Court Limits State’s Law in Pension Ruling

WASHINGTON — Undercutting a portion of California’s community property law, the Supreme Court ruled Monday that a surviving spouse is entitled to her late husband’s full pension and need not share it with his children from an earlier marriage.

The 5-4 decision could impact the retirement funds of millions of Americans.

Until now, a nonworking ex-spouse could will to her children her share of retirement money accrued by her former husband. The children were entitled to that money even if the father remarried and named his second wife as the beneficiary of his pension.

But the Supreme Court voided those provisions Monday and ruled the second wife is entitled to all of her husband’s retirement funds.

The federal pension law was designed to protect “the economic security of surviving spouses” and “to ensure [them] a stream of income,” wrote Justice Anthony M. Kennedy. It may seem unfair to void the will of a deceased spouse, but “Congress has decided to favor the living over the dead,” he said.

The high court acknowledged that, by changing the estate laws in California and eight other “community property” states, the decision affects the handling of up to $1 trillion in retirement money.

Monday’s ruling does not affect divorced spouses who are still living. In a divorce decree, the nonworking spouse can receive an equal share of marital property, including her spouse’s retirement fund, and that state decree will be upheld.

But the law has been uncertain when the children of an earlier marriage clash with a spouse from a new marriage.

The dispute the court ruled on came from Louisiana. Three sons of the late Isaac Boggs had sought their share of $181,000 from an individual retirement account and a $1,777 per month annuity that he left at his death in 1989.

His first wife, Dorothy, had left a will when she died in 1979 giving most of her share of the couple’s money to the three sons. But Boggs had remarried after his first wife’s death and named his second wife, Sandra, as his beneficiary.

“Sandra Boggs asserts that federal law . . . requires the surviving-spouse annuity to be paid to her as the sole beneficiary. We agree,” Kennedy said in Boggs vs. Boggs, 96-79.

California’s estate-planning lawyers filed a brief with the high court arguing that the part of the community property rule in dispute should be preserved.

“For a California couple, a retirement plan benefit is often the single largest asset of their estate,” the lawyers said. When one spouse dies, that spouse’s will should govern the disposal of her share of the community property, including the ultimate dispersal of retirement benefits, they argued.

But the Supreme Court said the federal Employee Retirement Income Security Act of 1974 governs the handling of pension funds. That law says pensions are “held for the exclusive purposes of providing benefits to participants and their beneficiaries.”

Because the second and surviving spouse is the “beneficiary” of her husband’s retirement fund, the court said, federal law demands that she receive all the money, even though a first wife’s will gave part of the fund to the children.

“In the face of this direct clash between state law and the provisions and objectives of ERISA, the state law cannot stand,” Kennedy said.

Robert E. Temmerman Jr., an estate-planning expert for the State Bar of California, said the ruling will affect “millions and millions of dollars” in pension funds.

“This essentially takes away from a nonworking spouse a legal right that was part of the economic benefit of marriage,” he said. “It means the children of wife one get zero, while the wife of the second marriage gets everything.”

“In the light of this decision, I hope Congress goes back and takes a look at this issue again,” he added.

Other states affected by the ruling are Arizona, Idaho, New Mexico, Nevada, Texas, Washington and Wisconsin.

Dissenting were Chief Justice William H. Rehnquist and Justices Sandra Day O’Connor, Stephen G. Breyer and Ruth Bader Ginsburg.