2024 NY Slip Op 05177 (2024)
When marital funds are used to convert separate property, such as pre-marital military service, into a pension benefit, the resulting pension rights are marital property subject to equitable distribution.
Summary
In Szypula v. Szypula, the New York Court of Appeals addressed whether a portion of a Foreign Service pension, enhanced by crediting pre-marital military service through the use of marital funds, constituted separate or marital property. The court held that the portion of the pension attributable to the pre-marital military service was entirely marital property. This was because marital funds were used to “buy back” the military service credits, effectively commingling separate property with marital assets. The Court reversed the Appellate Division’s decision and remitted the case to the Supreme Court for further proceedings consistent with its decision. The court emphasized the broad interpretation of marital property and the narrow construction of separate property, reflecting the legislature’s intent to ensure each spouse receives a fair share of assets created during the marriage.
Facts
John Szypula served in the Navy before his marriage to Meredith Szypula. After leaving the Navy, he did not qualify for a military pension. Later, he joined the Foreign Service and enrolled in the Foreign Service Pension System (FSPS). To enhance his FSPS pension, Szypula used marital funds to “buy back” his prior military service. He made contributions from 2012 to 2018 to get credit for his eleven years of Navy service. The couple filed for divorce in 2019 and disputed whether the portion of the FSPS pension related to Szypula’s pre-marital military service was separate or marital property.
Procedural History
The Supreme Court held that the pension value relating to Szypula’s premarital military service was marital property. The Appellate Division reversed, ruling that the credits were Szypula’s separate property but that the marital funds used to purchase the credits were subject to equitable distribution. The case was remitted to the Supreme Court for recalculation. Ms. Szypula appealed the Appellate Division’s decision to the Court of Appeals.
Issue(s)
1. Whether the portion of Mr. Szypula’s Foreign Service pension that was enhanced by crediting pre-marital military service, with marital funds used to “buy back” that service, constitutes marital or separate property.
Holding
1. Yes, the portion of Mr. Szypula’s Foreign Service pension enhanced by the “buy back” of pre-marital military service is marital property because marital funds were used to transform his pre-marital military service into pension rights.
Court’s Reasoning
The Court of Appeals applied Domestic Relations Law § 236, which defines marital property broadly and separate property narrowly. The Court cited Majauskas v. Majauskas, which held that pension rights earned during a marriage are marital property because they are considered deferred compensation. The court differentiated this case from typical pension scenarios because the pension rights were not solely based on continuous employment during the marriage. Instead, they were created by the affirmative act of using marital funds to transform premarital military service into pension rights. The court reasoned that when separate property (pre-marital service) is combined with marital property (marital funds), it becomes marital property. The court emphasized that the use of marital funds to “buy back” the military service created the pension entitlement, making it marital property. The Court noted that