Retirement Plans in Divorce Cases
The retirement system in each state has designed a specific set of rules that are applicable to the pension division of state workers in divorce cases. Although an individual does not receive any benefits from the pension scheme till the retirement age, the plan can usually be split up before retirement in case there is a divorce involved.
As far as the state of California, courts may divide retirement plans such as pension, similar to how they divide other property owned by a couple. But retirement plans usually need an extra set of paperwork for legal division.
Division of Pension in California
According to California legislation, the property owned by an individual prior to marriage is usually considered to be ‘separate property’. This means that the property in question (owned before marriage) will not be divided in the divorce.
Similarly, pension contributions that are made prior to marriage (or post marriage) are regarded as the individual’s separate property. However, contributions made in the duration of the marriage become ‘community property’, and are liable to be divided by the Divorce Court. Hence, if a spouse worked for ten years at a pension-qualifying job prior to marriage, they will be entitled to keep their contributions and enjoy the benefits earned during the employment period.
If a spouse wishes to accrue all pension benefits, then the current value of the plan needs to be determined first. When talking about defined contribution schemes such as 401(k) or IRA, it is quite easy to assess the current value because it gets recorded in monthly, quarterly, and/or annual statements, and is known to the plan holder. As far as defined benefit plans are concerned (employer-sponsored pension), if the plan holder is not in the pay status, it is important to determine the existing value of the plan with the help of an expert called actuary. This is done using an inflation estimate and a few other factors.
In case the parties decide to consult the Courts, the actuaries employed by both parties might take opposing positions and come up with quite different financial figures. The judge then takes the final decision on the division.
Complexities in Pension Plan Divisions
It isn’t uncommon for pensions to get complicated in a divorce, especially when a spouse is attempting to put values on contributions made before marriage. Hence, it is advisable to employ an experienced pension expert so that you can get a clear idea about the division and potential value of the pension. Several couples may be in agreement on the subject of pension division, whether they hire an expert or not.
In some cases, the pension plans need to be “joined” in the divorce case. In the absence of the joinder, it is difficult for the court to issue any ruling with regards to dividing the benefits. However, not every type of plan needs to be joined. You can go through the California Form FL-318-INFO to see the plan categories that need to be treated as party to the divorce case.
You might also come across pensions which may only get divided via a Qualified Domestic Relations Order. This is the court legislation which explains the division details. In order to be legal, the orders need to meet a set of legal requirements, such as the approval of the benefit provider and the judge. QDROs end to be quite complicated and hence there isn’t any standard court form in California which fills this requirement. For instance, it is mandatory for a QDRO to list the address, birth date and Social Security number of each spouse.
Maya Shulman, Esq.
Shulman Family Law Group