Appeal from the order of the Superior Court dated July 1, 1996, at No. 1530 Pittsburgh, 1995, affirming the order of the Court of Common Pleas of Bedford County, Civil Division, dated July 24, 1995, at No. 697 for 1987.
Mr. Chief Justice Flaherty
The opinion of the court was delivered by: Flaherty
MR. CHIEF JUSTICE FLAHERTY
DECIDED: DECEMBER 23, 1997
This is an appeal from the judgment of the Superior Court affirming the trial court's classification of a military separation payment as non-marital property. We granted this appeal to address an issue of first impression. Appellant challenges the trial court's determination that payment of a lump-sum military separation incentive to her former spouse is not retirement pay, a share of which she would be entitled to receive pursuant to a divorce decree agreed upon by both parties.
In 1988, after approximately twelve years of marriage and the birth of two children, Daniel and Karen Horner were divorced. At that time, Mr. Horner was an officer on active duty in the United States Army. In anticipation of the divorce, the parties entered into a separation agreement which was subsequently incorporated into the divorce decree. The agreement provided, in pertinent part, as follows: "Upon his retirement, the Husband agrees to pay the Wife a percentage of the Husband's net retirement pay based on the formula (1/2) x (11/X), where X equals the number of years of the Husband's military service." *fn1 Separation agreement at 2 (emphasis added). Both parties have since remarried.
Mr. Horner, having attained the rank of major, was passed over for promotion to the rank of lieutenant colonel. Additionally, as the sole caretaker of a severely handicapped child, Mr. Horner was reluctant to accept new orders which would entail his transfer from an area where he had spent several years building a network of medical care and special education providers. In light of his failure to be selected for promotion and his non-deployable status, Mr. Horner consulted with his superiors in his chain of command and was advised that even though he was "retention eligible," his subsequent chances for promotion were negligible and he would most likely be passed over a second time and consequently separated involuntarily from the army. If he were to be involuntarily separated, Mr. Horner would not be eligible for retirement benefits, although he would receive a one-time severance payment. However, his superiors advised him that if he voluntarily separated from active duty and entered the ready reserve, there was a good chance that he would be promoted to lieutenant colonel, thereby earning extra time in which to qualify for full retirement benefits.
During this period, in order to reduce the size of U.S. military forces, Congress enacted legislation providing for either a one time lump-sum payment (Special Separation Benefit, or SSB) or multiple annual payments (Voluntary Separation Incentive, or VSI) of separation incentives based upon years of active service. 10 U.S.C. §§ 1174-75 (1991). Officers eligible for retirement benefits (including, inter alia, retirement pay) are not eligible for these separation programs. Id. Additionally, members who receive separation pay pursuant to these programs and subsequently qualify for retirement will have a percentage of their pay deducted from their retirement check until the amount received as a separation incentive is repaid. Id.
As a condition of receiving separation pay under these programs, members must agree to serve a minimum of three years in the ready reserve. Id. In April, 1992, Mr. Horner took advantage of the SSB *fn2 program, was voluntarily discharged from active duty, and joined the ready reserve. In October, 1993, Mr. Horner was promoted to lieutenant colonel. This promotion allows Mr. Horner an additional seven years in which to qualify for retirement.
After learning of Mr. Horner's receipt of separation pay, appellant petitioned the common pleas court in Bedford County to enforce the separation agreement, claiming that the separation pay was in fact retirement pay, a proportional share of which she was entitled to receive pursuant to the divorce agreement. The trial court disagreed with her characterization of the separation benefit as retirement pay and held that she was not entitled to receive a share of the pay. The Superior Court affirmed in a memorandum opinion with Judge Saylor Dissenting. We are now asked to determine whether this type of military separation benefit is to be classified as retirement pay includable in the marital estate for the purposes of the separation agreement incorporated in the divorce decree.
The Pennsylvania divorce code provides, in pertinent part, as follows: marital property means "all property acquired by either party during the marriage. . . except: . . . veterans' benefits exempt from attachment . . . except for those benefits received by a veteran where the veteran has waived a portion of his military retirement pay in order to receive veterans' compensation." 23 Pa.C.S. § 3501(a)(6)(emphasis added). Appellant first argues that the separation pay Mr. Horner received was compensation obtained at the cost of surrendering his retirement benefits, in which both parties have an interest, and is therefore, marital property under the code. This argument is based upon the following exchange which occurred during Mr. Horner's deposition:
Plaintiff's counsel : To be clear on the matter of giving up retirement pay benefits, the acceptance of the separation bonus that you received, Mr. Horner, that bonus would make you ineligible to receive any retirement for the 16 years and seven months and 29 days that you had; is that correct?