In its October 22, 2024, decision in Szypula v. Szypula, the Court of Appeals held that if marital funds are used to purchase premarital pension service credits, those premarital credits are marital property. But …
Mr. Szypula joined the Navy nine years before the parties married. He left the Navy two years later. The Court noted that, in general, members of the armed services become entitled to retirement pay only after they complete 20 years of service. Therefore, when the husband left the Navy, he was not entitled to retirement benefits.
After working in the private sector for 14 years, the husband joined the Foreign Service (diplomatic service personnel under the Department of State). The husband enrolled in the Foreign Service Pension System.
Veterans who enter the foreign service may add their years of military service to their Foreign Service pensions by making additional contributions for the years they served in the military. The husband purchased his 11 years of Navy service by having $9,158.00 withheld from his Foreign Service pay over seven years through 2018.
In 2019, the wife filed for divorce. The parties could not settle whether the husband’s purchased premarital pension credits were separate or marital property. After the nonjury trial, Tompkins County Supreme Court Justice Joseph A. McBride held the credits to be marital property.
The pension rights at issue in this case were the product of both his pre-marriage service and the contribution of marital assets.
The Appellate Division, Third Department, reversed, finding that the premarital credits were separate property. However, the Third Department held the funds used to purchase those credits were marital property to be equitably distributed.
The Court of Appeals reversed. As the Court recognized in Majauskas v. Majauskas, 61 N.Y.2d 481 (1984), an employee’s pension rights generally accrue incrementally over time. Usually, where that is the case, the employee works and pays into the plan simultaneously.
Here, when the husband left the Navy, his nine years of service did not entitle him to any pension benefits. Rather, the husband had only an opportunity to pay to acquire years of pension rights, provided that he later took a job whose pension plan allowed for the credits to be used to augment its value. Thus, the pension rights at issue in this case were the product of both his pre-marriage service and the contribution of marital assets.
Although the husband’s pre-marriage military service may have had some appreciable though contingent value as separate property, the pension credits were transformed from separate property into marital property by combining them with marital funds. The use of marital funds to “buy back” Mr. Szypula’s Naval service created the pension entitlement he has today, at least in part. The pension rights at issue here are, therefore, marital property.
The Court noted that had the Szypulas chosen to use their marital funds to buy a home or make a financial investment rather than to purchase pension rights, Ms. Szypula would be entitled to share in the asset, not just recover half the purchase price. That the Szypulas were entitled to invest in the husband’s pension only because of his prior military service did not change the outcome: it was an investment of marital property, and the resulting asset was marital.
However, the Court also noted that in situations where a marital asset was acquired in part with separate property funds, courts have usually given a credit to the spouse who made the separate property contribution. In that case, the burden is on the spouse claiming recapture of a separate property contribution to prove that contribution’s value. Here, the record was insufficient to determine the value of the husband’s inchoate Navy pension credits when he contributed them to create a marital asset. The Court held that on remittal, the husband may make a claim for the value of that separate property.
Moreover, the Court noted that marital property need not be distributed 50/50. Under the broad interpretation given marital property, formalized concepts such as ‘vesting’ and ‘maturity’ are not determinative but affect valuation and distribution.
The husband was represented by R. James Miller of Miller Mayer, LLP, of Ithaca. The wife was represented by Emily Barnet of WilmerHale of New York.