Part VI. Terminable Interest Rule
Terminated the interest of the non-employee spouse in future pension benefits on the death of the employee spouse, Waite v. Waite [1987].
Allowed the new spouse of the employee all benefits payable as a “widow”, (Benson v. City of Los Angeles [1963]).
The essence of the terminable interest doctrine was to split the pension benefits into two parts:
Benefits Payable while the Employee-Spouse was Alive (Waite v. Waite [1987]) and Benefits Payable after the Death of the Employee-Spouse (Benson v. City of Los Angeles [1963])
Under the terminable interest rule, benefits payable after the death of the employee spouse, regardless of how acquired, were the separate property of the non-employee spouse. #4800.8 (now Family Code #2610) directs that such benefits be treated as community property to the extent they are earned by community effort.
The “terminable interest rule” is that rights to pension benefits cannot extend past death. That is, a person’s interest in pension benefits terminates at death. If the non-employee spouse dies before the employee-spouse, the interest of the non-employee spouse terminates and does not continue to the estate of the non-employee spouse. The “terminable interest rule” required the court to terminate the interest of a party on the death of that party. #4800.8 abolished the terminable interest rule but did not abolish the validity of the concept that the objective of a pension scheme is to provide benefits over a person(s) retired lifetime.
It should remain the interest of the court to dispose of the pension asset so each party receives his or her share while they are alive to enjoy it.
However, there are situations where it is impossible for the court to realize this objective. #4800.8 in abolishing the terminable interest rule did not abolish the terminable interest concept, rather it gave the court the additional flexibility in the disposition of the retirement asset.
Waite [1972], at footnote 9, recognized that the way in which pension benefits work in an intact marriage does not result in an equal division of the pension benefit in a dissolution of marriage. Waite indicated that the court, if it saw fit, could compute this difference in actuarial value and alter other portions of its judgment to compensate for this loss in value. The footnote was discretionary rather than compelling, because the present rule mandating an equal division was not yet in effect. However, it was not until #4800.8 that the “terminable interest rule” was abolished.