On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Warren County.
Approved for Publication October 16, 1995. As Corrected October 16, 1995.
Before Judges Dreier, A.m. Stein and Kestin. The opinion of the court was delivered by Dreier, P.j.a.d.
The opinion of the court was delivered by: Dreier
The opinion of the court was delivered by DREIER, P.J.A.D.
Plaintiff husband appeals from the economic provisions of the parties' amended judgment of divorce. His appeal principally calls into question the equitable distribution of the parties' pensions, and especially the application of pension valuation principles.
The parties were married March 2, 1974. Plaintiff filed for divorce in March 1992 and defendant counterclaimed in April 1992. Defendant wife worked for a short time, but left her job when she became pregnant with the couple's first child. Pursuant to the parties' joint wishes, defendant remained at home during most of the marriage to raise the children, although she was sporadically employed on a part-time basis.
At the time of the trial, held in the spring of 1993, the parties' children were sixteen, fifteen, and thirteen years of age. Defendant was then employed full-time as a personal banker, grossing just under $17,000 per year. *fn1
Plaintiff husband had entered the New Jersey State Police Academy approximately two weeks after the parties were married and has risen to the rank of Lieutenant. He has also been an adjunct professor at Seton Hall University, although he was not so employed at the time of trial. Plaintiff's 1992 net income from the New Jersey State Police was $64,166.37, and he earned an additional salary of $3,500 from Seton Hall University. Plaintiff claimed, and it does not appear to be disputed, that his actual annual salary for 1992 was $61,400 including a maintenance allowance and that the difference between this sum and the amount shown on his W-2 form was explained by back pay for a 1991 promotion. His 1993 tax liability was estimated at $10,846 for federal taxes and $2,432.61 for state taxes. As there was no alimony ordered, these income figures would not be adjusted to reflect any tax considerations due to alimony.
All information concerning defendant's pension under the State Police Retirement System was before the court. At the time of the complaint plaintiff was forty-three years old and had accrued approximately 17.74 years of service in his retirement plan. Plaintiff contributed seven and one-half percent of his gross taxable income to the pension system. He expected to retire, as do most State Police officers, at the age of fifty-five. At that time he would be entitled to a pension amounting to two percent of salary in his last year of employment multiplied by the number of years of service. The benefits, however, are increased at twenty years of service and twenty-five years of service. At plaintiff's retirement at the age of fifty-five with over thirty years of service, he would qualify for a pension of approximately seventy percent of final compensation. He is not entitled to Social Security benefits for his employment by the State Police, but he can accrue such benefits for outside employment or for employment following his retirement.
In valuing this pension, defendant's expert estimated that plaintiff would receive seventy percent of his final year's salary or approximately $38,934. He included in this estimate an average annual salary increase until retirement of 3.2 percent based upon inflation and made no reductions for tax consequences nor calculations for plaintiff's lack of Social Security benefits. Based on these criteria, he valued the pension at $188,290, less any outstanding loan.
Plaintiff's expert also valued plaintiff's pension to age fifty-five but did not use future salary increases for the thirteen years after the marriage until retirement. Based upon Pennsylvania authority, he reduced the current pension valuation by $26,160.38, representing Social Security benefits plaintiff would have received had he been enrolled in Social Security. He did not consider that plaintiff may be entitled to Social Security through other jobs he has held during his State Police career, or may hold following retirement. Based upon these premises, plaintiff's expert valuedthe pension at $106,162.81, approximately $82,000 less than defendant's expert.
In the dual judgment of divorce entered October 5, 1993, the parties were granted joint legal custody of their children, with residential custody awarded to defendant. There was no award of alimony, and child support was set at $1,800 per month. *fn2 The court also directed distribution of property and responsibility for the parties' debts. The court accepted defendant's valuation of plaintiff's pension, thus rejecting plaintiff's net valuation of $106,162.81 (or $132,323.18 if the Social Security adjustment were not made). The Judge determined that he was required by Moore v. Moore, 114 N.J. 147, 553 A.2d 20 (1989) to adjust the pension for post-divorce salary increases. He also found that there should be no adjustment for Social Security. Defendant received forty-five percent of the pension or $84,730.50, less payment of a pension loan. This sum was partially taken as a credit against plaintiff's share of the net proceeds from the sale of the marital home, $38,230.03 *fn3 plus interest, and through payments of $500 per month with interest, totaling $44,823.15.
The parties agree that pensions are considered property acquired during the marriage and are subject to equitable distribution. Kruger v. Kruger, 73 N.J. 464, 468, 375 A.2d 659 (1977). Plaintiff contends, however, that future salary increases should not be included in the valuation of his pension even insofar as these salary increases are estimated solely at the inflation rate and represent the historical cost-of-living increases that have been given to employees of the State Police each year during plaintiff's employment. The trial Judge determined that he was bound by Moore v. Moore, supra, to include these amounts. This issue, however, was expressly left open in Moore v. Moore. See 114 N.J. at 158 n.4 (citing out-of-state authorities holding that post-judgment cost-of-living increases "unlike future salary increases do not result in the personal, individual efforts of the employee spouse"). Moore v. Moore held only that "future post-retirement cost-of-living increases payable to pensioners under the New Jersey Police and Firemen's Retirement system (NJPFRS) qualified as marital property subject to equitable distribution." 114 N.J. at 151 (emphasis added). Such salary increases are available to pensioners in New Jersey under the Pension Adjustment Act, N.J.S.A. 43:3B-1 through 43:3B-10. Such post-retirement increases are as much a part of the pension as the amounts initially established by the pension system on retirement and merely adjust the pension payments for the then current real value of the dollar. There is therefore no dispute concerning the required inclusion of post-retirement cost-of-living increases. The Judge, however, was incorrect in determining that Moore v. Moore requires the inclusion of the cost-of-living component of any pre-retirement salary increases in a pension valuation.
With the current spate of salary freezes or even reductions in lieu of layoffs throughout government and industry, it is difficult for this court to establish a general rule that if a particular company or industry grants a pay raise to its workers, the portion of such raise up to the annual increase in cost-of-living should automatically be deemed not due to the workers' efforts. Often, raises are not computed with cost-of-living in mind, but rather reflect a measure of profit sharing, a reward for diligent work. In other situations, a contract may provide for a cost-of-living increase in addition to increases for merit. But even in these cases, such increases are bargained for and are granted by the employer based upon the employer's assessment of the employees' ...