California Family Law Attorney
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October 28, 2010
  What Do I Do to Protect My Community Interest In PERS and STRS RETIREMENT PLANS?
Posted By Thurman Arnold

Q. What should I consider to ensure that I have a claim in my husband's teacher's retirement plan once he files for divorce?

A. CalPERS (PERS) is the California Public Employee's Retirement System. California Government Code sections 20000 to 21703 describe it. This includes all kinds of California state employees including police officers, firefighters, emergency services employees, and other public safety employees as well as university teachers, professors, and other professionals.

CalSTRS (STRS) is the State Teachers' Retirement System, which is governed by California Education Code sections 22000-25115.

Both require a joinder pursuant to Family Code section 2060 as a condition to complying with an order against the plan, and they are generally cooperative in facilitating this. Likewise, most other municipal plans require joinder and cooperate with parties who are attempting to accomplish it.

In order to protect your rights, we recommend that you not only serve the Joinder Summons and related pleadings (see our Family Law Forms Library page) but that you also give written notice, by certified mail, on the Plan per Family Code section 755.

The joinder process for those California employee benefits that you can join is easy. The forms you need are the

It is important to name the plan correctly. The plan is a separate entity from the employer. Next, they do need to be properly served per FC section 2062.

Within 30 days the plan must respond by a Notice of Appearance. However, they rarely do. If they fail to, the clerk must enter their default. As a practical matter, the Plan will likely accept the order of the court or any settlement you reach thereafter so long as it meets the plan administrator's requirements.

Thurman W. Arnold III, CFLS

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October 22, 2010
Posted By Thurman Arnold

Q. I am afraid my husband may liquidate our 401k and IRA's that are in his name. Is there anything I can to do freeze the accounts or make sure he can't empty them out before I can hire a lawyer or file for dissolution?

There is always the risk that one party will loot the community estate in anticipation of a family law proceeding, or that they may even act innocently but still wind up depriving the other spouse of their community interest in a pension asset.

If the spouse in whose name an IRA, 401k, or other pension device is held wants to access these monies and you object, or just want to make it impossible for them to do so without first securing your agreement, there are important steps that will work so long as you undertake them in time.

Two situations with pension plans or retirement assets are common: 1) a retired or disabled spouse is already drawing upon them on a monthly or other basis and 2) or they may want to liquidate the account entirely. The latter situation is especially common, in my experience, with plans valued under $50,000.

Lets assume your husband has a Roth IRA for $50,000. It was opened during marriage when all contributions were made, and half therefore belongs to you. He instructs Fidelity Investments to cash it out. Since this is an early withdrawal (presumably), there is a both a 15% penalty to the IRS (unless the money is rolled into a new IRA within 60 days, or the withdrawal occurs within 60 days from the date of entry of a Divorce Judgment dividing the assets) and the monies he receives will be taxed as ordinary income at rates that depend upon his bracket.

If there is sufficient other property in the community estate to ensure that you will get your half from some other source down the road, this may not be a problem for you. However, down the road has a habit of never arriving and in this economy other assets from which you expected a reimbursement might evaporate.

Perhaps, this is not okay with you from a number of angles. For instance, an exception to the automatic restraining orders contained in the California Dissolution Summons regarding the prohibition from invading accounts allows parties to do so to generate the monies to hire their lawyers. These "ATRO's" will not likely protect you from this type of withdrawal after the fact - however, it may protect you as a preemptive strike. As always I urge you to act fairly and not to abuse power or be manipulative in your divorce.

You have a couple of options for protecting your interests, including joining the pension plan into the family law proceedings.

But the most important and immediate device you can use is a notice to the Plan Administrator pursuant to Family Code section 755(b). Essentially this written demand tells them that you are claiming an adverse interest in the pension assets and its legal effect is to put the Plan on the hook for any payments they make after receiving the notice. They will not release any money once you properly draft and serve it.

Serve it either personally through a process server (which may be difficult and expensive if they are in another town or state), or by registered or certified mail, return receipt requested.

Keep in mind that joinder of certain types of pensions - like federal public entity plans - cannot be achieved through a California joinder pursuant to Family Code section 2060. Thus, this §755 Notice is really important to freeze the status quo pending an ultimate QDRO.

By the way, this will also work to freeze other forms of payments - for instance from insurance companies.


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October 22, 2010
Posted By Thurman Arnold, CFLS

Q. How are stock options treated if I decide to dissolve my marriage?

A. Stock options are commonly used to attract or retain key employees with incentives outside the basic salary structure. Whether you are dissolving a marriage or a RDP (registered domestic partnership), valuing and dividing stock options can be tricky.

The simplest situation is where the stock options were earned before separation. In such cases they are clearly CP. But often there is a question of when these benefits were in fact "earned" because employee services that generate them are sometimes contributed over long periods. These may include a pre-marriage period (when time, skill, and efforts of either party are always SP) and they may extend for some time past the date of physical separation (and so be SP). The question when stock options were earned becomes quite fact specific and depends a lot on what the employer intended and what kind of options they are. In re Marriage of Hug (1984) 154 Cal.App.3d 780, 201 Cal.Rptr. 676.

Stock options that are earned during the marriage, but vest afterwards, generally belong to the community. They are treated as deferred compensation, like certain types of pensions. Usually an employee is granted the right to buy stock, now or in the future, at a fixed price. They may be forced to sell that stock back to the company if they leave. What controls whether the options are characterized as community or separate is when they are granted and when they vest. If they do not vest at all, as where a minimum number of years of service by the employee are required which is not met (even where the employee-spouse quits after separation and so blows them up), they are neither separate or community property - instead, they are not viewed as a property interest at all. In those cases they were a "mere expectancy" that never matured.

In cases where an employee must work for the company for a fixed number of years to be eligible, but the spouses or RDP's separate before those years have been served, the options have both community and SP attributes. To the extent that they result from post-separation efforts too, they must be apportioned between CP and SP. As with how interests in pensions are commonly evaluated, courts tend to follow a "time-rule". The time rule looks like this:

__________ X / of Shares Exercisable = C/P shares

DOG = Date of Grant
DOS = Date of Separation
DOV = Date of Vesting

Stock options that are granted after the DOS are usually treated as the separate property of the recipient, even where some of the employee's contributions occurred before. This is because of the importance of what the employer intended to the analysis.

This Blog is intended just to give you some sense of the law over these potentially complex questions. As with everything, different facts can lead to different outcomes and stock options are complicated financial devices.

Also, stock option disputes sometimes involve claims of fraud - as where a small closely held company or family business tries to funnel or manipulate how when the options are granted or vest in an effort to favor one spouse over another.

Perhaps the only practical way that a former spouse or partner may learn that stock options exist or when they vest or are exercised is by the self-disclosure of the employee. The law is clear that spouses and domestic partners are required by their fiduciary obligations to make these disclosures. Refusals to disclose can have severe consequences under Family Code section 1101.

T.W. Arnold


September 13, 2010
  How are DEFINED CONTRIBUTION PLANS divided in California DIVORCE?
Posted By Thurman Arnold

Q. How are defined contribution plans divided in California dissolutions?

A. A defined contribution pension plan is a plan in which the employer's obligation is based only on its annual contribution. The benefit for the employee on retirement depends on the value of the employee's account at that time. There is no need for expert testimony to determine the present value of a defined contribution plan at dissolution because its value equals [Marriage of Bergman (1985) 168 CA3d 742, 748-749 n4]:

1. The amount of contributions made between the marriage and separation, plus accruals; plus

2. Accruals between the date of separation and trial of the issue.

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September 13, 2010
  How Are DEFINED BENEFIT PLANS divided in California Divorce?
Posted By Thurman Arnold

Q. How are defined benefit plans divided under California law?

A. In a defined benefit pension plan, the benefit does not depend on the dollars contributed by employee or employer, but is based on a combination of factors, including the following [Marriage of Bergman (1985) 168 CA3d 742, 748 n4]:

  • Highest income level achieved,
  • Years of service at retirement, and
  • Age at retirement.

To determine the present value of such a plan, it is necessary that expert testimony, normally from an actuary, be presented. This testimony includes the expert's opinion as to present value, and what economic, health, and other factors the expert considered in reaching the opinion. [Marriage of Bergman, supra.]

The valuation of a participant's interest in a defined benefit retirement plan is calculated by [Marriage of Stephenson (1984) 162 CA3d 1057, 1083]:

  1. Determining the value of the pension measured at the future retirement date, then
  2. Discounting that value back to the present date of valuation.

Family Code section 2610 is the most important statute on pension benefits and rights in dissolution, but federal law governs many pension rights and obligations.

T.W. Arnold

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