealth Court but to the Superior Court.  In a lengthy footnote, the Superior Court concludes that it is not the Pension Plan’s rights that are involved, but those of the employee.  This argument seems attenuated as the assets of the pension plan would seem to be the property of the Plan subject to the claims of its creditors, viz., the employees who are Plan participants.  A quick and incomplete search of pension cases decided in recent years seemed to show they were all brought to the Commonwealth Court as municipalities and their plans are creatures of statute.

As if matters were not complicated enough, husband had the misfortune to die a few months after the trial court decision.  This foreclosed any power a court might have asserted to modify the equitable distribution based upon impossibility.

Wife argued and the Superior Court ruled that her rights to the pension vested at execution of the Property Settlement Agreement and a subsequent amendment of the plan could not alter those vested rights.  The Appellate Court relies upon the law of contract to state that the courts are bound to apply the intent of the parties.  It then recites familiar principles of equity and even notes that wife could be without a remedy as husband has died.

Were the pension plan a mere custodian of funds as one might conclude with the deferred compensation plan, (which appears to be a define contribution plan) this argument might glide by easily.  However, a defined benefit plan of this kind is a contract between a municipality and a labor force employed by the municipality by which the latter agrees to pay money to the Plan, which agrees to pay annuities in accordance with prevailing municipal law.  Therefore, we have a couple of contracts here and we have a municipality, which would seem to have the right to alter or even discontinue a pension benefit.  Principles of equity and administrative law do not often work in harmony.

Having said that, husband worked and part of his compensation consisted of deferred retirement benefits paid on his behalf by the municipality to the pension plan.  He accrued those rights and he assigned a portion of those rights to his former spouse at a time when the Plan document expressly allowed assignment via QDRO.  Arguably, had he accrued marital benefits after the Plan was amended to exclude assignment, those benefits would not be assignable.  Nevertheless, this is an issue where some reference should have been made to the collective bargaining agreement with the Erie police.

In the end, the former spouse got her pension and that is the right result.  However, this case demonstrates just how unregulated the world of municipal pensions can be.  Since passage of the Retirement Equity Act in 1984, private pensions regulated by the U.S. Department of Labor are assignable under 26 U.S.C. 414.  But, state and local units of government are not subject to federal regulation in this area.  The Commonwealth has adopted statutes that closely mirror federal law in the area of assignability for state employees.  Here, however, a municipality of nearly 100,000 residents decided to pass regulations rolling back spousal assignment provisions.  A person who marries an Erie cop in September 2016 could stay married to that person for a generation or more and have no entitlement to their spouse’s pension because of the 2016 Amendment.

The author professes to have almost no knowledge of municipal law.  However, municipalities are the creature of state government, and as such, it would seem that the state could enact minimum standards for municipal pensions including provisions permitting assignments of pensions consistent with prevailing state law affecting state employees.  As we know, retirement benefits form a substantial portion of public employee compensation. They merit more careful protection than the whim of a city ordinance.  Because most municipalities in the Commonwealth have very few full-time pension eligible employees, local solicitors are often encouraged to give short shrift to the preparation and review of local pension documents.  Courts should not have to apply equitable principles to decide matters of such value and importance.

Beth Anne and Mark Weber were married and produced two children, one in 1984 and another in 1994.  In their 1999 divorce, they formed a Property Settlement Agreement containing provisions that they would share equally the costs of “an appropriate undergraduate college or other post-secondary education for the children.”

In 2007, Beth Anne filed to enforce the Agreement stating that Mark had not paid his share of their son’s tuition at Florida State University.  The son also intervened claiming status as a beneficiary of the contract.  For whatever reason, Beth Anne entered a nonsuit to her “special relief petition.”  Although granted standing the son did not prosecute his claim.  Then, anyway.

In 2016, the son filed his own special relief petition seeking payment of half of the $166,000.00 cost of his undergraduate education, which had concluded in 2011.  Father filed an answer asserting a four-year statute of limitations under 42 Pa.C.S. 5528(a)(8).  Although not in his petition itself, he also asserted that he was also entitled to recover half of the cost of his graduate education to secure a pharmacy degree.  The half cost of this endeavor was $98,000.00.  At argument on Mark’s defense, the court allowed son to amend his petition to include the graduate degree costs.

Following argument, the trial court in Crawford County denied the third party claim stating that the son’s claim was derivative of Beth Anne’s rights and he lacked standing in the wake of his mother’s election to withdraw her claims.  Son appealed and the trial court ruling was reversed in a published Opinion in 2017.

On remand, Father moved for summary judgment based upon the statute of limitations.  Although not clear from the Opinion, it appears that Beth Anne joined in her son’s claims at least on brief.  Nonetheless, the Trial Court held the statute of limitations applied to the undergraduate degree claims and that the Agreement language did not support the notion that “post-secondary education” included studies undertaken after college.  Son again appealed.

The Superior Court relied upon a 1992 case, delCastillo v. delCastillo, 617 A.2d 26 (Pa.Super. 1992) to hold that an agreement to pay for education “beyond the high school level,” did not encompass graduate studies.  The Opinion in this case by Judge Mary Murray noted that under contract law, the trial court interprets the contract where there is ambiguity.  What made the facts of this case more complex was an inconsistency in son’s factual statements.  In his early pleadings, he said he “finished” undergraduate studies and then began a graduate pharmacy program.  The facts at trial established that he was never awarded an undergraduate degree, but he was admitted to a pharmacy program in Florida nonetheless.  The degree of doctor of pharmacy can be awarded to an undergraduate.  The Trial Court found and the Superior Court affirmed the concept that a graduate degree was not within the contemplation of the Agreement formed.

On the statute of limitations issue related to the Florida State undergraduate studies, the Superior Court quotes language from a 2006 case, Crispo v. Crispo, 909 A.2d 308 (Pa. Super. 2006), which implies that contracts to pay debt in property agreements are “continuing” obligations for which the statute of limitations is inapplicable . Id. at 315.  It then contrasted Crispo  with a more recent case, K.A.R. v. T.G.L. 107 A.3d 770,775 (Pa. Super. 2014) where the court held that failure to enforce a onetime payment due under an agreement was subject to the limitations statute.  Crispo appears to have been distinguished because the time for the payment of the debt was not fixed.  In the instant case, the Superior Court approved of the Trial Court’s holding that once son ceased his undergraduate studies in 2011, the otherwise continuing obligation was fixed such that the statute of limitations would apply.

We wrote about K.A.R. in a blog published on January 26, 2015.  In that discussion we noted that, reconciling fixed from continuing obligations could be a tricky thing, but suggested that litigants should not be permitted to keep claims in the closet indefinitely.  The facts in Weber are indeed tricky.  We know that son stopped attending undergraduate school at Florida State in 2011.  We also know that when he filed for what he first called his graduate degree in 2016 he said he had been in graduate school since 2011.  This Opinion draws a line between the undergraduate and graduate educations, although it appears to also acknowledge that a person can complete an undergraduate degree and be awarded a doctor of pharmacy for those endeavors.  See Opinion at p. 11.  Query whether son could claim a continuing obligation had he taken eight years and $362,000.00 to finish a pharmacy degree of whatever Latin appellation, whether bachelor or doctor of pharmacy?

For the practitioner, this is an area where careful drafting counts.  The National Student Clearinghouse Center reported that only 58% of the students who started four-year College in 2012 had earned a degree six years later.  Agreements need to regulate if not capitate these investments of after tax income.

Weber v. Weber v. Weber, 2019 Pa. Super. 133 (4/26/2019)