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07/22/2016 09:07 AM CDT




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                                  Nebraska Supreme Court A dvance Sheets
                                          294 Nebraska R eports
                                              LORENZEN v. LORENZEN
                                                Cite as 294 Neb. 204




                                        Jennifer Lorenzen, appellee, v.
                                        David M. Lorenzen, appellant.
                                                    ___ N.W.2d ___

                                          Filed July 22, 2016.    No. S-15-514.

                1.	 Divorce: Appeal and Error. In actions for dissolution of marriage, an
                     appellate court reviews the case de novo on the record to determine
                     whether there has been an abuse of discretion by the trial judge. This
                     standard of review applies to the trial court’s determinations regarding
                     custody, child support, division of property, alimony, and attorney fees.
                2.	 Divorce: Property Division. The ultimate test in determining the appro-
                     priateness of the division of property is fairness and reasonableness as
                     determined by the facts of each case.
                 3.	 ____: ____. Under Neb. Rev. Stat. § 42-365 (Reissue 2008), the equi-
                     table division of property is a three-step process. The first step is to clas-
                     sify the parties’ property as marital or nonmarital, setting aside the non-
                     marital property to the party who brought that property to the marriage.
                     The second step is to value the marital assets and marital liabilities
                     of the parties. The third step is to calculate and divide the net marital
                     estate between the parties in accordance with the principles contained in
                     § 42-365.
                 4.	 ____: ____. As a general rule, all property accumulated and acquired by
                     either spouse during a marriage is part of the marital estate.
                5.	 Divorce: Property Division: Pensions. Only that portion of a pension
                     which is earned during the marriage is part of the marital estate.
                6.	 ____: ____: ____. Generally, amounts added to and interest accrued
                     on pensions or retirement accounts which have been earned during the
                     marriage are part of the marital estate. Contributions to pensions before
                     marriage or after dissolution are not assets of the marital estate.
                7.	 Social Security: Divorce. Social Security benefits themselves are not
                     subject to direct division in a dissolution proceeding.
                8.	 Constitutional Law: Federal Acts: Social Security: Divorce: Property
                     Division. The anti-assignment clause of the Social Security Act and the
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            Nebraska Supreme Court A dvance Sheets
                    294 Nebraska R eports
                         LORENZEN v. LORENZEN
                           Cite as 294 Neb. 204

    Supremacy Clause of the U.S. Constitution prohibit a direct offset to
    adjust for disproportionate Social Security benefits in the property divi-
    sion of a dissolution decree.

   Appeal from the District Court for Saunders County: M ary
C. Gilbride, Judge. Affirmed.
  John H. Sohl for appellant.
   Mark J. Krieger and Terri M. Weeks, of Bowman & Krieger,
for appellee.
  Heavican, C.J., Wright, Connolly, Miller-Lerman, Cassel,
Stacy, and K elch, JJ.
  Miller-Lerman, J.
                      NATURE OF CASE
   David M. Lorenzen appeals from the property division por-
tion of the decree of the district court for Saunders County
dissolving his marriage to Jennifer Lorenzen. David claims
that because the court determined that Jennifer’s future Social
Security benefits should not be considered part of the marital
estate, the court erred when it included a certain portion of
David’s pension plan as marital property, which plan he argues
was intended as a substitute for Social Security. Finding no
error, we affirm.
                   STATEMENT OF FACTS
   David and Jennifer were married in December 1991, and
Jennifer filed a complaint seeking to dissolve the marriage
in December 2013. The parties reached agreement on issues
relating to child custody and developed a parenting plan.
They also agreed on several issues relating to the division of
marital property, but a trial was required to determine certain
property-related issues, including the division of the parties’
retirement plans.
   Evidence at the trial established the following facts relevant
to the issues in this appeal: During the marriage, Jennifer had
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                     LORENZEN v. LORENZEN
                       Cite as 294 Neb. 204

worked as a teacher in the public schools and later as an asso-
ciate professor of education at a private university. As a result
of such employment, Jennifer had two retirement accounts. In
addition, throughout her employment, Jennifer had paid Social
Security taxes and, upon her retirement or disability, she would
be eligible for any Social Security benefits to which she would
be entitled by law at such time.
   At the time of trial, David had been employed as a fire-
fighter for the city of Lincoln since 1990, a year and a few
months before the parties married. In his job as a firefighter,
David was not subject to Social Security taxes, and as a result,
he would not be eligible for Social Security benefits upon
retirement or disability. Although he was not eligible for Social
Security, David contributed to a police/fire pension system
administered by the city of Lincoln. David testified that when
he was first hired, he contributed a percentage that was equiva-
lent to the Social Security rate in effect at that time to the
pension plan. He testified that in 1995, he exercised an option
to increase his contribution to a somewhat higher percentage,
and he has contributed at the higher percentage since that time.
David has two other retirement accounts, in addition to the
pension plan.
   With the exception of David’s pension plan, the parties
agreed as to the treatment and division of the parties’ retire-
ment plan assets. Jennifer contended that the portion of the
pension plan that was earned during the marriage should be
divided equally between the parties. David contended that,
because Jennifer would be eligible for Social Security benefits
and he would not, and because the pension plan was intended
as a substitute for Social Security benefits, the portion of the
pension plan that was attributable to contributions he had
made to it in lieu of Social Security should not be considered
in the division of marital property. David argued that the only
portion of the pension plan that should be divided between
the parties was the portion attributable to the optional con-
tributions he had made in excess of the Social Security rate
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                     LORENZEN v. LORENZEN
                       Cite as 294 Neb. 204

during the marriage. David presented testimony of an actuarial
professional who calculated the portion of the pension plan
that was attributable to David’s contributions in excess of the
Social Security rate.
   In the decree of dissolution, the court addressed the par-
ties’ dispute regarding the division of David’s pension plan.
The court determined that David’s proposed treatment of the
pension plan was the sort of offset against Social Security ben-
efits that was prohibited under this court’s holding in Webster
v. Webster, 271 Neb. 788, 716 N.W.2d 47 (2006). The court
concluded that the entire marital portion of the pension plan
should be included in the marital estate. The court thereafter
divided the marital estate equally between the parties.
   David appeals from the ruling regarding the treatment of his
pension plan.
                 ASSIGNMENT OF ERROR
  David claims that the district court erred when it deter-
mined that the entire marital portion of his pension plan should
be included in the marital estate which was divided equally
between the parties.
                   STANDARD OF REVIEW
   [1] In actions for dissolution of marriage, an appellate court
reviews the case de novo on the record to determine whether
there has been an abuse of discretion by the trial judge. Coufal
v. Coufal, 291 Neb. 378, 866 N.W.2d 74 (2015). This standard
of review applies to the trial court’s determinations regarding
custody, child support, division of property, alimony, and attor-
ney fees. Id.
                          ANALYSIS
  David claims that the district court erred when it deter-
mined that the entire marital portion of his pension plan should
be included in the marital estate which was divided equally
between the parties. He contends that because the pension plan
was intended to be a substitute for Social Security benefits,
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                      LORENZEN v. LORENZEN
                        Cite as 294 Neb. 204

and because Jennifer’s Social Security benefits could not be
considered in the division of property, the portion of the pen-
sion plan that was attributable to contributions he had made
in lieu of Social Security payments should be considered
his separate property and should not be divided between the
parties. In effect, David argues that because provision for
Jennifer’s retirement by way of Social Security is not included
in the marital estate, provision for his retirement reminiscent of
Social Security should likewise be excluded. We find no merit
to David’s arguments.
   [2,3] Because David takes issue with the district court’s
treatment of property, we review general standards relating
to the division of property. Under Nebraska’s divorce stat-
utes, “[t]he purpose of a property division is to distribute the
marital assets equitably between the parties.” Neb. Rev. Stat.
§ 42-365 (Reissue 2008). The ultimate test in determining the
appropriateness of the division of property is fairness and rea-
sonableness as determined by the facts of each case. Despain
v. Despain, 290 Neb. 32, 858 N.W.2d 566 (2015). We have
stated that under § 42-365, the equitable division of property
is a three-step process. The first step is to classify the parties’
property as marital or nonmarital, setting aside the nonmarital
property to the party who brought that property to the mar-
riage. The second step is to value the marital assets and mari-
tal liabilities of the parties. The third step is to calculate and
divide the net marital estate between the parties in accordance
with the principles contained in § 42-365. Despain v. Despain,
supra. Because he argued that part of the pension plan should
have been deemed nonmarital property and set aside to him,
David’s proposed treatment of his pension plan was directed at
the first step of the division of property process.
   [4-6] When parties to a divorce fail to agree upon a property
settlement, Neb. Rev. Stat. § 42-366(8) (Reissue 2008) confers
upon the court the power to “order an equitable division of
the marital estate” and specifically provides that the marital
estate subject to such division shall include “any pension plans,
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                     LORENZEN v. LORENZEN
                       Cite as 294 Neb. 204

retirement plans, annuities, and other deferred compensation
benefits owned by either party, whether vested or not vested.”
As a general rule, all property accumulated and acquired by
either spouse during a marriage is part of the marital estate.
Coufal v. Coufal, 291 Neb. 378, 866 N.W.2d 74 (2015).
Applying this general rule to pensions, we have held that only
that portion of a pension which is earned during the marriage
is part of the marital estate. Id. Although there are exceptions,
generally, amounts added to and interest accrued on such pen-
sions or retirement accounts which have been earned during
the marriage are part of the marital estate. Id. Contributions to
pensions before marriage or after dissolution are not assets of
the marital estate. Id.
   The district court in this case applied these general rules to
the pension plans. The court excluded from the marital estate
portions of David’s pension plan that were contributed and
earned prior to the marriage. And the court determined that
the portion of David’s pension plan that was earned during
the marriage, the “marital portion,” should be included in the
marital estate. David, however, argued that because he did not
contribute to Social Security and because the pension plan was
intended as a substitute for Social Security, a part of the mari-
tal portion, equivalent to contributions he would have made to
Social Security had he been eligible, should be excluded from
the marital estate and considered his separate property. David
argued that such treatment would be fair in this case, because
Jennifer would be eligible to receive Social Security benefits
but her future Social Security benefits could not be subject to
division as part of the marital estate.
   At this point, we clarify the limited scope of the analysis
required in this appeal. David’s assignment of error is directed
to the court’s treatment of his pension plan as marital property.
David does not otherwise claim that the court’s overall divi-
sion and equalization of the marital estate—which is within the
general rule of one-third to one-half to each spouse, Millatmal
v. Millatmal, 272 Neb. 452, 723 N.W.2d 79 (2006)—should
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          Nebraska Supreme Court A dvance Sheets
                  294 Nebraska R eports
                    LORENZEN v. LORENZEN
                      Cite as 294 Neb. 204

be reviewed. Compare Marriage of Peterson, 243 Cal. App.
4th 923, 197 Cal. Rptr. 3d 588 (2016) (denying appellate
relief to wife and noting that because of community property
equal division statutes, courts were required to subject wife’s
pension plan to equal division even though husband’s Social
Security contributions excluded from community property).
And neither party contends that David’s potential access to
Jennifer’s Social Security retirement through “derivative ben-
efits” should be factored into our appellate review of David’s
claimed error. Accordingly, we limit our consideration to the
focus of David’s argument addressed to the characterization of
his pension plan.
   [7,8] We start by noting that the district court properly
excluded Jennifer’s future Social Security benefits from the
marital estate and from consideration in the property division.
In Webster v. Webster, 271 Neb. 788, 796, 716 N.W.2d 47, 54
(2006), we stated that 42 U.S.C. § 407(a) (2000) “preempts
state law that would authorize distribution of Social Security
benefits, and that Social Security benefits themselves are
not subject to direct division in a dissolution proceeding.”
In Webster, we held that “the anti-assignment clause of the
Social Security Act and the Supremacy Clause of the U.S.
Constitution prohibit a direct offset to adjust for dispropor-
tionate Social Security benefits in the property division of
a dissolution decree.” 271 Neb. at 800, 716 N.W.2d at 56.
We noted that the “U.S. Supreme Court has not specifically
addressed whether a state court can indirectly offset or other-
wise consider the parties’ respective Social Security benefits
in dividing marital property in a dissolution proceeding,” id.
at 797, 716 N.W.2d at 54, and we cited decisions by other
state courts interpreting the Social Security Act which sup-
ported our decision. We concluded in Webster that the trial
court did not err when it refused the husband’s request that,
because he had not contributed to Social Security and his
wife had, the court should allow him “‘to offset some of the
inequity in social security benefits against his payment of
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                     LORENZEN v. LORENZEN
                       Cite as 294 Neb. 204

pension benefits to’” his wife. 271 Neb. at 791, 716 N.W.2d
at 50.
    David argues that what he proposed differs from what is
prohibited under Webster, because instead of focusing on the
Social Security benefits Jennifer will receive and providing an
offset to him based on the anticipated amount of her benefits,
he focused on the assertion that his contributions to his pen-
sion plan were made as a substitute for Social Security con-
tributions. David argues that his contributions to the pension
plan, to the extent they were made in lieu of Social Security
contributions, should be treated the same as the contributions
Jennifer made to Social Security and should be excluded from
the marital estate and the property division.
    In rejecting David’s argument, the district court cited In re
Marriage of Mueller, No. 4-13-0918, 2014 WL 2155238 (Ill.
App. May 19, 2014) (unpublished opinion), which, the district
court said, presented “the identical situation as in the present
case.” In In re Marriage of Mueller, the husband was a police
officer who did not pay into Social Security and instead paid
into a city pension account; in the dissolution proceeding,
he “sought an offset from the division of his pension for an
amount representing Social Security benefits he would have
received.” The Illinois Appellate Court in In re Marriage of
Mueller concluded that the offset proposed by the husband was
improper based on Illinois precedent similar to our holding
in Webster.
    We note that, subsequent to the entry of the decree of dis-
solution in this case, the Illinois Supreme Court affirmed the
decision of the Illinois Appellate Court in the In re Marriage
of Mueller case. See In re Marriage of Mueller, 2015 IL
117876, 34 N.E.3d 538, 393 Ill. Dec. 337 (2015), cert. denied
___ U.S. ___, 136 S. Ct. 1163, 194 L. Ed. 2d 176 (2016). The
Illinois Supreme Court held that in determining the division of
marital assets, the trial court could not reduce the husband’s
pension benefits by an amount of hypothetical Social Security
benefits he might have received had he been eligible. The
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                     LORENZEN v. LORENZEN
                       Cite as 294 Neb. 204

Illinois Supreme Court stated that § 407(a) “imposes a broad
bar against using any legal process to reach Social Security
benefits.” In re Marriage of Mueller, 2015 IL 117876 at ¶ 20,
34 N.E.2d at 542, 393 Ill. Dec. at 341. The Illinois Supreme
Court recognized that the treatment proposed by the husband
in In re Marriage of Mueller was “not strictly speaking an
offset,” but the court characterized the proposed method as
creating “parallel benefits for [the husband] that would affect
the division of marital property.” 2015 IL 117876 at ¶ 23, 34
N.E.2d at 543, 393 Ill. Dec. at 342.
    The Illinois Supreme Court in In re Marriage of Mueller
determined the husband’s proposal to be inappropriate under
§ 407(a), as well as for two additional reasons. First, the court
noted that under Illinois divorce law, pension benefits attrib-
utable to contributions made during the marriage are marital
property but Social Security benefits are not. Social Security
benefits are not marital property, because “participants in the
Social Security program do not have accrued property rights
to their benefits”; instead they have “expectancies,” but they
“are never guaranteed to get out what they put into it because
Congress has reserved the ability to alter, amend, or even
repeal parts of the Social Security Act.” In re Marriage of
Mueller, 2015 IL 117876 at ¶ 24, 34 N.E.2d at 543, 393 Ill.
Dec. at 342. Social Security benefits therefore are not “owned”
in the same sense as are pension benefits to which a participant
is entitled, and they should not be considered marital property
in the same way that pension benefits are.
    Second, the Illinois Supreme Court stated that “as a matter
of policy, any rule permitting trial courts to consider the mere
existence of Social Security benefits without considering their
value, and thereby violating federal law, is nearly impossible
to apply.” Id. at ¶ 25, 34 N.E.2d at 544, 393 Ill. Dec. at 343.
The court noted difficulties in applying the method proposed
by the husband in In re Marriage of Mueller because of “the
uncertainties inherent in Social Security benefits” and the
speculation involved in estimating such benefits. 2015 IL
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                      LORENZEN v. LORENZEN
                        Cite as 294 Neb. 204

117876 at ¶ 26, 34 N.E.2d at 544, 393 Ill. Dec. at 343. The
court determined that it was “both illogical and inequitable”
to adjust the marital estate for “hypothetical Social Security
benefits that, even if [the husband] had participated in that
program, he may not ever receive.” Id. at ¶ 26, 34 N.E.2d at
545, 393 Ill. Dec. at 344.
   We generally agree with the reasoning of the Illinois
Supreme Court in In re Marriage of Mueller and find its rea-
soning applicable in this case. As noted above, we determined
that federal law “prohibit[s] a direct offset to adjust for dispro-
portionate Social Security benefits in the property division of
a dissolution decree.” Webster v. Webster, 271 Neb. 788, 800,
716 N.W.2d at 47, 56 (2006). Although the treatment urged
by David is not strictly speaking a direct offset for Jennifer’s
expected Social Security benefits, his treatment creates hypo-
thetical parallel Social Security benefits attributable to him
and requires those benefits to be offset against the value of his
pension plan. David’s proposal differs from the one considered
by the Illinois Supreme Court in In re Marriage of Mueller,
because David does not focus on expected Social Security
benefits but instead on contributions made in lieu of Social
Security payments. David’s method might reduce the level of
speculation inherent in predicting future benefits, but it still has
the effect of offsetting pension benefits based on hypothetical
benefits David might have received had he been eligible to
participate in the Social Security program.
   The policy concerns cited by the Illinois Supreme Court are
also relevant here, and David’s proposed treatment is inap-
propriate for reasons of both Nebraska law and policy. As
noted above, under § 42-366(8), a pension plan is specifically
required to be included in the marital estate subject to divi-
sion by the court. By contrast, even without the federal law
prohibitions discussed above, Social Security benefits likely
would not be considered marital property under Nebraska
law, because their receipt and value are purely speculative. As
noted by the Illinois Supreme Court, participants in the Social
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           Nebraska Supreme Court A dvance Sheets
                   294 Nebraska R eports
                     LORENZEN v. LORENZEN
                       Cite as 294 Neb. 204

Security program have only an expectancy of benefits and not
an accrued property right. By contrast, a participant in a pen-
sion plan has a legal right to benefits in accordance with the
terms of the plan. Because of these differences between Social
Security benefits and pension plans, it is not appropriate to
equate a portion of a pension plan as being the equivalent of
Social Security benefits and to therefore exclude it from the
marital estate. Even though David’s contributions to the pen-
sion plan may have been made as a substitute for participa-
tion in the Social Security program, significant differences in
participants’ rights to pension benefits as compared to Social
Security benefits make it inappropriate to treat the two types of
benefits as equivalent.
   In this case, David sought to have a specific portion of his
pension plan excluded from the marital estate, and the purpose
for his proposed exclusion would have been to adjust for the
disproportion in the parties’ expectation of Social Security
benefits. David’s proposal was effectively a direct offset from
the marital estate based on the fact that Jennifer was expected
to receive Social Security benefits and he was not. Such a
direct offset is prohibited by federal law and our precedent.
We therefore conclude that the district court did not abuse its
discretion when it rejected David’s request.
                        CONCLUSION
   We determine that the district court did not abuse its discre-
tion when it rejected David’s request to treat the part of the
marital portion of his pension plan that was akin to contribu-
tions he had made in lieu of Social Security payments as his
separate property rather than marital property. We therefore
affirm the decree of dissolution.
                                                    A ffirmed.
