A legal note from Marshal Willick about how the Nevada Supreme Court again ducked by footnote an opportunity to correct errors it has known about for decades about retirement and survivorship benefits, effectively passing the buck to the Legislature.
For years, justices of the Court have remarked at conferences how, “given the chance,” they would fix known errors in prior case law and improve the law governing retirement and survivorship interests. But for at least the fourth time in fifteen years, the Court had the chance to do so but again turned away, leaving Nevada case law factually wrong, confused, out of step with neighboring states, and leaving it to the Legislature to clean up its mess.
I. NEVADA COMMUNITY PROPERTY LAW
Under NRS 123.225, spouses have a “present, existing, and equal interest” in all benefits, and burdens, of all property accrued during the marriage.
Different states have different versions of community property laws. Some require only the “equitable” distribution of community property, but under NRS 125.150, Nevada, like California, requires an actual equal division of community property and debts in the absence of written findings of “compelling reasons” to divide property unequally. In other words, “equal means equal.”
The Nevada Supreme Court has repeatedly acknowledged the law, stating in Blanco v. Blanco, 129 Nev. 723, 311 P.3d 1170 (2013) through Justice Hardesty that “With property division in particular . . . we conclude that community property and debt must be divided in accordance with the law. NRS 125.150(1)(b) requires the court to make an equal disposition of property upon divorce, unless the court finds a compelling reason for an unequal disposition and sets forth that reason in writing. The equal disposition of community property may not be dispensed with through default.”
II. HOW TO EQUALLY DIVIDE RETIREMENT BENEFITS
Some retirement plans (like private pensions under ERISA, or for Civil Service) are set up to make an equal and permanent division of benefits easy. In those systems, it is simple to create a “separate interest” for the spouse, so each party has what amounts to a separate retirement – if the participant dies, the spouse’s benefits are unaffected, and if the spouse dies, the participant’s benefits are unaffected.
Other retirement plans make an equal division harder to accomplish. PERS, and the military retirement system, do not allow the creation of a “separate interest” for the spouse, no matter what a court orders; only the “payment stream” can be divided. Those systems also have “one-way” survivorship benefits built into their structures.
In those retirement systems, if the spouse dies, before or after retirement, the spousal share reverts to the participant, no matter what any court says; the participant will get the participant’s share, and the spouse’s share, for the rest of the participant’s life. That is the “one-way survivorship” benefit in those systems. There is no corresponding benefit to the spouse in the participant’s life in those systems; if a survivorship benefit is not provided for, the spouse gets nothing if the participant dies first.
Really, it boils down to a pretty simple concept: to make an “equal division” of retirement benefits actually equal, if the participant has a survivorship benefit in the spouse’s life, then the spouse should have a survivorship benefit in the participant’s life. Whenever one party has an “automatic” survivorship benefit, in order to make an equal division, the court has to make the division of benefits and burdens actually equal by providing survivorship benefits to the other party, too.
When retirement benefits that only allow dividing the payment stream (like PERS) are involved, in order to give the spouse an equal benefit to that of the participant, the court has to secure the spousal interest. In a system like PERS, doing so requires private life insurance (before retirement), and an award of a survivor’s benefit (after retirement). Not doing so is inherently unequal, because one party has greater benefits than the other, even if the pension payments are allegedly being divided 50/50.
The value of such survivorship interests are huge – it varies from case to case, but the survivorship benefits can easily be one-fourth to one-third of the entire value of the retirement benefits. Ignoring that basic truth is a violation of NRS 125.150.
III. THE WOLFF ERROR
Wolff v. Wolff, 112 Nev. 1355, 929 P.2d 916 (1996), was the appeal of a divorce case in which the husband was a Highway Patrol officer who had benefits through the Nevada Public Employee Retirement System (“PERS”).
There were several aspects to the case, each of which was correctly decided as a matter of community property theory, including affirmance of the line of authority, adopted from California case law, that a spouse is entitled to the spousal share of the retirement benefits at the time of the participant spouse’s first eligibility to retire.
Along the way, the Court specifically affirmed the lower court’s order that the spouse’s share of the retirement benefits would not revert to the participant if she predeceased him, but would instead continue being paid to her estate, explaining that the community interest was divided upon divorce to two sole and separate interests, so her estate was entitled to the payments that she would have received if alive.
The error in the case is that what the Court said is just not true. PERS will ignore any order purporting to require payments to be made to the spouse’s estate; the benefits will automatically revert to the participant. In other words, simply declaring the division a permanent and equal one like the Court did in Wolff does not make it so; the trial court has to actually do something to make the division of benefits and burdens in those assets equal.
In Wolff, the Supreme Court did not realize that what it pronounced was factually impossible. Based on its error of fact, the Court reversed the trial court order for the participant spouse to carry a life insurance policy to protect the spouse’s pension interest, claiming that it violated the equal division mandate of NRS 125.150.
In actuality, the Court caused the violation of the statutory mandate of equal division, because the participant was already and automatically secured. The spouse’s death would not affect the participant’s benefits in any way (except to also give the participant the spouse’s share of the benefits). But without the insurance until retirement, and a survivorship benefit thereafter, the spouse was entirely unsecured – the retirement benefits were not equally divided. The “fact” recited by the Court was simply false. This is not a matter of interpretation, debate, or decision – it is simply a factual error.
IV. MAKING IT WORSE; THE HENSON ERROR FLOWING FROM THE WOLFF ERROR
The Court’s error of fact in Wolff led it to make an error of law in Henson v. Henson, 130 Nev. 814, 334 P.3d 933 (2014). In Henson, the Court recited, incorrectly, that under PERS, “neither the employee nor the nonemployee spouse automatically receives a survivor beneficiary interest.”
As detailed above, that is just not true, but on the basis of that false “fact,” the Court held that Decree language saying simply “Equally divide the pension” did not include a survivor beneficiary interest for the spouse unless the survivorship benefit was explicitly recited as being provided.
Henson did not actually do what the opinion said it was doing; instead, it did nearly the opposite, essentially redefining the spousal share of a pension such as PERS or the military from community property into something more like a life estate based on the employee’s life. The Henson holding therefore amplified the error in Wolff and made it even harder for spouses to get an actual equal division of retirement benefits, by stating that if the litigant or counsel did not know of and deal with it during the original divorce, then too bad.
After Henson, if the decree of divorce is silent as to survivor benefits, those benefits are lost to the spouse, dispossessing the spouse if the participant dies first. To the degree that courts (correctly) treat survivorship benefits as “omitted assets” if left out of a Decree, this factually, legally, and equitably wrong result has been partially ameliorated by the passage of the partition statute (NRS 125.150(3)), but the underlying problem, based on a false “fact,” should not exist in the first place.
Pensions are property, like any other property, which for some reason seems confusing to many lawyers and judges. To illustrate the conflict between community property theory plus the mandate of NRS 125.150 to equally divide all property, on one side, and the second Henson holding, on the other, just apply it to any other property that might be distributed – for instance, cars. The Henson holding, applied to that property, would mean that – unless the decree specifically recited otherwise – if the non-participant spouse died first, the participant gets to keep the participant’s own car, and receives the spouse’s car too; but if the participant spouse dies first, the non-employee spouse’s car is destroyed.
That result would not be tolerated as to any other item of community property, as a violation of the statutory mandate to provide each spouse with a permanent division of an equal share. Permitting the post-divorce destruction of a property interest whenever survivor benefit language is not specifically recited is a violation of community property theory, as the California (and many others) courts have repeatedly held.
As succinctly stated by one court, ordering a survivorship benefit, the cost of which is split between the parties, just gives the spouse a right already enjoyed by the participant, that is “the right to receive her share of the marital property awarded to her”; the survivorship is “an equitable mechanism selected by the trial court to preserve an existing asset – the wife’s interest in the . . . pension.” In re Marriage of Payne, 897 P.2d 888, 889 (Colo. App. 1995).
Very few lawyers and judges – and almost no pro se litigants – understand this. The majority of divorces in Nevada today are between proper person litigants, the overwhelming majority of whom have no idea how retirement or survivorship interests work, or what to recite in a divorce decree to properly distribute those interests. If most Decrees say anything about retirement benefits, it is along the lines of “spouse should get her time rule interest in the retirement.” Henson held that if a survivorship benefit is not specifically identified and provided for it is lost.
The result has been that every division of retirement benefits in which the spouse does not have counsel at the time of divorce who understands and specifically addresses the survivorship benefits has resulted in an unequal division of what is, in most cases, the most valuable asset of the marriage. Virtually every divorce involving such retirement plans is resulting in an unequal division of assets, and the spouse is being deprived of the ability to fix it even when it is later discovered.
It is poor public policy to not include the survivorship component of retirement benefits in the definition of “property” that must be divided upon divorce. The second Henson holding directly contradicts the holdings in Wolff and Blanco, and causes both unjust enrichment and wrongful deprivation in violation of the mandate of NRS 125.150 – all without any valid purpose being served.
Accordingly, the second Henson holding should be overruled in favor of a directive that in every retirement division in which the plan includes a reversionary interest in favor of the employee (and thus an automatic survivorship beneficiary interest in the spouse’s share of the pension), the divorce court is required to provide an equal benefit to the former spouse, and to balance the cost of all distributed benefits between the parties. In other words, if one party has a survivorship, the other one gets one too.
The Court already held years ago that vague language should be construed to comply with Nevada law unless specifically stating otherwise. In Walsh v. Walsh, 103 Nev. 287, 738 P.2d 117 (1988), the Court held that in the absence of express language specifying otherwise, the phrase “one-half of [James’] pension with the United States Government” was construed as referencing only the pension earned during marriage. Henson should be reversed on the same basis – saying “half the pension” necessarily includes all of the value of the retirement benefits, including the survivorship benefits.
V. SEVERAL MISSED OPPORTUNITIES TO FIX IT
The Wolff error (now compounded by Henson) has been talked about in CLE presentations for over 20 years. Throughout that time, various justices of the Court attending those lectures have privately opined that the factual and legal error is a problem that should be fixed, and asked for the “opportunity to do so.”
Based on those requests, it has been repeatedly brought to the Court’s attention in appellate filings, but the Court has never acted to fix its errors.
In Hedlund v. Hedlund, No. 48944, Order of Reversal and Remand (Unpublished Disposition, Sept. 25, 2009), the State Bar Family Law Section submitted a detailed Amicus Brief, explaining the Wolff error and the damage it was doing. The Court did not address the issue at all in its disposition.
In Doan v. Wilkerson, 130 Nev. 449, 328 P.3d 498 (2014) and Holyoak v. Holyoak, No. 67490, Order of Affirmance (Unpublished Disposition, May 19, 2016), the errors were again fully explained; the Court elected not to address it, stating in a footnote in the latter case that the issue was not “before the Court” because the spouse had not filed a formal cross-appeal.
The errors in both Wolff and Henson were fully laid out yet again in Peterson v. Peterson, No. 77478, Order of Reversal and Remand (Unpublished Disposition, May 22, 2020), and again the Court did nothing to correct the case law errors, stating that because counsel for both Appellant and Respondent agreed that the district court had made an erroneous decision, they did not have to decide anything, but simply remand for its correction in that case.
It is worth noting that at least three of those decisions involved volunteer lawyers spending many dozens of hours of time pro bono for the purpose of improving family law, at the direct invitation of multiple justices of the Nevada Supreme Court, only to have those efforts be disregarded and the errors they were invited to address left uncorrected.
VI. COULD THE COURT HAVE FIXED THE ERRORS IF THEY WANTED TO?
Of course the Nevada Supreme Court can correct known errors in the case law at any time; it has done so repeatedly over the years, when it feels so inclined. See, e.g., Rivero v. Rivero, 125 Nev. 410, 216 P.3d 213 (2009) (“disaffirming” a holding in Scott v. Scott, 107 Nev. 837, 822 P.2d 654 (1991); Castle v. Simmons, 120 Nev. 98, 86 P.3d 1042 (2004) (overruling in part McMonigle v. McMonigle, 110 Nev. 1407, 887 P.2d 742 (1994); Wright v. Osburn, 114 Nev. 1367, 970 P.2d 1071 (1998) (overruling Barbagallo v. Barbagallo, 105 Nev. 546, 779 P.2d 532 (1989)).
Given the clear equal-division mandate of NRS 125.150, and the Court’s promise to enforce that mandate in cases like Blanco, what could possibly explain the Court’s refusal to fix open, obvious, and detrimental errors in its precedent causing unequal division in thousands of divorce cases, despite individual justices repeatedly acknowledging the problem and vowing to fix it “if given the opportunity”?
The Court, collectively, has never said why it refuses to correct an error laid out before it multiple times. It might be reasonable to just shrug once, or twice, or even three times. But four? One very practical cynic has suggested that the willful blindness of the Court to the equal protection of spouses of PERS participants is explained by the simple fact that every member of the Court is a PERS participant – and several of them have former spouses.
Whatever the actual explanation, the gaffe is an embarrassment in our case law, and the refusal to correct the known error for 25 years despite multiple opportunities to do so is inexcusable.
VII. A LEGISLATIVE FIX; THE CALIFORNIA PRECEDENT
California has exactly the same law as we do for mandatory equal division of community property, and had the same problem with trial court judges not dealing with survivorship benefits, and so actually dividing retirement benefits unequally. The difference between California and Nevada is that at least the appellate courts in California kept issuing decisions telling the district courts to make actual equal divisions. See, e.g., In re Marriage of Sonne, 225 P.3d 546, 105 Cal. Rptr. 3d 414 (Cal. 2010), as completed on remand with In re Marriage of Sonne [Sonne II], 111 Cal. Rptr. 3d 506, 185 Cal. App. 4th 1564 (Ct. App. 2010).
But the trial courts there continued to do what our trial courts have done – divide property unequally by failing to account for the valuable survivorship benefits and make sure they were equally distributed as well. So California passed a specific statute (Cal. Civ. Code 2610) saying that an equal division includes equally dividing the value of survivorship benefits – not to change the equal division law, but to get courts to enforce it.
Corrective legislation modeled after the parallel California provision was drafted, debated at great length, and approved by the Nevada AAML Chapter, but since the proposed statute would “just” improve the law instead of benefitting anyone in particular, it had no paid lobbying and failed to gain a hearing in the 2021 Nevada Legislature.
Contemplating legislative action should not be necessary. The Nevada Supreme Court can, and should, correct its own errors, when they have been repeatedly pointed out, as here. But if the Court just won’t fix its known mistakes, it falls to the Nevada Legislature to do so.
Equal means equal. When the community property assets before the court – like a PERS pension – provides by default different benefits and burdens to the participant and the spouse, it is the job of the lawyers and judges to nevertheless divide the benefits and burdens – i.e., the value – of that property equally, even if that requires some actual effort on their part. In too many cases, that is not happening in Nevada divorce courts.
The Nevada Supreme Court bears a large part of the blame for this ongoing problem, not so much for making the original error in Wolff, where it was probably not briefed and presented, but for failing for a quarter-century to fix the mistake after it was identified, and then making unequal distributions even worse in Henson in 2014, magnifying the scope and impact of its 1996 error in Wolff.
From elementary school on, most of us are told to clean up our own messes; it is the decent thing to do. For whatever reason, on the subject of equal distribution of retirement and survivorship benefits, the Nevada Supreme Court has refused at least four opportunities to do so. If the Court will not comply with the statutory mandate of actual equal division of community property, it falls to the Nevada Legislature to fix the Court’s mistakes.
X. QUOTES OF THE ISSUE
“Humility leads to strength and not to weakness. It is the highest form of self-respect to admit mistakes and to make amends for them.”
– John (Jay) McCloy
“[A prior decision] obviously, has created a mess; and I think it is incumbent upon the majority to clean up this mess. It has not done so and, in my opinion, has made matters worse.”
– Justice Charles Springer, dissenting, in Gilman v. Gilman, 114 Nev. 416, 956 P.2d 761 (1998).
“Like and equal are two entirely different things.”
– Madeleine L’Engle, A Wrinkle in Time
“Labor to keep alive in your breast that little spark of celestial fire called conscience.”
– The last of George Washington’s 110 Personal Rules of Civility.
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