Ruggles v. Ruggles
116 N.S. 52, 860 P.2d 182 (1993)

  • Joseph and Nancy were married for 30 years. During that time Joseph had a job and was earning pension benefits.
    • The pension benefits would only become available when Joseph retired. The longer he worked, the more benefits he would receive when he eventually retired.
    • Joseph and Nancy lived in New Mexico, a community property State.
  • Joseph and Nancy split up. As part of the divorce settlement, it was decided that Nancy owned 48% of Joseph’s pension benefits. The question remaining was when would Nancy get the benefits?
    • Nancy argued that if Joseph retired that day, Nancy would be entitled to receive $748 a month out of the money Joseph would collect, so she wanted $748 a month starting immediately.
    • Joseph argued that he didn’t have any benefits now, so Nancy was entitled to nothing now. Joseph argued that when he retired sometime in the future, Nancy would get 48% of whatever the benefits were at that time.
  • The Trial Court found for Nancy. Joseph appealed.
    • The Trial Court found that in a community property State, Nancy owned half of Joseph’s pension. If she elected to (and she did) she could cash the pension in immediately. If Joseph didn’t want to cash in his share, he would have to pay Nancy out of his own pocket.
  • The Appellate Court reversed.
    • The Appellate Court found that the distribution of marital assets should be done on a “pay as it comes in basis” (aka the pay-as-you-go Rule). Joseph had not received anything, so he shouldn’t have to pay anything out.
      • See Schweitzer v. Burch (103 N.M. 612 (1985)).
    • The Court found that Joseph was always in charge of the decision about when he would retire, so if Nancy had stayed married to him she could not have received any benefits until he made the decision. Therefore her property interest in the retirement money was always predicated on Joseph’s decision to retire.
    • The Court found that by using a Qualified Domestic Relations Order (QDRO), Nancy could get some of the retirement money directly from Joseph’s employer, so she wasn’t wholly delayed.
      • QDRO is part of the Employee Retirement Income Security Act (ERISA).
  • The New Mexico Supreme Court reversed.
    • The New Mexico Supreme Court reversed their decision in Schweitzer and found that retirement funds are to be treated as all other community assets upon dissolution of a marriage.
      • That’s the lump sum (aka cash value) method. Retirement plan benefits are awarded to the employee spouse at the time of dissolution and assets of equivalent value are awarded to the non-employee spouse.
      • The Appellate Court had used the reserved jurisdiction method. Under that method, the court does not distribute the community interests at the time of dissolution, by reserves jurisdiction to distribute the benefits when the employee spouse actually receives them.
    • The Court looked to the case law in other States and found that in community property States, the trend was that the non-employee spouse is entitled to immediate distribution of assets upon dissolution of marriage.
    • The Court noted that it is best to distribute all property as soon as possible so as not to prolong the divorce and minimize future contact between the ex-spouses.
      • After the divorce, Nancy shouldn’t have her future financial security in the hands of Joseph. It makes her dependent on his decision to retire. Plus, what if he dies before retirement? Then she would get nothing.
    • The Court remanded for trial to see if there had been an agreement between the parties in their marital settlement agreement (MSA). Any decision the courts make as to distribution of assets is overruled by any private agreement between the parties. So, if the MSA was clear about when Nancy would receive her money, then that was controlling.
  • The Courts tend to favor a lump sum distribution as opposed to ongoing support because it is preferable to have a quick, clean break between the parties rather than have them have to deal with each other for years and years.
    • Aka a “fond fiscal farewell.”
  • One problem with the lump sum distribution is that it requires the parties to have enough liquidity to transfer. In this case, Joseph probably didn’t have enough cash on hand to give to Nancy. In all likelihood they had a house, which they sold, and Joseph’s proceeds of that were used to pay off Nancy.
    • For younger couples that don’t have a lot of assets, lump sum may not be possible.