The division of interests in pensions under Federal and California law is a complicated and sensitive issue for many spouses. It is not uncommon that people feel very strongly that if their work efforts and contributions, before and during marriage or domestic partnership, increase the value of their retirement estate that such assets should not have to be valued and divided in relationship breakup. This is especially true if these folks become obligated to pay spousal support. The division of pension assets can be negotiated and settled just like every other aspect of a dissolution or other family transition. In our experience police officers, teachers, and fire fighters are particularly protective of these important assets - and we have represented scores of these workers, their spouses and partners, and many others.
Here is information that may help you evaluate what your pension exposure and rights to the other party's pension benefits are. While it is true that most pensions have administrators who are familiar with federal and state laws and can help even unrepresented parties to divide their pensions, these persons cannot assist you with other parts of your case that may dramatically impact whether your pension gets shared with your spouse, or become available to you as the non-working former partner.
Please note that dividing military pensions is a complex matter involving special rules of both federal and state law, and is governed generally by the:
Military pension issues will be addressed in a Blog Article to be written in the future.
How Family Courts in California Divide Pensions in Dissolution and Legal Separations
As a general proposition, the community estate owns all pension rights attributable to employment during the marriage. A spouse's pension rights acquired during marriage, whether a vested benefit: employment rights, e.g., pension rights or stock options, that survive the discharge or voluntary termination of the employee. [Marriage of Brown (1976) 15 C.3d 838, 842] or not, are community property. [ Marriage of Brown (1976) 15 C.3d 838, 842, 847].
The apportionment of retirement benefits between the separate and community property estates must be reasonable and fairly representative of their relative contributions. [Marriage of Lehman (1998) 18 C4th 169, 187; Marriage of Poppe (1979) 97 CA3d 1, 11].
If the total years of service by an employee-spouse is a substantial factor in calculating that spouse's retirement benefits a "time rule" applies and the community share equals a percentage based on:
(1) The length of service performed during the marriage but before separation, divided by
(2) The total length of service necessary to earn those benefits.
The relation between years of community service to total years of service is considered as providing a fair gauge of retirement benefits that are attributable to community effort. [Marriage of Judd (1977) 68 CA3d 515, 522-523].
When a spouse receives an "enhanced" pension by taking early retirement and part of the pension is community property, the community is entitled to a share of the enhancement increase, even if the enhancement is offered after separation. This right is derivative from the community property benefits accrued during the marriage. [Marriage of Lehman (1998) 18 C4th 169, 179, 185].
If the right to the early retirement benefit accrued before separation the Court must find it is a community asset. [Marriage of Drapeau (2001) 93 CA4th 1086, 1093]. California family court judges must make whatever orders are necessary or appropriate to ensure that each party receives his or her full community property share in any retirement plan, whether public or private, including all survivor and death benefits. [FC §2610(a)]. This includes ordering a retirement plan to make payments directly to a nonmember of a party's community property interest in retirement benefits. [FC §2610(a)(4).]
Courts may not order a retirement plan to:
- Pay benefits in any manner that will increase the amount of benefits; or
- Pay benefits to any party at any time before the member retires, except as provided in public employee retirement plans or if the plan so provides.
Trial courts have broad discretion in dividing the community interest in a spouse's defined benefit pension rights. They can exercise discretion in either of two ways [Marriage of Bergman (1985) 168 CA3d 742, 749, 755]:
- Cash-out method: The Court determine the present value of the pension based on actuarial evidence presented by the parties. It then determine the community property interest in the present value based on the percentage of the party's employment while married and before separation. Finally, it awards the pension right to the employee and award offsetting assets, an equalizing payment, or both to the other spouse.
- In-kind division: The judge determines the percentage of the pension that is community based on the spouse's employment during marriage and before separation. The Court orders one-half of the community portion paid to the non-employee spouse as it is received. It may reserve jurisdiction to supervise payments as they become due.
In dividing non-vested pension rights, death or termination of employment may destroy the rights before they mature. In some cases the court may be able to evaluate the risk in determining the present value of the rights. If uncertainties affecting vesting or maturation persuade the court not to divide the present value, it may award each spouse a portion of each pension payment as it is paid. [Marriage of Brown (1976) 15 C.3d 838, 848.]
Qualified Domestic Relations Orders (QDRO's)
The federal Employment Retirement Income Security Act (ERISA) supersedes state laws related to private employee pension plans. [29 USC §1144(a).] Although ERISA does not preempt state community property law or prevent joinder or payment from a plan to a spouse under state law, it does provide that a private employee pension plan may not be assigned or alienated except by a "qualified domestic relations order" (QDRO). [29 USC §1056(d); Marriage of Baker
(1988) 204 CA3d 206, 211-212, 218-220].
A QDRO means a domestic relations order that [29 USC §1056(d)(3)(B)]:
- Creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan; and
- Meets various statutory requirements
An order or judgment meets the QDRO statutory requirements only if the order clearly specifies the following [29 USC §1056(d)(3)(C)]:
- The name and the last known mailing address of the participant and the name and mailing address of each alternate payee covered by the order;
- The amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined;
- The number of payments or period to which the order applies; and
- Each plan to which the order applies.
Federal Pension Requirements and California Public Employees
California public employee retirement plans have provisions for division of pension rights. On the agreement of the nonemployee spouse, family law judges must order the division of accumulated community property contributions and service credit as provided in the following or similar systems [FC §2610(a)(3)]:
- Public Employees' Retirement Law [GC §§20000 et seq.].
- County Employees' Retirement System [GC §§31685 et seq].
- Judges' Retirement System [GC §§75050 et seq.].
- State Teachers' Retirement System Defined Benefit Program [Ed C §§22650 et seq.].
- State Teachers' Retirement System Cash Balance Benefit Program [Ed C §§27400 et seq.].
There are federal requirements for orders dividing federal civil service pensions [5 USC §8345(j)] and military pensions [10 USC §1408].
Contact Family Law Pension Attorney Thurman W. Arnold
a Certified Family Law Specialist