## Facts

- Jack R. Lehman worked for Pacific Gas & Electric (PG&E) beginning in 1959 and began participating in PG&E’s defined benefit pension plan in 1962.
- Jack and Marietta Lehman married in 1960 and separated in 1977.
- The dissolution judgment reserved jurisdiction to divide the community property interest in Jack’s pension at retirement.
- In 1993, PG&E offered a Voluntary Retirement Incentive (VRI) program that enhanced pension benefits by (1) crediting three additional years of service and (2) waiving the normal early-retirement actuarial reduction.
- Jack elected to retire under the VRI and received a higher monthly pension than he would have received without the enhancements.
- A dispute arose over whether Marietta’s community interest in Jack’s pension extended to the VRI-enhanced portion of the retirement benefit.

## Issues

1. Whether a nonemployee spouse’s community property interest in a defined benefit pension includes a proportional interest in postseparation enhancements to the pension benefit payable at retirement.
2. Whether a voluntary, postseparation election to accept an employer-offered retirement incentive converts the enhanced portion of a defined benefit pension into the employee spouse’s separate property.
3. Whether the time rule applies to the total pension benefit as calculated at retirement, including later enhancements.

## Decision

- The California Supreme Court held that the nonemployee spouse’s community property interest includes proportional participation in enhanced defined benefit pension payments payable at retirement.
- The Court treated the VRI increase as an enhancement of the same pension right earned through employment, not as a separate, newly created asset.
- The Court applied the time rule to the total retirement benefit as computed under the plan terms in effect at retirement (including the VRI enhancements), allocating to the community the fraction attributable to marital service.
- The Court rejected the argument that the employee spouse’s postseparation, voluntary choice to accept the VRI made the enhancement separate property.
- The Court affirmed the approach that included the VRI-enhanced pension in the community apportionment, subject to allocation between community and separate components via the time rule.

## Legal Principles

- Rights under a defined benefit pension plan are deferred compensation; the community owns the portion attributable to employment service performed during marriage.
- The community’s property interest is an interest in a share of the benefit stream ultimately payable under the plan, not a fixed interest limited to plan terms existing at separation.
- Postseparation increases in defined benefit pension payments are included in the community share to the extent the increases are attributable to marital employment; postseparation service is allocated to the employee spouse through the time rule.
- A postseparation election to retire under an incentive program does not, by itself, recharacterize pension enhancements as separate property when the enhancements operate on the same defined benefit plan.

## Conclusion

A nonemployee spouse awarded a community interest in a defined benefit pension is entitled to a proportional share of later plan enhancements reflected in the retirement benefit payable at retirement, with allocation between community and separate property determined by applying the time rule to the total enhanced benefit.


In re Marriage of Lehman, 18 Cal. 4th 169, 955 P.2d 451 (Cal. 1998)