Ruling Prevents Ex-Spouse From Sharing Buyout

George Frahm had worked 30 years for GTE California, but when the company offered an early buyout to employees, Frahm jumped at a lump-sum retirement package that included an $83,143 incentive.

The incentive payment also proved enticing to Janice, his former wife.

She argued that she deserved part of the windfall because it was based on the years he worked at the company, many of them during their 12-year marriage.

The law, which has expanded in favor of nonworking spouses, appeared to be on Janice Frahm’s side. But last week, the state Court of Appeal in Santa Ana ruled that she had no right to the additional money because it came after the divorce and was essentially a gift from the company.

“The legal concept is not new, but it’s new to these kinds of severance plans,� said family law expert Steve Griggs of Newport Beach.

The unanimous decision by the three-judge panel comes at a time when thousands of divorced people are being bought out of their jobs with so-called golden handshakes by corporations bent on downsizing.

“These deals are prevalent throughout all industries,� said Nancy Bennett Bunn, attorney for Janice Frahm. “The workplace isn’t what it used to be.�

Bunn believes the opinion conflicts with a 1994 appellate case in San Diego, and she plans to appeal to the state Supreme Court. George Frahm’s lawyer, Jeri R. McKeand, doesn’t see a conflict but concedes that “the law in this area isn’t settled.�

Indeed, the decision is important, family law experts say, more for the large number of divorced people it can affect than for what it says. The case governs those in similar situations in Orange County and can be used as persuasive reasoning in other appellate court districts.

The court in the Frahm case understood the ramifications and the need for guidance.

“Increasingly, employers are offering significant financial incentives to employees to voluntarily separate themselves from the workplace,� wrote Court of Appeal Justice Sheila Sonenshine, an authority on family law matters.

Many workers are divorced or in the process of divorce, she wrote, and courts are being asked to decide if an enhanced severance payment is a working spouse’s separate property or the couple’s community property. If it’s community property, the other spouse is entitled to up to half the money.

GTE and other companies with pension plans must follow such cases closely because they could be on the hook if they fail to pay the right amount in retirement benefits to former spouses.

Southern California Edison, for instance, is scurrying to make sure it allocates pension and severance benefits properly as it prepares to shell out $65 million to reduce its work force by 1,750 employees. Under the company’s voluntary severance plan, 3,500 of Edison’s 16,000 workers are eligible for the buyout and have until June 14 to apply.

“The Frahm case is giving us cause to consider the impact on how we interpret these orders,� said William Harn, an Edison benefit plan lawyer. “It will affect what we have to consider as divisible and how we distribute the money.�

Since 1984, a state law has required that a divorced person seeking retirement benefits obtain a court order on how the benefits should be split with an ex-spouse. Then the company’s pension plan manager has to determine if that order complies with federal laws.

Because the Frahms were divorced in March 1977, well before the state law was enacted, no court order--called a qualified domestic relations order--was ever prepared. When George Frahm decided to take the GTE buyout, though, the company’s pension plan required that his lawyer, McKeand, draft an order.

Janice Frahm’s lawyer, Bunn, figuring this area of law was murky, urged her client to challenge the order.

“I said whatever I get was going to the boys,� said Janice Frahm, who said she raised two young sons on her own.