Spousal Maintenance in Retirement: The Baby Boom Comes of Age
By Charles M. Goldstein and Ross Oden
Hennepin Lawyer, October 22, 2008
Given the growing percentage of Baby Boom [1] population nearing retirement and the commonplace permanent spousal maintenance obligations ordered in recent decades, the law applicable to modifications of “permanent” spousal maintenance due to retirement is bound to evolve and be a hotbed of contention between divorced parties.
According to the Congressional Budget Office, of generations in U.S. history, the boomers have generally prospered and enjoyed relatively high incomes. [2] This seemingly positive aspect is tempered by the conclusion of many studies that up to half of boomer households have not accumulated sufficient wealth to prevent a reduction in standards of living at retirement age. [3] What’s more, boomers are expected to live longer than their parents’ generation by an average of two years and will likely spend more time in retirement. [4] With the projected shortfall in Social Security, a program upon which many retirees are dependent, boomers may become acutely aware of deficits in personal savings. [5] Permanent maintenance awards are frequently made payable until the death or remarriage of the obligee. Terms in a divorce decree providing for termination of the obligation upon death of either party are also common (though less often designating retirement as a specific triggering event for termination of spousal maintenance).
Legal Standard for Modification
The regulation of modifications in spousal maintenance is provided under Minnesota Statute, section 518A.39, subdivision 1.6 An order with respect to spousal maintenance may only be modified upon a showing of a “substantial change in circumstances” that renders the award of spousal maintenance “unreasonable and unfair.” [7] Certain circumstances are presumed to constitute a substantial change under the statute, including one that may be particularly salient for divorced parties nearing retirement: substantial decrease in either party’s gross income. [8]
Decreases in income of the obligor of spousal maintenance obviously impact the obligor’s ability to pay spousal maintenance. The obligor can seek to reduce spousal maintenance in retirement to alleviate the increased burden (as a percentage of income), in contrast to the recipient, who may still rely on the spousal maintenance to continue “the standard of living established during the marriage.” [9] Whether the parties have been divorced for five years or 15 years, the failure to address the issue of retirement within the divorce decree foreshadows this potentially rough entrance to the golden years.
(While this article addresses the impact of retirement upon income as it relates to spousal maintenance obligation, when an obligor retires, the property division rule under Kruschel limits courts from ordering the obligor to pay spousal maintenance out of previously awarded retirement benefits, [10] at least as to the value of the benefit at the time of the dissolution. [11] This rule may have critical importance for retirees without defined benefit plans in a market of declining values, where the value of retirement assets may not substantially exceed the value at the time of divorce. [12])
“Good Faith Retirement” as a Factor in Reducing Spousal Maintenance
The choice and decision of the obligor to retire becomes particularly relevant. Because the hardship of retirement should be shared as if the parties had remained together, courts will look to the good faith of the retiree. [13] Current law appears to presume a “normal” retirement age of 65, when addressing the question of good faith retirement. [14]
For example, in a recent unpublished decision, Chappelear, the court of appeals affirmed the finding of good faith retirement at 62, intimating that the intention to work until a certain age supported a showing of good faith. [15] The obligor had suffered a stroke and retired upon recommendation of his doctor. [16] The court specifically found that “[h]ere, the respondent’s inability to maintain current maintenance levels stems from his medical decision to retire” and was not motivated by bad faith, in part because the obligor “intended to work until he was 65.” [17]
Moreover, when addressing the good faith question of a 68-year-old retired dentist, the court of appeals in Buscher stated that
“[e]ven without his health problems, however, appellant’s age alone supports good-faith retirement.” [18] The decree provided only for reduction of spousal maintenance upon death or remarriage [19] and the district court improperly relied on this stipulation to preclude modification, having stated the parties were “well within their retirement-contemplation years.” [20] Applying the abuse of discretion standard, [21] the court of appeals reversed because the obligor had worked “beyond retirement age” and “faithfully paid” the required spousal maintenance. [22]
In contrast to these two cases, in Yocum, the court upheld a decision finding the obligor’s retirement age of 65 to be “credible.” [23] The obligor motioned for reduction in spousal maintenance five years after the divorce, but the motion was denied. [24] The motion was renewed by the obligor upon retirement at age 65 and, with the contemporaneous decrease in income, a reduction in spousal maintenance was granted and upheld as not an abuse of discretion. [25] The Minnesota Supreme Court has not spoken on this issue or directly addressed the Richards factors. [26]
(In disclaiming the conclusive nature of age in spousal maintenance awards, the Wisconsin Court of Appeals has explicitly rejected any notion of a “threshold” age of 65, after which an obligor could not be ordered to pay spousal maintenance. [27] However, and somewhat ironically, the Wisconsin Court of Appeals went on to uphold the lower court, upholding spousal maintenance only until the recipient herself reached age 65. [28])
Conclusion
Whether or not a presumption of a “normal” retirement age exists in current case law for measuring good faith in a motion to reduce or terminate spousal maintenance, the statutory framework explicitly references age as a factor for modifications. [29] Neither does the statute explicitly include any reference to retirement of the obligor as an independent basis for modification. [30]
Considering the circumstances of boomers living longer than previous generations, having potentially insufficient savings for retirement, and the shared hardship of the parties in reductions of income as a result of retirement, an implicit presumption of a “normal” retirement at 65 as a benchmark for good faith retirement may no longer be warranted. In addition, many entities do not mandate retirement at a specific age and vast numbers of workers are contracting independently in contrast with the past. All of these factors are important for the practitioner to consider in crafting agreements and corresponding divorce decrees and, when necessary, arguing for or against modification of permanent spousal maintenance obligations due to retirement.
Endnotes
[1] The term “Baby Boom” refers specifically to people who were born between the years of 1946 and 1964. Congressional Budget Office (CBO), Baby Boomer’s Retirement Prospects: An Overview, Summary and Introduction (2003), available at http://www.cbo.gov/doc.cfm?index=4863&type=0&sequence=1 (last accessed Sept. 5, 2008).
[2] CBO, supra note 1, Summary and Introduction.
[3] CBO, supra note 1, Summary and Introduction.
[4] CBO, supra note 1, U.S. Retirement System.
[5] CBO, supra note 1, U.S. Retirement System (noting that Social Security payments account for about 40 percent of the income of people over the age of 65 and that the shortfall in the program could require slower growth in benefits).
[6] Minn. Stat. § 518A.39, subd. 1 (“After an order . . . for maintenance or support . . . the court may from time to time, on motion of either of the parties . . . modify the order respecting the amount of maintenance or support . . . .”).
[7] Minn. Stat. § 518A.39, subd. 2; Beck v. Kaplan, 566 N.W.2d 723, 726 (Minn. 1997) (“A movant for maintenance modification must not only demonstrate the existence of a substantial change in circumstances, but is also required to show that the change has the effect of rendering the original maintenance award both unreasonable and unfair.”).
[8] Minn. Stat. § 518A.39, subd. 2(1).
[9] Minn. Stat. § 518.552, subd. 2(c).
[10] Kruschel v. Kruschel, 419 N.W.2d 119 (Minn. App. 1988). Though, this has been tempered somewhat by the equitable consideration of the needs of the recipient and obligor’s ability to pay. Roggeman v. Roggeman, 2006 WL 3409843 at *3-4 (Minn. App., Nov. 28, 2006) (citing Peterka v. Peterka, 675 N.W.2d 353, 358 (March 2, 2004) for the principle that the “purpose of a maintenance award is to allow the recipient and the obligor to have a standard of living that approximates the marital standard of living”).
[11] Walker v. Walker, 553 N.W.2d 683 (Minn. App. 1989).
[12] See, e.g., Levey v. Levey, 2002 WL 2004897 (Minn. App., Sept. 3, 2002) (applying the Kruschel rule to an IRA plan).
[13] Richards v. Richards, 472 N.W.2d 162 (Minn. App. 1991).
[14] See, e.g., id. (noting the normal retirement age of 65); Paine v. Paine, 1999 WL 138723 at *1 (Minn. App., March 16, 1999) (citing Richards for the factor in early retirement of whether “at the time of the parties’ divorce, there was [] indication that [the obligor] would retire before he reached 65”); Kowalzyk v. Bornhorst, 2005 WL 2739462 (Minn. App., Oct. 25, 2005) (noting that the obligor had no impairments that would inhibit employment until the “traditional retirement age” of 65); Chappelear v. Chappelear, 2007 WL 4169093 (Minn. App., Nov. 27, 2007) (noting the lower court finding that the obligor intended to work until age 65, but early retirement was recommended at age 62); see also Buscher v. Buscher, 2002 WL
[2] CBO, supra note 1, Summary and Introduction.
[3] CBO, supra note 1, Summary and Introduction.
[4] CBO, supra note 1, U.S. Retirement System.
[5] CBO, supra note 1, U.S. Retirement System (noting that Social Security payments account for about 40 percent of the income of people over the age of 65 and that the shortfall in the program could require slower growth in benefits).
[6] Minn. Stat. § 518A.39, subd. 1 (“After an order . . . for maintenance or support . . . the court may from time to time, on motion of either of the parties . . . modify the order respecting the amount of maintenance or support . . . .”).
[7] Minn. Stat. § 518A.39, subd. 2; Beck v. Kaplan, 566 N.W.2d 723, 726 (Minn. 1997) (“A movant for maintenance modification must not only demonstrate the existence of a substantial change in circumstances, but is also required to show that the change has the effect of rendering the original maintenance award both unreasonable and unfair.”).
[8] Minn. Stat. § 518A.39, subd. 2(1).
[9] Minn. Stat. § 518.552, subd. 2(c).
[10] Kruschel v. Kruschel, 419 N.W.2d 119 (Minn. App. 1988). Though, this has been tempered somewhat by the equitable consideration of the needs of the recipient and obligor’s ability to pay. Roggeman v. Roggeman, 2006 WL 3409843 at *3-4 (Minn. App., Nov. 28, 2006) (citing Peterka v. Peterka, 675 N.W.2d 353, 358 (March 2, 2004) for the principle that the “purpose of a maintenance award is to allow the recipient and the obligor to have a standard of living that approximates the marital standard of living”).
[11] Walker v. Walker, 553 N.W.2d 683 (Minn. App. 1989).
[12] See, e.g., Levey v. Levey, 2002 WL 2004897 (Minn. App., Sept. 3, 2002) (applying the Kruschel rule to an IRA plan).
[13] Richards v. Richards, 472 N.W.2d 162 (Minn. App. 1991).
[14] See, e.g., id. (noting the normal retirement age of 65); Paine v. Paine, 1999 WL 138723 at *1 (Minn. App., March 16, 1999) (citing Richards for the factor in early retirement of whether “at the time of the parties’ divorce, there was [] indication that [the obligor] would retire before he reached 65”); Kowalzyk v. Bornhorst, 2005 WL 2739462 (Minn. App., Oct. 25, 2005) (noting that the obligor had no impairments that would inhibit employment until the “traditional retirement age” of 65); Chappelear v. Chappelear, 2007 WL 4169093 (Minn. App., Nov. 27, 2007) (noting the lower court finding that the obligor intended to work until age 65, but early retirement was recommended at age 62); see also Buscher v. Buscher, 2002 WL
1751087 (Minn. App., July 30, 2002) (reversing the lower court, which failed to apply the Richards factors, terminating spousal maintenance, where the obligor was 68 years old and in bad health, and further noting the age was critical); but see Johnson v. Johnson, 2001 WL 827036 at *1 (Minn. App., July 24, 2001) (noting that the “parties do not dispute that age 63 is the accepted retirement age for [the obligor’s] occupation and being retired was not bad faith, though, noting further that a previous denial of a motion to modify spousal maintenance, when the obligor initially retired at 59, was upheld on appeal. See Johnson v. Johnson, 1998 WL 297528 (Minn. App., June 9, 1998).
[15] Chappelear v. Chappelear, 2007 WL 4169093 (Minn. App., Nov. 27, 2007).
[16] Id. at *1.
[17] Id. at *2.
[18] Buscher v. Buscher, 2002 WL 1751087 at *3 (Minn. App., July 30, 2002).
[19] Id. at *1.
[20] Id. at *2 (quoting the District Court) (brackets omitted).
[21] Id. at *1.
[22] Id. at *3.
[23] Yocum v. Yocum, 2003 WL 21652714 at *1-2 (Minn. App., July 15, 2003) (noting further that the obligor’s retirement was an event contemplated by the decree in reduction of spousal maintenance).
[24] Id. at *1.
[25] Id. Compare with Czech v. Czech, 2002 WL 1057001 (Minn. App., May 28, 2002) (upholding a denial of reduction in spousal maintenance where the obligor, approximately 69 at the time of the motion, failed to prove that he had actually retired or had a decrease in income, eschewing the interpretation that the district court had found bad faith retirement). “Certainly, the appellant may retire. . . . Here, appellant failed to convince the district court that he had voluntarily retired.” Id. at *3. He also failed to establish that a medical condition impaired his earning capacity. Id. at *4.
[26] This assertion is based on (1) Sheppardizing the citations to Richards and (2) a search for relevant Minnesota Supreme Court cases in Westlaw. None of the 106 cases citing Richards are opinions by the Minnesota Supreme Court. Also, a search on Westlaw.com, for Minnesota cases, revealed no relevant results, using the search terms: co(high) & “spousal maintenance” & age & retirement.
[27] Coates v. Coates, 587 N.W.2d 456 (Wis. 1998).
[28] Id. (finding no abuse of discretion).
[29] Minn. Stat. § 518.552(f), 518A.39, subd. 2(d).
[30] See Minn. Stat. Sec. 518A.
[15] Chappelear v. Chappelear, 2007 WL 4169093 (Minn. App., Nov. 27, 2007).
[16] Id. at *1.
[17] Id. at *2.
[18] Buscher v. Buscher, 2002 WL 1751087 at *3 (Minn. App., July 30, 2002).
[19] Id. at *1.
[20] Id. at *2 (quoting the District Court) (brackets omitted).
[21] Id. at *1.
[22] Id. at *3.
[23] Yocum v. Yocum, 2003 WL 21652714 at *1-2 (Minn. App., July 15, 2003) (noting further that the obligor’s retirement was an event contemplated by the decree in reduction of spousal maintenance).
[24] Id. at *1.
[25] Id. Compare with Czech v. Czech, 2002 WL 1057001 (Minn. App., May 28, 2002) (upholding a denial of reduction in spousal maintenance where the obligor, approximately 69 at the time of the motion, failed to prove that he had actually retired or had a decrease in income, eschewing the interpretation that the district court had found bad faith retirement). “Certainly, the appellant may retire. . . . Here, appellant failed to convince the district court that he had voluntarily retired.” Id. at *3. He also failed to establish that a medical condition impaired his earning capacity. Id. at *4.
[26] This assertion is based on (1) Sheppardizing the citations to Richards and (2) a search for relevant Minnesota Supreme Court cases in Westlaw. None of the 106 cases citing Richards are opinions by the Minnesota Supreme Court. Also, a search on Westlaw.com, for Minnesota cases, revealed no relevant results, using the search terms: co(high) & “spousal maintenance” & age & retirement.
[27] Coates v. Coates, 587 N.W.2d 456 (Wis. 1998).
[28] Id. (finding no abuse of discretion).
[29] Minn. Stat. § 518.552(f), 518A.39, subd. 2(d).
[30] See Minn. Stat. Sec. 518A.
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